Amazon and Alibaba have ruffled feathers amongst US auto parts retailers by striking deals with suppliers to sell their products direct.
Not only this, but Amazon has begun hiring new dealer sales staff, suggesting that it has its eye on car selling as well.
Given the resources they can dedicate to virtually any new business vertical, these e-commerce behemoths, with their vast reach, ubiquitous brand profile and insane margins, are primed to disrupt the automotive industry like never before.
So how does this affect UK franchise dealers and how can they ensure they keep pace with rising competition from online retail giants?
US aftermarket retail chains and dealers have been enjoying a period of prosperity, which is undoubtedly what attracted Amazon and Alibaba to the market.
It is also buoyant in the UK: the value of after-sales service in the UK is set to rise to £28 billion, and the sector will employ more than 400,000 people by 2022, according to a 2016 report produced by SMMT and Frost and Sullivan.
The online giants are tapping into this profit potential by negotiating price deals with aftermarket suppliers and responding to consumers who are familiar with their brand and enjoy the speedy delivery they offer.
Amazon.uk and eBay’s activities have driven traditional suppliers in the UK to develop their internet presence so that it has become the European leader in online retail for automotive parts and services (7% of sales compared to 5% in Germany and 4% in France).
An online presence is important to compete with the Amazons but there are additional areas where dealerships can devote their attention to ensure they keep the edge in the aftermarket game.
Keep an eye on pricing
Service parts pricing is one of the most significant contributors to success for dealers in aftersales service and monitoring competitor pricing can help aftermarket auto parts retailers and manufacturers seize the upper hand in a street fight with an Amazon.
In a recent Bloomberg report, RBC analyst Scot Ciccarelli referred to Amazon as a dangerous competitor in the category.
Yet while it has huge reach and a potential pricing advantage, the average replacement parts buyer – a segment that represents the majority of after-sales customers –doesn’t have the knowledge to purchase parts without guidance.
This means that local dealerships are likely to have the upper hand over the “big names” – especially if they stay on top of pricing.
Beyond keeping tabs on competitor pricing, specialty shops and manufacturers can win even as Amazon moves into their lane by adopting more modern service parts price optimisation solutions.
Cost-plus formulas and Excel spreadsheets must be replaced by scientific and dynamic pricing methods that offer a data-driven approach to the optimised price of a part. If implemented, this can immediately translate into better margins.
Better manage parts inventory
The US do-it-yourself aftermarket service parts business is currently a $50 billion industry and has traditionally accounted for most online parts purchases.
But with Amazon’s popular Prime service, the company offers irresistible features like same-day delivery to entice customers who want to receive their orders more quickly, namely commercial customers such as professional installers.
But, even same-day delivery doesn’t replace the ease and speed of running to the shop around the corner in the middle of a project.
And it’s all the more reason why local dealerships must have the right service parts in stock at the right time.
For example, US retailer target saw a 40% reduction in “out-of-stocks” after taking a more scientific approach to inventory management.
Not having products in stock has ramifications for a company’s bottom line, as well as an impact on customer loyalty.
And bricks-and-mortar shops and dealers can’t afford to let this happen, especially with the influx of competition throughout the retail category.
Adopt data management
Business success today, across all sorts of industries and verticals, relies on both generating and managing data.
From in-car performance statistics, to customer loyalty insights and marketing information, the after-sales service category is a deep reservoir of data that points the way to greater profitability.
The UK has one of the most developed data analytics sectors in the world with growth predicted at 177% over the next five years, with ‘big data’ user numbers increasing to around 644,000.
With all the data that’s produced and available, dealerships need to have a strong data management solution – one that links every branch of the organisation and consolidates it for the best and fastest decision-making.
This data-driven umbrella is pivotal for anticipating obstacles and managing opportunities. It also has the potential to forecast future trends as artificial intelligence becomes more commonplace.
Service is key
The strength of traditional dealers lies in their extensive in-store service and advice, their ability to form relationships with customers and adjust the cost, quality or type of product directly to what they need.
However, they must embrace an updated approach to how they conduct business. If they do, the service parts category could be theirs for the taking.
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