Depending on who you ask, Cazoo – the used car retailer founded in 2018 and rumoured to be preparing a stock market flotation with an incredible valuation of £5 billion – is the definition of a disruptive, once-in-a-lifetime business unicorn or a donkey dressed as a unicorn, trading on hype built up in record time via its key owner’s reputation and a big marketing budget.
That owner is Alex Chesterman, an investor and the creator of LoveFilm (a film rental service sold to Amazon for £200m) and Zoopla (a property market services firm floated and then sold for £2.2bn).
It’s this Midas touch that has lured investors into pouring around £450m into Cazoo, funding everything from the fundamentals of a used car retailer through to high-profile advertising campaigns and sponsorship of Aston Villa, Everton and the English Football League.
The sizzle is Cazoo’s willingness to sell you a used car entirely online, delivering it to your door and offering a money-back guarantee if you don’t like it. If you’re willing to buy a car unseen, it’s a slick service, and one that ties into Chesterman’s reputation for using technology to bring down the barriers inherent in established brick-and-mortar operations.
But Cazoo’s model isn’t without challenges, not least that during the pandemic almost every car retailer has moved to more or less match it, and that consumer laws mean that its money-back guarantee is an obligation, rather than an innovation.
What’s more, it has been swiftly forced to break its USP of selling cars without physical premises, coming to the conclusion that big-ticket buyers often want to see what they’re committing to first. Consequently, it has spent millions buying and opening ‘customer service centres’. They may not be dealerships by name but, to the casual eye, they sure look and operate like them.
Then there’s the small matter of money. Cazoo was created as a start-up with ambitious (and therefore expensive) growth plans, but even so, there was little in its recorded £19m loss in its first year of trading against revenue of £1.1m to suggest that it has untapped a huge market opportunity. Sure, it has huge momentum and more is likely to come, but it’s also fair to observe that it has a long way to go.
To long-established big car retailing groups, valued typically around a single-digit percentage of that £5bn figure yet almost universally recording both vastly more sales and larger profits, it’s all a bit galling. The stock market doesn’t always reflect reality, of course, and many people believe that Cazoo is either overvalued, or that its more traditional rivals are undervalued. Only time will provide the answer.
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What has been missed by almost all online car sales is that they HAVE to comply with the Distance Selling Regulations which gives the customer 14 days to reject any purchase without having to give a reason, and obtain a full refund.
I wonder how many 14 day "test drives" it will take before the online model begins to look less attractive?
No experience of Cazoo, and can't speak to the valuation, but I struggle to see how they can compete with the likes of Cinch, which appears to be run by BCA: they've got about half the UK car auction market (so a good supply of ex-lease vehicles), own WeBuyAnyCar for the older stuff, have their own logistics arm for transport, and seem to be doing a lot of TV advertising themselves. You've also got Heycar which is owned by VWFS and Daimler mobility. Good luck to them though; got to respect Chesterman's track record.
If I were an investor I’d stay well away, irrespective of Chesterman’s track record of ‘onlining’ other traditional market transactions.