Used car supermarket Motorpoint insists its strategic adjustments and resilient business model will help it navigate the challenges faced by all retailers in the second-hand market after posting a £6.7 million swing into the red.
Revealing an underlying loss of £3.7m in its interim results, the business said it underwent a challenging first quarter, after which performance rallied in the subsequent quarter, resulting in a reduced loss of £0.6m. The figures indicate a 6.7% dip compared to the same period the previous year when Motorpoint posted a £3m profit.
First-half revenues took a significant hit, falling by 22.8% to £607.2m where retail volumes saw a 18.4% fall, and wholesale volumes dropped by 22.4%. Throughout the six-month period, Motorpoint sold a total of 39,300 cars: 25,800 through retail and 13,500 through wholesale.
In response to the challenging market conditions, the company reported that it had instituted several strategic changes, including halting its new store programme after opening its Ipswich store taking the total number to 20, reducing capital spending and launching a significant job reduction initiative, measures which it termed ‘decisive action to right-size the business to withstand a potentially extended depressed market’.
Efforts were made to boost retail margins during this challenging period through adapting its sourcing strategy by securing more stock directly from consumers and selling through retail channels. Motorpoint said its gross margin of 6.4% was slightly lower than the previous year’s 6.6%. Vehicle preparation time was also reduced from 8.8 days from 8.7 days compared to the same time last year despite the move to older vehicles.
Looking forward, Motorpoint acknowledged the near-term challenge posed by the rapid fall in used car values. However, the leadership remains optimistic about the future believing its lean cost base meant that it is well placed to weather the period and that the correction in values bodes well for next year and beyond as the used car market begins to normalise.
Anticipating a better market in the coming year Mark Carpenter, CEO of Motorpoint Group, said that falling used car values represented a sign of supply beginning to improve in the nearly new market which the business has traditionally dominated.
Carpenter pointed to the company’s agility and resilience, highlighting its current lack of structural debt and flexible business model, insisting there remained a significant opportunity for cash generation in the medium term although warned that while it had taken proactive measures to limit the impact on its stock, the current environment was likely to be volatile as new car supply into the used car market begins to increase.
He added that the impact of high inflation, interest rates, and consumer uncertainty continues to affect demand for used cars which is impacting the value of used car, – with a reduction in wholesale values of around 6% in just the last six weeks.
“Whilst we have taken proactive measures to limit the impact on our stock, the current environment is likely to be volatile as new car supply into the used car market begins to increase.
“Key elements of a normalised market are already underway,” he said, “including an easing interest rate environment, continued corrections in used car values, and an increase in market size as demand grows and supply is bolstered by new car registrations feeding into the used segment. Motorpoint is a leaner and more agile business, and is ready to seize the significant growth opportunity as market conditions improve.”
Carpenter said the business remained committed to developing a cross-channel retail approach and would not embrace the wholesale disintermediation of portions of the used car market by selling direct to consumers through a lower cost, higher service model, by buying direct from consumers or via new online marketplaces.
“We have learned, based on our customer data, that some degree of physical connection continues to be preferred by most customers to provide reassurance and trust in the transaction. Motorpoint, as a leading omnichannel retailer, is uniquely positioned to serve this need and is developing integrated consumer journeys across its digital, store, customer service and delivery channels that will meet changing consumer needs. This is Motorpoint’s central strategic opportunity.”
“Underpinning Motorpoint’s new capabilities will be contemporary technology and data practices. These will not only create unique cross-channel customer journeys but will improve efficiency in our key processes such as selling, vehicle preparation, logistics, pricing and inventory turnover.”