CarMax 2000 Annual Report Download - page 8

CARMAX PRESIDENT’S LETTER
I am happy to report that CarMax exceeded its
fiscal 2000 objectives. In February 1999,we
announced plans to slow our rapid geographic
growth so that we could concentrate on improving
profitability in under-performing markets and
continue building on an already successful
foundation in other markets. In fiscal 2000,
with a balanced focus on adding revenues and
improving margins,we:
• increased our vehicle unit,service and
accessory sales;
• increased our financing and extended warranty
sales; and,
• implemented productivity enhancements
that improved efficiency and reduced costs.
These accomplishments improved our pretax
operating results by more than $40 million,
bringing us to a profitable position for the year.
We believe our improved operating results and
continued changes in the competitive land-
scape set the foundation for solid profitability
in fiscal 2001.
EXPANSION HISTORY
When we initiated our aggressive national
expansion plan in June 1996, we had just
achieved impressive results in our Norcross,
Ga.,superstore
— the largest store we had open
at that time. We believed that this store model
would be equally successful in other major metro-
politan markets.We also were racing to gain
first-entry advantage over another superstore
competitor who had committed to high-square-
footage,high-acreage locations. We moved too
quickly, and the pace of our growth resulted in
10 significantly overbuilt stores.
At CarMax,we now know that most of our
multi-store markets need more, but smaller,
stores to properly serve their trade areas. We
have adopted a hub and satellite strategy that
is improving performance in Miami,Tampa,
Houston,Dallas and Chicago. In these markets,
we have converted a total of six CarMax
superstores to satellite operations that share
reconditioning,purchasing and business office
functions with a nearby hub store. While the
satellite store presents exactly the same offer to
the consumer,its annual operating costs are
much lower, significantly improving the prof-
itability in these multi-store markets.
The satellite prototype calls for a display capacity
of 250 to 400 vehicles on a four- to six-acre site.
A 12,000- to 14,000-square-foot building houses
sales offices,a showroom and four to seven
service bays for regular maintenance and warranty
service. In the first quarter of fiscal 2000,we grand-
opened a prototype satellite superstore,in
Rockville,Md.,enhancing the performance
of the already strong Washington/Baltimore
market. In addition,at the end of fiscal 2000,we
constructed two prototype satellite stores,one in
Dallas and one in Houston.
While CarMax has continued to improve sales
and profitability, our major used-car superstore
competitor was less successful with their effort
to copy our store format. Our competitor exited
the used-car superstore business completely at
the end of calendar 1999. We believe their exit is
already improving sales by eliminating consumer
confusion over our competing store formats
and allowing CarMax to clearly emerge as the
successful used-car superstore standard.
CONSUMER ENTHUSIASM
The opportunities afforded by making it easier
and more fun for consumers at every step of the
car-buying process are what led us into the
business. Our experience convinces us that
CarMax continues to offer the best shopping
experience for the automotive consumer.
CarMax’s success in single-store markets and in
the metropolitan multi-store markets of Atlanta,
Washington and Baltimore and the rising volumes
in our other metro markets is clear evidence of
consumers’enthusiasm for the CarMax offer.
CarMax used-car superstores are the highest
volume auto retailing locations in the industry.
While the average new-car dealer sells 1,150
new and used vehicles per year, the average
CarMax superstore sells more than 4,100 used
vehicles alone per year. Our Laurel,Md., super-
store produces the largest used-car sales volume
in the nation,with used-car sales 20 times the
used-car sales of the average dealer.
CIRCUIT CITY STORES, INC. 2000 ANNUAL REPORT
6
In fiscal 2000, CarMax made great strides in improving
our operations and better understanding all aspects of
the automotive market. In fiscal 2001, we will focus on
solidifying this foundation in our existing markets.
W. AUSTIN LIGON