Consumer Demand Driving Ecommerce adoption – shaping the future of the Aftermarket
Tuesday, August 30, 2022
Consumer Demand Driving Ecommerce Adoption – Shaping the Future of the Aftermarket
By Bill Della Giustina, Senior Vice President, Automotive Aftermarket Investment Banking, Jefferies LLC
Heightened demand for the ease and convenience of the eCommerce channel is driving industry wide changes for market participants and the end-consumer. The automotive aftermarket has historically relied heavily on the brick and motor channel and was slow to adopt the online channel. The last several years highlight the industry’s rapid adoption of the eCommerce channel – a trend projected to persist in the long-term.
SUSTAINED GROWTH IN THE ONLINE CHANNEL
Growing demand for purchasing aftermarket parts online has motivated market participants to expand or develop new eCommerce capabilities / strategies. Online sales are projected to grow from ~$35 billion in 2021 to ~$50 billion by 2025. This growth represents a CAGR of 8.4% from 2021-2025.
FIGURE 1: PROJECTED ECOMMERCE PENETRATION IN THE AUTOMOTIVE AFTERMARKET
The significant growth of eCommerce channels stems from a consumer interest in the increased capabilities of digitization, which include increased optionality, customizability, and convenience. Online storefronts offer a greater breadth and selection of products by drawing inventory from multiple warehouses, rather than limiting the consumer to a single stores’ inventory. eCommerce channels also give consumers the convenience of staying at home while being able to shop at multiple locations, increasing the breath of products accessible to the consumer.
Consumers will continue to seek the convenience of the online channel driving market participants to hone in and refine their offerings. Current aftermarket eCommerce channels leave ample uncaptured whitespace – a significant growth opportunity for market participants looking to gain market share. In 2021 the aftermarket’s eCommerce penetration rate was just ~20%, compared to ~50% in the consumer and electronics sector. As consumers become more sophisticated with digital channels and as younger, digitally savvy consumers enter the market, retailers and distributors will be adapting accordingly.
MARKET SHIFTS DUE TO INCREASED FOCUS ON ECOMMERCE
1. Importance of Brand’s Online Image
Social media is one of the fastest growing drivers of consumer engagement in the eCommerce space. YouTube, Instagram, and targeted blog sites are a valuable source of information for consumers looking for more insight on products. The proliferation of online aftermarket content (including installation tutorials, videos, and demos) is one of the ways social media increases consumer engagement. The easy availability of online installation tutorials increases consumer interest in DIY part replacement by reducing the technical know-how for those assemblies. The reduced knowledge barrier to entry expands the base of individuals able to participate in the DIY aftermarket.
Social media also provides brands an additional avenue to engage with their customers. Sites like Facebook allow brands to increase consumer engagement and excitement around their products. These platforms enable consumer content creation, which facilitates the creation of a community centered around a particular brand – increasing customer loyalty. Almost 90% of auto enthusiast consumers are influenced by positive brand presence to gauge the quality and trustworthiness of a provider. Going forward as customers continue to demand the increased engagement that social media provides more market participants will continue to invest in building out their social media presence.
FIGURE 2: WHAT AUTOMOTIVE CONSUMERS CARE ABOUT
2. The Online Consumer Profile
Understanding the new eCommerce demographic is critical to unlocking value in the digital aftermarket. Online shoppers (compared to their traditional ins-store counter-parts) are younger, more affluent, and are more likely to conduct in-depth product research before making their purchase.
Who are they?
The digital consumer skews relatively younger and wealthier than the in-store consumer population, making establishing a digital playbook essential for market participants extremely valuable. Given the relative youth of the digital consumer, many of whom are Gen-Z or Millennials, adapting to their usage of digital shopping and marketing preferences presents a profitable growth opportunity for market participants. The increase in disposable income and youth of these aftermarket participants presents the opportunity for companies to increase the popularity of their higher-price point products, as well as allowing for the development of strong brand loyalty at an earlier age.
How do they find the right product?
Easy accessibility of product detail online allows this new generation of aftermarket consumers to conduct greater research prior to making a purchase. The internet empowers consumers to compare competing products and brands more conveniently, to maximize quality and value. Beyond convenience, the proliferation of online content related to these brands, including third party reviews, increases the amount of insight accessible to online consumers pre purchase. ~90% of online consumers research before buying, compared to ~70% of in-store consumers. The emerging popularity and ease of pre purchase research / comparison forces increases brand competition resulting in lower prices and higher quality. It also underscores the importance of a brand’s online presence to their success in the eCommerce subsector. Going forward brands will face increased scrutiny from a more tech-savvy consumer with far more product information available to them and a propensity to utilize that detail to increase the depth of diligence around purchases.
eCommerce channels also attract more first-time buyers relative to brick-and-mortar store fronts. First time consumers are attracted to the superior access to product information and convenience that online purchasing offers. The increase of first-time customers indicates that strengthening the eCommerce subsector can be a key strategy for the aftermarket to expand market share.
3. Increased Virtual Support Facilitates DIY Activity
As the aftermarket becomes increasingly digitized, eCommerce allows consumers to purchase merchandise without even entering the storefront. Retailers, distributors, and manufacturers have adapted to this consumer shift by increasing their virtual do-it-yourself (DIY) support. Given the increase in DIY activity where consumers assemble merchandise and parts at their own homes, companies have created more tutorials and videos online. Several large manufacturers now have videos and step-by-step guides for consumers looking to set-up a product on their own. In fact, social media is a growing channel where such tutorials are distributed. The reduction in technical barrier to entry has allowed the DIY segment to increase from 2010 to 2021 at a CAGR of ~4%. Given this growth companies need to adapt to the increase in DIY activity by strengthening their online presence and offering more support for DIY options, which are frequently used by digital buyers.
4. Growth in Install-It-For-Me “IIFM” Driven by Consumer Convenience and Shop Willingness
The number of consumers preferring install-it-for-me (IIFM) options has also increased. IIFM appeals to consumers who may lack the time or expertise to install a product themselves. The recent emergence of this channel has been driven by the growing willingness of professional auto repair shops to install parts brought in by consumers. Shops have been forced to accept IIFM options as consumers have increasingly demanded to pick their own parts, to utilize the information available to them to maximize both value and price, while also maintain the convenience of professional installation. The IIFM channel grew at a CAGR of ~4% from 2010 to 2021. Given that consumers may prefer the convenience of a product that has already been installed, aftermarket players have innovated their strategies to accommodate for these preferences. IIFM strategies can include at-home delivery services and on-demand maintenances services. IIFM also presents a unique opportunity for DTC players to take market share, which has historically been monopolized by distributors with relationships with professional repair shops. These channels allow consumers to virtually purchase merchandise while having the option of professional installation- all without needing to step foot into a brick-and-mortar store.
eCommerce has granted consumers the optionality and the ability to do their own research more easily than ever before as well as the convenience of conducting that research without traveling to the store. This creates an opportunity for market participants to refine their online strategies and capitalize on an attractive and growing demographic .
eCommerce will be in the spotlight during AAPEX. To learn more, attend the free Presidents’ Update: Joint EV and eCommerce Forecasts, Tuesday, Nov. 1, from 2 p.m. to 3 p.m., The Venetian Expo, Level 2 Lobby, The AAPEX Stage.
Aug. 30, 2022