Strengthening the retail business
Gulliver has strengthened its retail business in an effort to its strengthen profitability. With the inclusion of incidental revenues, the retail business is two to three times more profitable than the wholesale business. Further, through our wholesale business (purchasing business), traditionally our core business, we have 'inventory', one of the key elements for achieving success in the retail business. Inventory is at once the most important factor for the success of a used-car business, and the greatest risk factor. At Gulliver, we operate a well-established wholesale business, which involves cars being automatically sent to auction after two weeks on the lot. Our business is structured so that the retail business is built on our wholesale business, and although we possess the largest inventory in Japan, at 6,000 cars at any given time, we are free of inventory risk.
Another factor is the ability to attract customers and this is also a key success factor in the used-car business. At Gulliver, we meet with over 1.2 million customers annually through in-store vehicle assessments and online applications. Normally, a retail business would incur a substantial marketing cost, but at Gulliver, we already possess a large customer base.
In the near future we plan to leverage these strengths to expand our retail sales business from the current volume of 40,000 cars to 100,000 cars. Assuming that Japan's used-car retail market is made up of about 2.5 million cars, Gulliver accounts for only about 2% of the market. We believe it is possible to increase our market share by 2.5 times to 5%, and will focus management resources on achieving this goal.
Outline of business results for the fiscal year ended February 2011
In the fiscal year ended February 2010, Gulliver achieved significant growth in retail car sales up 38% over the previous fiscal year. Fiscal year to February 2011 was initially targeting the same pace of growth, however due to a larger than-expected negative impact caused by the eco-car subsidy program, which effectively provides a discount of up to \250,000 on new cars, we made the decision to shift our focus to profitability, implemented appropriate profit margin controls and reduced SG&A expenses. Although sales decreased to \142.0 billion, operating income increased 51.8% over the previous period to \8.0 billion due to our focus on profitability.
Developments and strengths in Fiscal year ending February 2012
In the fiscal year ending February 2012, the used car market was temporarily impacted by a spike in demand for new cars prior to the ending of the eco-car subsidy system, there were signs of gradual improvement. As a result of the recent earthquake, however, we anticipate that conditions may continue to be challenging, particularly in the new car market.
In light of this, we plan to improve profitability while expanding our retail sales. Meanwhile, these activities will contribute to an increase in SG&A expenses. We will also maintain around the same number of stores as the current period while focusing on improving productivity at each store. Finally, we will also proceed with plans for the development of vehicle improvement centers and large-scale showrooms.
Measures to expand retail business
We believe there is still room for growth as the number of car sales per salesperson is still low. Compared to car purchasing, retail sales require a high skill set. Therefore, for the past two years we have focused on training our staff but this will take time to develop. Two years ago introduced the SP-PRO system*, and as of the current fiscal year we have begun to make major improvements, and have acquired more repeat and referral customers as a result. Through these initiatives over the past two years we have achieved significant improvements in customer satisfaction. We believe that in the near future improving customer satisfaction will be an important indicator to acquiring more repeat and referral customers. We hope that further improvements area will lead to an increase in customers.
Gulliver's current used-car market share is about 2%. As the market share is low, we believe that we can expand our retail sales by intensifying staff training and customer satisfaction improvement initiatives.
Finally, at Gulliver we aim to assist our customers in achieving a Smart Car Life offering cars that match their ever-changing lifestyles.
*Sales representatives improve their ranking by achieving a set of targets; mainly conduct follow-up sales with previous customers.
