CarMax 2016 Annual Report Download - page 12
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they may not otherwise be able to obtain. All fees either received or paid are pre-negotiated at a fixed amount and do not vary
based on the amount financed, the interest rate, the term of the loan or the loan-to-value ratio. CAF also provides financing for a
small percentage of customers who would typically be financed by a Tier 3 provider.
We do not offer financing to dealers purchasing vehicles at our wholesale auctions. However, we have made arrangements to
have third-party financing available to our auction customers.
Suppliers for Used Vehicles
We acquire a significant percentage of our retail used vehicle inventory directly from consumers through our appraisal process,
as well as through local, regional and online auctions. We also, to a lesser extent, acquire used vehicle inventory from wholesalers,
franchised and independent dealers and fleet owners, such as leasing companies and rental companies. The used vehicle inventory
we acquire directly from consumers through our appraisal process helps provide an inventory of makes and models that reflects
consumer preferences in each market.
The supply of late-model 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 sources, there were approximately 260
million light vehicles in operation in the U.S. as of December 31, 2015. During calendar year 2015, over 17 million new cars and
40 million used cars were sold at retail, many of which were accompanied by trade-ins, and nearly 10 million vehicles were sold
at wholesale auctions.
Based on the large number of vehicles remarketed each year, consumer acceptance of our in-store appraisal process, our experience
and success 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.
Seasonality
Historically, our business has been seasonal. Our stores typically experience their strongest traffic and sales in the spring and
summer quarters. Sales are typically slowest in the fall quarter. We typically experience an increase in traffic and sales in February
and March, coinciding with tax refund season.
Systems
Our stores are supported by proprietary information systems that improve the customer experience while providing tightly integrated
automation of all operating functions, including our credit processing information system. Our proprietary store technology
provides our management with real-time information about many aspects of store operations, such as inventory management,
pricing, vehicle transfers, wholesale auctions and sales consultant productivity.
Our proprietary centralized inventory management and pricing system tracks each vehicle throughout the sales process and allows
us to buy the mix of makes, models, age, mileage and price points tailored to customer buying preferences at each CarMax
location. Leveraging our more than twenty years of experience buying and selling millions of used vehicles, our system generates
recommended initial retail price points, as well as retail price markdowns for specific vehicles based on algorithms that take into
account factors that include sales history, consumer interest and seasonal patterns. We believe this systematic approach to vehicle
pricing allows us to optimize inventory turns, which reduces the depreciation risk inherent in used cars and helps us to achieve
our targeted gross profit dollars per unit. Because of the pricing discipline afforded by our inventory management and pricing
system, generally more than 99% of our entire used car inventory offered at retail is sold at retail.
Marketing and Advertising
Our marketing strategies are focused on developing awareness of the advantages of shopping at our stores and on carmax.com
and on attracting customers who are already considering buying or selling a vehicle. We implement these strategies through both
traditional and digital methods, including social media. Our carmax.com website and related mobile apps are marketing tools for
communicating the CarMax consumer offer in detail, sophisticated search engines for finding the right vehicle and sales channels
for customers who prefer to initiate part of the shopping and sales process online. The website and mobile apps also include a
variety of other customer service features including initiation of vehicle transfers and scheduling appointments. Information on
the thousands of cars available in our nationwide inventory is updated several times per day. Our survey data indicates that during
fiscal 2016, approximately 88% of customers who purchased a vehicle from us had first visited us online.
Associates
On February 29, 2016, we had a total of 22,429 full- and part-time associates, including 16,557 hourly and salaried associates and
5,872 sales associates, who worked on a commission basis. We employ additional associates during peak selling seasons. We
believe we have created a unique corporate culture and maintain good employee relations. No associate is subject to a collective