Cazoo targets higher margins as the market shrinks

Cazoo has revealed plans to shake up its UK business.

In a Wednesday (Jan. 18) earnings statement, the online car retailer announced a revised strategic plan for 2023 as it reassesses its business model and adapts to current market conditions.

As Cazoo founder and CEO Alex Chesterman OBE noted in the statement, the UK retailer remains “extremely aware of the current economic climate” and is confident that “the right course of action for 2023 is to focus on further improving the economics of our unit, reducing our fixed cost base and maximizing our cash runway.”

The new plan lowers the company’s sales target to 40,000 to 50,000 UK retail units this year, reflecting a focus on higher margins and faster-moving stocks, the retailer said in the statement.

The release added that the company will close some of its vehicle preparation facilities and make further layoffs in an effort to cut costs and improve efficiency.

The new UK business plan comes as Cazoo’s withdrawal from mainland Europe nears completion. The company is selling its Italian and Spanish activities and has largely phased out its French and German activities last year.

On top of the European exit, the online retailer said it expects the recently announced cost-cutting measures to keep its business afloat without needing to attract further external financing over the next 18 to 24 months.

And as it continues to pursue profitability, Cazoo’s goal of achieving a 5% market share in the UK highlights an increasingly resolute focus on securing dominance in its home turf.

As the company stated on Wednesday, the UK’s used car market is the largest in Europe, worth more than £100 billion (about $124 billion) a year. And judging by that number, Cazoo’s full-year 2022 revenue of £1.42 billion (about $1.8 billion) leaves plenty of room for growth before it reaches its 5% target.

Overall, however, the UK saw a decline in used car sales in 2022.

As the Society of Motor Manufacturers and Traders (SMMT) reported, transaction volume fell sharply in the first three quarters of the year, after which sales fell 9.7% compared to 2021. Last year was the first year in which transactions in the third quarter fell below 2 million since 2015.

Across the pond, US company Carvana has also been forced to cut costs and has made a similar argument against Cazoo about the need to increase efficiency.

In a third-quarter earnings statement released in November, Carvana founder and CEO Ernie Garcia reiterated Cazoo’s emphasis on higher-margin sales.

“We intend to continue to rapidly reduce costs, to maintain our focus on efficiencies in every part of the business, and to continue to evaluate and test which levers to use to increase the number of our more to maximize profitable sales and to minimize costs. the number of less profitable sales,” he told analysts.

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