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Here's One CarMax Vision for the Future of the Used Car Lot
Candace Carlisle | CoStar News
One possible future for the American used car lot is sprawling across 11 acres just south of Dallas. Three thousand cars can fit on the site, each awaiting a sale to buyers doing at least some of the deal online.
CarMax, the nation's largest used vehicle retailer, is beefing up its real estate for property such as the Texas car lot as it works to redefine what the future of car buying looks like. As more consumers and dealers buy and sell cars online, CarMax plans to keep investing in technology as it evolves with initiatives such as its new virtual auction business that's expected to launch in October.
That means consolidating car lots into one bigger site to more efficiently fill online orders. It's just another way the advent of online shopping is boosting demand for large parcels just outside major population centers, a different version of the need for commercial real estate for warehouses to load goods ordered online onto trucks headed to doorsteps.
In the case of CarMax and used cars, the company has leased office space to open a technology innovation center in Plano, Texas, to support its new shopping initiative that emphasizes the use of online processes, which CarMax is aggressively expanding as more customers car shop on the internet.
"This growing rate of customer adoption reinforces our belief" in focusing on internet-related sales, CarMax said in a filing with the Securities and Exchange Commission.
CarMax's new auction facility about 30 miles south of the innovation center gives the company the ability to expand its wholesale auction business. The 11-acre auction site at 1000 Fulghum Road in Hutchins, a suburb just south of Dallas, and its 3,000-vehicle capacity is expected to help CarMax consolidate and centralize its lots in the region that tend to be much smaller. Customers can still visit the facility to see a car before they buy it.
The company's approach to car lots isn't set in stone. Calling the new office space an innovation center indicates how the company is trying different methods to adapt to the changing habits of consumers. CarMax is also working to adapt as technology lets it streamline the car buying process.
Even so, more than half the vehicle sales for CarMax during the first quarter of the company's fiscal 2022 were partially made online, said President and CEO Bill Nash during an earnings call with analysts. That means the car was at least reserved, financed, traded in or bought online. Those deals that represented 56% of CarMax's retail sales in its first quarter are up from 51% during the previous quarter.
Used Car Demand Surges
The pandemic and supply chain constraints have limited inventory for new cars, and used car sales have been surging. CarMax, which ranks No. 136 on the Fortune 500 list this year of the largest publicly traded U.S. companies, competes with other smaller used car companies such as Carvana, AutoNation and Copart.
CarMax plans to hire more than 300 employees in the Dallas-Fort Worth region as part of its expansion, including 200 tech workers for the innovation center. The employees hired for the innovation center, ranging from software engineers to architects to technology managers, can work at the new Texas office or at the company's headquarters in Virginia.
Shamim Mohammad, CarMax's executive vice president and chief information and technology officer, said Dallas has built itself up to become "a ripe tech and digital environment," and the company is excited to tap into the regional talent and beyond to help support its accelerated pace of innovation. He said the technology innovation center will help redefine what the future of car buying looks like.
Dallas-Fort Worth's tech labor force has grown 16.3% between 2015 and 2020 to 189,200 tech-centric workers, according to CBRE's recent Scoring Tech Talent report.
That ranks the region, defined as a large tech talent market, by the sheer number of tech workers as the No. 6 area in the United States for tech talent, behind cities such as New York, San Francisco and Washington, D.C.
The Richmond, Virginia-based company signed a sublease for the innovation center on the ninth floor of Granite Park Five, a 12-story, 305,369-square-foot office tower at 5830 Granite Parkway in Plano, a suburb about 19 miles north of Dallas' central business district. CarMax is subleasing the space from Award Solutions, and the sublease gives CarMax a plug-and-play space ready to go on day one, said Robert Jimenez, director of leasing for Plano-based Granite Properties, which owns the building.
"We are excited to have [CarMax] in the park," Jimenez told CoStar News. "Hopefully this will be the start of a long relationship with them"
CarMax's sublease for the innovation center, totaling 12,000 square feet, has roughly three years left on the existing term. Cushman & Wakefield's Travis Boothe and Robbie Baty represented CarMax in the deal. CarMax is leasing the south Dallas parking facility from Houston-based Triten Real Estate Partners. Triten recently closed on a $150 million fund from a single institutional partner to continue acquiring and investing in industrial facilities across the country. Chris Teesdale of Colliers International represented Triten in the CarMax lease.
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