CarMax 2007 Annual Report Download - page 19

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Extended Service Plan Sales. At the time of the sale, we offer the customer an extended service plan. We sell these
plans on behalf of unrelated third parties that are the primary obligors. Under the third-party service plan programs,
we have no contractual liability to the customer. The extended service plans have terms of coverage from 12 to 72
months, depending on the vehicle age and make. We offer these extended service plans at low, fixed prices, which
are based primarily on the repair record of the vehicle and the length of coverage selected. All extended service
plans that we sell (other than manufacturers’ warranties) have been designed to our specifications and are
administered by the third parties through private-label arrangements under which we receive a commission from the
administrator at the time the extended service plan is sold. In fiscal 2007, more than half of the customers
purchasing a used vehicle from CarMax also purchased an extended service plan.
Our extended service plan customers have access to our vehicle repair service at each CarMax store and to the third-
party administrators’ nationwide network of approximately 14,000 independent service providers. We believe that
the quality of the services provided by this network, as well as the broad scope of our extended service plans, helps
promote customer satisfaction and loyalty, and thus increases the likelihood of repeat and referral business.
Systems
Our stores are supported by an advanced information system that improves the customer experience while providing
tightly integrated automation of all operating functions. Using in-store information kiosks, customers can search
each store’ s vehicle inventory and print a detailed listing for any vehicle, which includes the vehicle’ s features and
specifications, and a map showing its specific location on the display lot. Our inventory management system tracks
every vehicle through its life from purchase through reconditioning and test-drives to ultimate sale. Bar codes are
placed on each vehicle and on each parking space on the display lot, and all vehicle bar codes are scanned daily as a
loss prevention measure. Test drive information is captured on every vehicle using radio frequency identification
devices, linking the specific vehicle and the sales consultant. We also capture data on vehicles we wholesale, which
helps us track market pricing. An online finance application process and computer-assisted document preparation
ensure rapid completion of the sales transaction. Behind the scenes, our proprietary store technology provides our
management with real-time information about every aspect of store operations, such as inventory management,
pricing, vehicle transfers, wholesale auctions, and sales consultant productivity.
Our inventory management and pricing system allows us to buy the mix of makes, models, age, mileage, and price
points tailored to customer buying preferences at each superstore. This system also generates recommended retail
price markdowns for specific vehicles based on complex algorithms that take into account factors including sales
history, consumer interest, and seasonal patterns. We believe this systematic approach to vehicle pricing allows us
to optimize inventory turns, which minimizes the depreciation risk inherent in used cars and helps us to achieve our
targeted gross profit dollars per unit.
In addition to inventory management, our Electronic Repair Order system (“ERO”) is used by the service
department to sequence reconditioning procedures. ERO provides information that helps increase quality and
reduce costs, which further enhances our customer service and profitability.
Through our centralized systems, we are able to immediately integrate new stores into our store network, allowing
the new stores to rapidly achieve operating efficiency. We continue to enhance and refine our information systems,
which we believe to be a core competitive advantage. The design of our information systems incorporates off-site
backups, redundant processing, and other measures to reduce the risk of significant data loss in the event of an
emergency or disaster.
Associates
On February 28, 2007, we had a total of 13,736 employees, including 10,394 hourly and salaried associates and
3,342 sales associates, who worked on a commission basis. Sales associates include both full-time and part-time
employees. We employ additional associates during peak selling seasons. At February 28, 2007, our location
general managers averaged more than 8 years of CarMax experience, in addition to prior retail management
experience. Management believes that the company maintains good employee relations. No CarMax associate is
subject to a collective bargaining agreement.