Quo Vadis, China – The renaissance of Physical Retail in Automotive?

The renaissance of Physical Retail in Automotive?

Why, ironically, NEV players restore the importance of Physical Automotive Retail in China.

Almost precisely two years ago, we at Berylls China took a close look at how ‘Physical Automotive Retail’ would need to change to defy the ‘Retail Apocalypse’. We recommended an approach based on flexibility, moving on from all-in-one-formats. We showed new ways to get it right: enhance customer experience, increase market exploitation, and as a bonus, keep facility costs manageable.

COVID – The Digital Accelerator

But then COVID came. And it came to stay. And while it stayed, it changed, without mercy, all aspects of both our personal and professional lifestyles. As we all know, this was the era of any technology serving remote interactions, and there was no exception for Automotive Retail. For instance, during the first lockdowns in China, Automotive retailers quickly established virtual showroom tours and virtual ‘on-demand’ test drives using short video snippets to introduce their cars while customers could not actually pay them a physical visit.

Of course, it is not all COVID, and people’s lifestyles were anyway changing in an increasingly digitalized world. Convenience and flexibility became top issues for consumers. Many OEMs had recognized this already ahead of the pandemic and proclaimed that the digital channel/online domain will become the primary customer journey channel, triggering any interaction between OEM and customers. Also, digitalization of the entire customer journey plays an essential part on most OEMs’ journey towards direct sales.

So, it seemed to be all set, that the once primary physical channel will (finally) lose its importance and become only a supporting channel of the digital domain, reduced to pure fulfillment purposes (e.g., payment is still done at dealerships in China).

Not surprisingly, this narrative has its followers, and we see that OEMs globally (not only in China) try to focus on the digital part. As a side effect, they are forgetting to exploit the potential which the physical domain still offers with its emotionalizing and differentiating unique customer experiences. OEMs start huge transformation programs towards digitalization and dedicate large resources for online campaign management, performance marketing, lead flow management. It seems to be all about pushing the right content, online (!), to the right person, online (!), and expecting this to be exciting enough to create a strong enough interest to lead to a test drive.

The better half

From our perspective, this is quite a loss as the physical channel still offers substantial power for business development, lead generation, and ultimately sales conversion. A recent Berylls analysis of customer data revealed that more than 50% of qualified leads are still generated during showroom visits. In other words, more than 50% of leads are in risk to be lost if the physical touchpoint is forgotten.

Now, people tend to argue that successful new EV players are ‘changing the game’ by fully focusing on digital channels and direct sales. We would beg to differ. Matter of fact, successful NEV players in China are very fast and eager to create physical outlets to drive their sales (as seen in the examples of NIO and Xpeng). These players are rapidly increasing their physical footprint. And they do this not only in big cities, but also in lower-tiered smaller cities. In particular for NIO, setting up a strong physical presence is an integral part of its strategy of creating customer stickiness throughout the entire journey.

Even Tesla relies heavily on physical presence. The brand operates 49 Tesla stores in Greater China. However, it has another regional footprint, focusing heavily on Yangtze Delta (Shanghai, Jiangsu, and Zhejiang Province) and Pearl Delta (Guangdong Province).

Thus, it’s absolutely wrong to say that NEV buyers are ‘digital only’ and don’t care about a physical retail experience. Actually, they do care a lot.

Nonetheless, in the advent of increasing digitalization and with the agent model on the horizon, traditional physical retail will no longer suffice as the point of sale, as we said already two years ago. It is not about building more 4S dealerships. For the physical domain to bloom and successfully co-exist with the online channel, it must change substantially.

And the change is here already

Of course, incumbents have not stood still and done nothing – quite the opposite is true. First, most OEMs are adjusting and upgrading their current network landscape. For instance, they started to introduce different formats, they are making their retail outlets more attractive and luxurious, and put product experience at the forefront. This is a good first step as different formats allow outlet deployment in different geographic situations, but many more have to follow.

Looking at the aforementioned dominance of the digital domain, it’s clear that physical retail needs to provide full online-to-offline integration on an operational level. Currently, the digital and the physical domain are still too decoupled. Physical retail is understood as an extension of the digitalized journey to provide brand experience and emotionalization – and this is how it should act.?

Overcoming the decoupling

Here are a few very operational examples and thoughts that support our opinion. Customers should always have the opportunity to download the APP in the retail store and store personnel should advise customer to download the APP, e.g., for more personalized experience and information. Customers should always be encouraged to check in at the retail store via the APP upon entry. Customers should have the possibility not only to book test drives, but also have access to in-depth product and technology information and be alerted when certain models are available for experience and testing. APP information and retail store backends should be fully integrated, so that seamless experience and personalized recommendations can be provided as all customer data (incl. online and store visit history, product preferences etc.) are stored centrally and are accessible to all retail outlets. And finally, as customers nowadays don’t only buy into a product, but more into a lifestyle (or often more accurately, a desirable representation of a lifestyle), retail outlets can become “community centers” and “owners’ clubs” offering dedicated and relevant experiences for customers and their affiliates.

Culture also eats retail strategy for breakfast

And finally, no technological transformation of the point-of-sale is worth the effort, if one doesn’t close the loop on the human and cultural level. This requires a change of mindset of the dealer personnel to, well, ‘retail’. Instead of applying the traditional sales-driven mindset, the new mindset needs to be service-oriented and customer-centric; it can no longer push products, it must include listening to and understanding customer needs and be at the side of the customer for the entire lifetime. Only with such a mindset change, a true transformation of physical retail operations can happen.?

Of course, such a change cannot happen overnight, and the targeted new reality of ‘Automotive Retail’ needs to be supported by, just to name a few?

• a different KPI set, where sales performance is a result and not the purpose, and where customer satisfaction is the single most important KPI
• a modified incentive system, driven by new lead generation and customer satisfaction
• a new governance structure, where each customer visiting the store gets an online questionnaire about customer satisfaction after the visit, every time

COVID – The Physical Accelerator

It’s probably good news that COVID was unable to change it all – or maybe it made it even clearer that a virtual test drive can’t replace the thrill of an actual, real-world vehicle experience and that no video explanation can replace touching, feeling, and smelling a brand-new car.?

Brick-and-mortar dealerships remain important as they are going through strategic, operational, and cultural transformations to stay relevant. This is the Physical Automotive Retail Renaissance.