CarMax 2016 Annual Report Download - page 9
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Please find page 9 of the 2016 CarMax annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.5
Item 1. Business.
BUSINESS OVERVIEW
CarMax Background
CarMax, Inc. seeks to deliver an unrivaled customer experience by offering a broad selection of high quality used vehicles and
related products and services at low, no-haggle prices using a customer-friendly sales process in an attractive, modern sales
facility. Our strategy is to revolutionize the used auto retailing market by addressing the major sources of customer dissatisfaction
with traditional auto retailers. By focusing on customer service, associate development and efficient execution, we have become
the nation’s largest retailer of used cars, selling 619,936 used vehicles at retail during the fiscal year ended February 29, 2016. In
addition, we are one of the nation’s largest operators of wholesale vehicle auctions and one of the nation’s largest providers of
used vehicle financing.
CarMax was incorporated under the laws of the Commonwealth of Virginia in 1996. CarMax, Inc. is a holding company and our
operations are conducted through our subsidiaries. Under the ownership of Circuit City Stores, Inc. (“Circuit City”), we began
operations in 1993 with the opening of our first CarMax store in Richmond, Virginia. On October 1, 2002, the CarMax business
was separated from Circuit City through a tax-free transaction, becoming an independent, publicly traded company. As of
February 29, 2016, we operated 158 used car stores in 78 metropolitan markets. Our home office is located at 12800 Tuckahoe
Creek Parkway, Richmond, Virginia.
CarMax Business
We operate in two reportable segments: CarMax Sales Operations and CarMax Auto Finance (“CAF”). Our CarMax Sales
Operations segment consists of all aspects of our auto merchandising and service operations, excluding financing provided by
CAF. Our CAF segment consists solely of our own finance operation that provides financing to customers buying retail vehicles
from CarMax.
CarMax Sales Operations. Our CarMax Sales Operations segment sells used vehicles, purchases used vehicles from customers
and other sources, sells related products and services, and arranges financing options for customers, all for fixed, no-haggle prices.
We enable our customers to separately evaluate each component of the sales process based on comprehensive information about
the terms and associated prices of each component. Customers can accept or decline any individual element of the offer without
affecting the price or terms of any other component of the offer.
Purchasing a Vehicle:
The vehicle purchase process in a CarMax store differs fundamentally from the traditional auto retail experience. Our no-haggle
pricing removes a frequent customer frustration with the purchase process and allows customers to shop for vehicles the same
way they shop for items at other “big-box” retailers. In addition, our sales consultants are generally paid commissions on a fixed
dollars-per-unit standard, thereby earning the same commission regardless of the vehicle being sold, the amount a customer finances
or the related interest rate. This pay structure aligns our sales associates’ interests with those of our customers, in contrast to other
dealerships where sales and finance personnel may receive higher commissions for negotiating higher prices and interest rates,
or steering customers to vehicles with higher gross profits.
We recondition every used vehicle we retail to meet our CarMax Quality Certified standards, and each vehicle must pass a
comprehensive inspection before being offered for sale. We stand behind every used vehicle we sell with a 5-day, money-back
guarantee and at least a 30-day limited warranty.
We maximize customer choice by offering a large selection of inventory on our lots and by making our nationwide inventory of
more than 55,000 vehicles as of February 29, 2016, available for viewing on our website, carmax.com, as well as our mobile
app. Upon request by a customer, we will transfer virtually any used vehicle in this inventory to a local store. This allows a single
CarMax store to offer access to a much larger selection of vehicles than any traditional auto retailer. In fiscal 2016, approximately
30% of our vehicles sold were transferred at customer request.
In addition to retailing used vehicles, we sell new vehicles at two locations under franchise agreements.
Selling us a Vehicle:
We have separated the practice of trading in a used vehicle in conjunction with the purchase of another vehicle into two distinct
and independent transactions. We will appraise a customer’s vehicle free of charge and make a written, guaranteed offer to buy
that vehicle regardless of whether the owner is purchasing a vehicle from us. This no-haggle offer is good for seven days.