CarMax 2009 Annual Report Download - page 15

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months, depending on the vehicle mileage, make and age. We offer extended service plans at low, fixed prices,
which are based primarily on the historical repair record of the vehicle make and model and the length of coverage
selected. All extended service plans that we sell (other than manufacturer programs) have been designed to our
specifications and are administered by the third parties through private-label arrangements. We receive a
commission from the administrator at the time the extended service plan is sold. In fiscal 2009, 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 vehicle repair service at each CarMax store and to the third-
party administrators’ nationwide network consisting of thousands of independent and franchised 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 our
entire vehicle inventory and print a detailed listing for any vehicle, which includes the vehicle’ s features and
specifications and its 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. In addition, our store system provides a direct link to our
proprietary credit processing information system to facilitate the credit review and approval process.
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 initial
retail price points, as well as 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, 2009, we had a total of 13,035 associates, including 10,101 hourly and salaried associates and
2,934 sales associates, who worked on a commission basis. Sales consultants include both full-time and part-time
employees. We employ additional associates during peak selling seasons. As of February 28, 2009, our location
general managers averaged more than nine years of CarMax experience, in addition to prior retail management
experience. We open new stores with experienced management teams drawn from existing stores.
We believe we have created a unique corporate culture and maintain good employee relations. No associate is
subject to a collective bargaining agreement. We focus on providing our associates with the information and
resources they need to offer exceptional customer service. We reward associates whose behavior exemplifies our
culture, and we believe that our favorable working conditions and compensation programs allow us to attract and
retain highly qualified individuals. We have been recognized for the success of our efforts by a number of external
organizations.