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CarMax Idea Proposal (KMX)

CarMax Idea Proposal (KMX)

Can CarMax sustain its growth trend as the former disruptor faces intense competition from both new and old players in the space?

Report Available: March 11, 2020


Blueshift’s ongoing research found high expectations for KMX as it closes out its fourth fiscal quarter in February. The former used car industry disruptor continues to execute on its new store and omnichannel expansion, while facing intense competition in a highly fragmented market. New car dealers are shifting their focus to the more lucrative used car market and industry disruptors like CVNA and Vroom are taking aim at KMX.



  1. KMX beat Q3 revenue expectations but missed EPS forecasts. Revenue increased 11.5% and same-store sales increased 5%, beating analysts’ forecasts for 6.2% growth. KMX credited support from third-party lenders, increased web traffic, strong performance in operations, customer conversion, and marketing as the key growth drivers. Higher stock-based compensation expense, an increase in advertising expenses due to the rollout of KMX’s omnichannel sales program, and the launch of a new national advertising campaign were cited as reasons for the earnings shortfall. KMX said 2020 retail unit expenses are expected to be slightly higher than 2019 expenses.
  2. According to industry experts, 2020 auto industry trends will provide both opportunities and challenges to KMX’s continued growth. Trends favoring KMX include the fact that 63% of younger car shoppers are buying preowned vehicles and 83% of car buyers start their shopping online (with increasing openness to an online purchase), directly in line with KMX’s omnichannel program. Trends that may challenge KMX include new car dealers shifting their focus to the more lucrative used car market and the continued fragmentation of the market which favors disruptors like CVNA and even traditional dealers adding online capabilities while expanding their used car offerings.
  3. KMX’s plans for new store expansion, omnichannel sales initiatives and hiring of addition service technicians have pushed forward aggressively since Blueshift reported on the company six months ago.
  • 2020: KMX opens a new store in Fort Wayne, IN.
  • 2020: KMX adds the personal car buying experience in Colorado and partners with Edmonds. The deal includes a $50 million investment that gives KMX a minority stake in Edmunds.
  • 2019: KMX announces plans for a new store and 100 jobs in Murfreesboro, TN.
  • 2019: KMX opens a new store in Gulfport, MS.
  • 2019: KMX announces plans to hire 850 service technicians and detailers. KMX adds its personal car buying experience in New England, which includes completing the entire purchase from home.
  • 2019: KMX opens a new store on Palm Desert, CA. and adds its personal car buying experience in Texas.
  • 2019: KMX announces a new store opening in Scottsdale, AZ.
  1. Intense competition and a shift in consumers’ method for buying used cars has made companies like CVNA and Vroom the new disruptors in the used car retail space, challenging KMX’s standing. Since January, CVNA has expanded is next-day used car delivery in Arizona, New Mexico, Minnesota, Wisconsin, South Florida and Wyoming. CVNA now services 159 market across the U.S. Vroom, which launched in 2013, just raised $245 million to continue to scale its business and add a product and engineering hub in Detroit.
  2. Blueshift’s Aug. 21, 2019, KMX report found that its growth trend will continue, with its omnichannel and store expansion programs contributing to that growth. The high price of new cars is fueling strong demand for late model used cars and driving growth for KMX. These findings support Blueshift’s May 1, 2019, KMX report. Sources cited KMX’s strong brand, trusted no-haggle business model, large and well managed inventory, efficient distribution network, and CarMax Auto Finance as key competitive advantages. One source said KMX sets the standard in the used car industry. The addition of KMX’s omnichannel/online program, with well-staffed online and phone customer support centers, is considered a positive. It addresses the growing trend of consumers wanting to shop and purchase used cars online.
  3. Blueshift’s Dec. 4, 2019, CVNA report said profits are attainable for the company and its business model—if it continues to adjust and execute its business plan and operations. CVNA is evolving how used cars are bought and sold. The company has successfully tapped into consumers’, particularly millennials’, desire for a different, non-dealership, car-buying experience. CVNA’s business model has some unique elements and praiseworthy features. CVNA’s high-quality, consumer-friendly online platform, transparent pricing, seven-day return policy, and aggressive national marketing campaign, including its car vending machine, were all cited as competitive strengths. Nine of 14 sources think CVNA can become profitable with adjustments to its business plan, some of which the company is already undertaking. The report also said KMX is expected to catch up to CVNA with its online offering as part of its omnichannel sales initiative.


Can KMX sustain its growth? What effect is KMX’s omnichannel offering having on sales? Is KMX’s aggressive investment in additional physical store locations a winner or loser in light of increased online buying? How will KMX’s auto finance segment perform with the shift to omnichannel sales?  What is the trend with the cost of funding? How is this affecting KMX’s auto financing segment? Are KMX competitors slowing or KMX’ growth? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Used car dealers, Banks and used car lenders, Online competitors, and Industry specialists.


Companies: AutoNation (AN), CarGurus Inc. (CARG), CarMax Inc. (KMX), Carvana (CVNA), Lithia Motors Inc. (LAD), Sonic Automotive Inc. (SAH), TrueCar Inc. (TRUE), Bank of America (BAC), Credit Acceptance Corp (CACC), Capital One Financial (COF), Discover Financial Services (DFS), Santander (SC), U.S. Bancorp (USB), Wells Fargo (WFS)


Research Begins: February 24, 2020


To see other ideas Blueshift Research is currently working on, please click here.


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