CarMax 2012 Annual Report Download - page 13

7
services allows our vehicles to appear on sites that are visited by a majority of buyers of late-model used vehicles
who use the Internet in their shopping process. Our advertising on the Internet also includes advertisements on
search engines, such as Google and Yahoo!
Our website, carmax.com, is a marketing tool for communicating the CarMax consumer offer in detail, a
sophisticated search engine for finding the right vehicle and a sales channel for customers who prefer to complete a
part of the shopping and sales process online. The website offers complete inventory and pricing search capabilities.
Information on each of the thousands of cars available in our nationwide inventory is updated several times per day.
Carmax.com includes detailed information, such as vehicle photos, prices, features, specifications and store
locations, as well as advanced feature-based search capabilities, and sorting and comparison tools that allow
consumers to easily compare vehicles. The site also includes features such as detailed vehicle reviews, payment
calculators and email alerts when new inventory arrives. Virtually any used vehicle in our nationwide inventory can
be transferred at customer request to their local superstore. Customers can contact sales consultants online via
carmax.com, by telephone or by fax. Customers can work with these sales consultants from the comfort of home,
including applying for financing, and they need to visit the store only to complete the final steps of the transaction,
such as signing the paperwork and picking up their vehicle. We also have a mobile website application that allows
customers to search for and view cars on their smartphones. Our survey data indicates that during fiscal 2012, more
than 70% of customers who purchased a vehicle from us had first visited our website.
We also maintain a website, carmaxauctions.com, that supports our wholesale auctions. This website, which is
accessible only by authorized dealers, provides listings of all vehicles that will be available in upcoming auctions. It
also has many features similar to our retail website, including vehicle photos, free vehicle history reports and vehicle
search and alert capabilities.
Suppliers for Used Vehicles. We acquire used vehicle inventory directly from consumers through our in-store
appraisal process and our car-buying centers, as well as, through other sources, including local, regional and online
auctions, wholesalers, franchised and independent dealers and fleet owners, such as leasing companies and rental
companies. The supply of used vehicles is influenced by a variety of factors, including the total number of vehicles
in operation; the rate of new vehicle sales, which in turn generate used-car trade-ins; and the number of used
vehicles sold or remarketed through retail channels, wholesale transactions and at automotive auctions. According
to industry data, there are approximately 240 million light vehicles in operation in the U.S., including approximately
80 million vehicles that are 0 to 6 years old. In recent years, generally between 10 million and 17 million new
vehicles and between 35 million and 45 million used vehicles have been retailed annually and between 8 million and
10 million vehicles have been remarketed at wholesale auctions each year.
Our used vehicle inventory acquired directly from consumers through our appraisal process at our stores and car-
buying centers helps provide an inventory of makes and models that reflects the consumer preferences of each
market. We have replaced the traditional “trade-in” transaction with a process in which a CarMax-trained buyer
appraises a customer’s vehicle and provides the owner with a written, guaranteed offer that is good for seven days.
An appraisal is available to every customer free of charge, whether or not the customer purchases a vehicle from us.
Based on their age, mileage or condition, fewer than half of the vehicles acquired through this in-store appraisal
process meet our high-quality retail standards. Those vehicles that do not meet our retail standards are sold to
licensed dealers through our on-site wholesale auctions.
The inventory purchasing function is primarily performed at the store level and is the responsibility of the buyers,
who handle both on-site appraisals and off-site auction purchases. Our buyers evaluate all used vehicles based on
internal and external auction data and market sales, as well as estimated reconditioning costs and, for off-site
purchases, transportation costs. Our buyers, in collaboration with our home office staff, utilize the extensive
inventory and sales trend data available through the CarMax information system to decide which inventory to
purchase at off-site auctions. Our inventory and pricing models help the buyers tailor inventories to the buying
preferences at each superstore, recommend pricing adjustments and optimize inventory turnover to help maintain
gross profit per unit.
Based on consumer acceptance of the in-store appraisal process, our experience and success to date in acquiring
vehicles from auctions and other sources, and the large size of the U.S. auction market relative to our needs, we
believe that sources of used vehicles will continue to be sufficient to meet our current and future needs.
Suppliers for New Vehicles. Our new car operations are governed by the terms of the sales, service and dealer
agreements. Among other things, these agreements generally impose operating requirements and restrictions,
including inventory levels, working capital, monthly financial reporting, signage and cooperation with marketing