CarMax aims to shake up LV-area used-car industry

Jennifer Shubinski

Tuesday, March 11, 2003 | 11:11 a.m.

A nationwide superstore used-car chain opens its first store in Henderson on Wednesday and plans to open a second Las Vegas-area store later this year.

CarMax Inc. of Richmond, Va., will open its first store at Gibson and Warm Springs Roads in Henderson this week. Its second store at 6755 W. Sahara Ave., near South Rainbow Boulevard, is scheduled to open in October. The Henderson location will employ about 150 people initially, including about 20 technicians.

CarMax has grown to be a large player in the auto industry, operating 39 used car outlets in 18 markets and 17 new car franchises nationwide. The company is known for its "no haggle" prices and generally sells its cars $1,700 below retail Kelley Blue Book Prices, debt-rating agency Standard & Poors' reported.

The Henderson location will stock about 400 used cars and expects to turn its inventory every month, said Austin Ligon, president and chief executive officer of CarMax.

"I don't know if we can sell 400 right away, but 300 to 400 per month is what we expect to do," he said.

CarMax stores usually sell about 5,200 used cars per year, compared to roughly 1,300 new and used cars for a new-car dealer, Ligon said.

"Most dealers don't believe those numbers, but because our consumer concept is so popular, we see a lot more traffic," he said.

Next door to the CarMax lot is Findlay Toyota, which sells new and used vehicles.

Sal Anglada, Findlay marketing director, said he's not worried about CarMax stealing away customers.

"The way we look at it is it's just another day; It's just another car store," Anglada said.

CarMax reported flat sales for the fourth quarter ended Feb. 28 compared to the prior-year's fourth quarter. For the year, comparable-store used-car sales increased 8 percent. Total annual sales rose 12 percent to $3.97 billion from $3.53 billion in the prior fiscal year, the company reported.

The flat sales were attributed to this year's winter storms that slowed sales activity in the Midwest, East and in Texas.

Sharon Zackfia, an analyst with Chicago-based William Blair & Co, pointed out that business in markets not affected by the weather were up 5 percent.

"I think fundamentally business is very healthy," she said.

Despite the rough winter, the company is going ahead with plans to open five stores nationwide during fiscal year 2003, and at least seven during fiscal year 2004.

CarMax also opened stores in the Chicago and Atlanta markets during the previous fourth quarter, after about two years of putting expansion plans on hold. The two-year halt in growth was because the company had grown almost too fast, and Ligon wanted to slow growth down to a more manageable rate and focus on certain markets.

And in October 2002, CarMax separated from its parent company, Circuit City Stores, through a distribution to shareholders.

While CarMax is opening up the used car superstores, it has plans to sell its five Mitsubishi new car franchises. Used car sales volume has increased substantially in the markets -- Atlanta, Chicago, Nashville and Washington, D.C/Baltimore -- where CarMax operates the franchises, and room is needed for used car expansion, the company reported.

Zackfia said she expects CarMax will continue to concentrate on used car sales, as long as the profit margin on used cars remains higher than on new vehicles.

"Maybe five or 10 years out they will concentrate more on the new car side," she said. "But right now the used car market is too attractive and is too low a hanging fruit for them to pick."

Ligon said CarMax decided to enter the Las Vegas market because it fits the profile the company was seeking: a midsize market with access to 1 to 2.5 million people.

The company also wanted to get more stores on the West coast, so inventory-sharing will be easier, Ligon said.

As to where CarMax's new Las Vegas-area stores were to be located, that was easy.

"It's hard to make a real estate mistake when you come to Las Vegas," Ligon said. "You are either on Sahara Boulevard or down in Henderson, those are the two places you want to be in Las Vegas."

The opening of two stores in one market in one year is a first for the company, he said.

The Las Vegas area will serve as a test market to see if its prudent for the company to open two stores in one market in such a short time period.

"We used to think of these markets as one-store markets," Ligon said. "It's becoming clear to us that we can actually put in a second store."

"(Las Vegas') two auto sales areas so clearly dominate over anything else. Those are the two places you want to be," Ligon said, referring to the auto strips on Sahara and in Henderson.

Ligon said the opening of CarMax in Henderson will raise the level of competition for used car sales in the area.

"There is plenty of room to gain market share without having to engage in a battle to the death with the other dealers," he said.

Zackfia said its hard to judge how CarMax's entrance into the market will affect other car dealers.

"It's such a fragmented market, its difficult to get data," she said. "My best guess is the overall used market is flatish. (CarMax) will most likely be stealing market share from somebody. It's not like Starbucks that grows the coffee market."