Driving sales in unusual spots
High-end electric vehicle maker Tesla is opening stores in places car buyers wouldn’t think to shop.
Here’s a novel idea for an automaker: Open stores in an area where people are not shopping for cars.
That’s the strategy of Tesla Motors, the builder of high-end electric cars.
The Palo Alto automaker opened its 12th North American store and second in Southern California on the Third Street Promenade in Santa Monica on Friday. It’s flanked by an Adidas store and Club Monaco, a trendy apparel seller. Parking is a block away in a public garage. Think Apple rather than Chevrolet. “We are deliberately trying to engage with people when they are not thinking about buying a car,” said George Blankenship, Tesla’s sales chief, who previously worked in the store divisions of Apple and Gap. That’s the best way to educate people about how electric cars work, how much they cost to op-
erate and what Tesla has to offer when they eventually go car shopping, he said.
Tesla is a small volume auto company that just started selling its flagship Model S, a sporty, full-size hatchback. The car sells for about $50,000 to more than $100,000 depending on trim level and options. Tesla builds the Model S at a factory in Fremont, Calif., where it plans to also make the Model X, an electric SUV built on the same platform and sharing much of the technology, starting late next year.
It can get by with leasing smaller retail stores because, unlike the major auto brands, there isn’t a big inventory of cars sitting around waiting to be sold.
“If you walked in today the earliest you could take delivery would be May,” Blankenship said.
Tesla is sold out of the Model S through the end of this year — it plans a run of 5,000 — and expects to sell out of the 20,000 it plans to build next year.
“Everything that leaves the factory has a garage to go to,” Blankenship said. Service for the vehicles will be handled at Tesla service centers that are separate from the retail sites.
Location isn’t the only difference between the showrooms of Tesla and other automakers. Tesla also is keeping complete control over its sales channel.
With “factory-owned retail stores you control the entire customer experience,” said Thilo Koslowski, an automotive analyst at research firm Gartner Inc. “That is very important when it comes to these vehicles, which really represent a new class of automobiles.”
Other automakers have franchise contracts with independent companies. General Motors and Toyota, for example, sell vehicles to their respective dealerships. The dealers hire and train the sales and service staff and determine their pay. They set the actual sales price of each car. They can let a vehicle leave the lot at a deep discount or attempt to get a premium out of a buyer.
“Every time you have a franchise involved you lose part of that intended customer experience because they are independent businesses and have different goals. They use different processes and sales strategies with customers,” Koslowski said.
That system developed early in the history of the auto industry. Manufacturers would build cars and use far-flung dealerships to sell the autos.
Now, laws and regulations governing the system generally prevent automakers that sell cars through independent franchises from operating company-owned stores.
The big automakers can try to influence the sales process through their business practices, incentives and training programs but have little control over the interaction between a customer and the dealership.
As a new automaker without a franchise system, Tesla can build its own store network.
“Everything we do is different,” Blankenship said. Because the only car in the store is for test drives, there is no pressure from the sales staff, whose members don’t work on commission, he said. But if the company, which has yet to earn a profit, is successful, Tesla may have to follow other automakers in stocking the vehicles at the retail sites and franchising stores.
“There are pros and cons to both approaches,” said Rebecca Lindland, an analyst with IHS Automotive. With a factory-owned store, “you control the customer experience and the price and you don’t have to split your profits with another business. But your are spending important resources on retailing rather than on designing and manufacturing cars.”