Showrooms on show
By John Reed
Published: November 28 2007 19:32 | Last updated: November 28 2007 19:32
Newport Lexus, located in upscale Newport Beach in Orange County, California, looks and feels more like a luxury hotel than a car dealership. Its reception, reached via a walkway lined with palm trees, features a water wall, a concierge-style desk with two attendants and a glassed-in fireplace that crackles with flames on cool days.
The keys of a grand piano tinkle through the premises, which includes a reading room, a putting green, a café, and a menswear boutique. Customers buying new cars are greeted in a separate delivery room, their names emblazoned in lights on a marquee above the vehicle, as in: “Congratulations Ed and Judy! Enjoy your new Lexus GS 350.”
The dealership, owned by Lexus franchisees David Wilson and A.J. D’Amato, opened last year and cost $75m (€51m, £36m) to build. Its landscaping includes a $75,000 Senegal date palm, visible from Newport Beach’s busiest intersection. “We didn’t buy it because it was expensive – we bought it because it was an eye-catcher,” says Alan Moznett, the dealership’s general manager. When people see it, he says, it “brings their eye up” to the showroom’s turret and Lexus logo.
Toyota, Lexus’s owner and the world’s most profitable big carmaker, is better known for value than for lavish spending. But the opulence on display at Newport Lexus points to something bigger at work.
Lexus is the top-selling luxury brand in America, the world’s largest car market, and its dealerships are among the industry’s most profitable. Lexus dealers are investing heavily to defend their position in a briskly competitive premium-car segment that is forcing all brands to offer customers more service and perks than ever.
The raising of stakes in the luxury car business is visible right across the street from Newport Lexus at Fletcher Jones Motorcars, America’s largest Mercedes-Benz dealership. The facility, which sells 600 to 1,000 vehicles a month, also has a putting green as well as a shoeshine attendant, nail salon, and customer shuttle service to nearby John Wayne Airport.
When setting up Newport Lexus, the dealership’s owners studied Mercedes’ offering, as well as methods applied at Four Seasons, the hotel chain, and Disneyland, a short drive down the road in Anaheim. As at Disney’s theme parks, technicians are cordoned off in a separate area of the dealership, invisible to clients.
“We took the Disneyland approach of keeping the work we do ‘off stage’ and the customers ‘on stage’,” says Mr Moznett.
When Toyota launched Lexus in the US 18 years ago, it had to battle with Americans’ scepticism that an Asian manufacturer could make high-quality luxury cars. High standards on service was part of the brand’s ethos from its early days. In 1987 its managers adopted “The Lexus Covenant,” a pledge to “treat each customer as we would a guest in our home”. Lexus dealerships were among the first to feature a free car wash and a cappuccino machine, things now commonplace at other luxury showrooms, and even some volume brands.
“We have to consistently set the bar higher,” says Nancy Fein, the vice-president for customer services at Lexus. “Our competitors are doing better and our customers are expecting more.”
Lexus also needs to keep its eye on the ball as it deals with an expanding, and ageing, customer base. While baby boomers are its core clientele, the brand is targeting younger buyers with models like the IS sedan and IS-F, a high-performance car akin to the BMW 3-Series due to launch next March. In all, Lexus will this year sell more than 300,000 vehicles in the US for its third year running, and has more than 2m vehicles on the road. The wider Toyota group is grappling with the growth-related challenges of its rise to the top of the industry, including high recall numbers and the recent downgrading of Consumer Reports ratings for some of its cars.
“We want to customise the experience for every customer, and that is difficult to do,” says Ms Fein.
At Newport Lexus, putting car buyers’ names in lights appears to be one of the solutions. Customers are also invited to relax at the dealership’s plush café, which on a recent afternoon was filled with people watching plasma TV screens, eating sandwiches or tapping on laptop computers. One of the showroom’s customers comes in three or four times a week and treats the dealership as his “satellite office”, claims Mr Moznett. Some non-Lexus owners come to the dealership just to visit the clothing boutique.
Forging strong bonds with customers – and keeping them parked in dealerships for longer periods – is about more than brand image. Most vehicles can be serviced in 90 minutes or less, so if dealers can persuade customers to wait in the showroom they can cut down on the cost of replacement cars, which for some dealers exceeds their rent.
Lexus claims the highest loyalty rates in the industry, with 59 per cent of its customers who repurchased buying another of its vehicles. The brand also has high retention rates for service, with customers returning to its dealerships for maintenance even after their warranties expire.
Other Lexus dealers have come up with alternative ideas: one in Omaha, for example, is experimenting with embedding chips containing customer information in vehicles’ dashboards, so that they are greeted by name on an LED display when they pull up. The chip also downloads information about the customer’s history, preferences and family.
In New York City, where dealership space is at a premium, another Lexus franchisee has cars delivered directly to customers and tutors them on how to use the vehicle’s navigation, Bluetooth wireless, mobile-phone and other high-tech functions.
“It’s no longer about satisfying customers,” says Jim Lentz, who heads Toyota’s sales operation. “If you’re only satisfying customers you’re going backwards.”
How meticulous attention to detail can help drive a brand image
Lexus’s attention to detail in retail is not unique in the premium car market. Infiniti, Nissan’s luxury brand, in 2005 launched new designs for its dealerships globally. Its showrooms now have dramatic glass walls leading into airy spaces adorned with natural materials such as marble, stone and slate.
Like Lexus, the brand aimsfor the feel of a “luxury boutique hotel” in its showrooms, says European brand spokesman Wayne Bruce.
The brand, however, goes further than Lexus in making the look of its showrooms explicitly echo that of its vehicles. Some feature the same wood used in Infiniti cars, and the brand’s head of vehicle design is also responsible for the cars’ “retail environment”.
Attention to detail is important as the brand prepares to launch across Europe, home to some of the world’s most demanding luxury car buyers, next year.
Eye-catching showrooms appear to be part of Infiniti’s battle plan. One of its new-look showrooms opened in February in St Petersburg, Russia, the only European country where the brand operates. Infiniti says customers are spending longer in that showroom than usual. The point, says Mr Bruce, is to “engage the customer and make the whole process of shopping for a car more pleasurable”.
Copyright The Financial Times Limited 2007