Cazoo Targets Higher Margins as Used Car Market Shrinks

Cazoo has revealed plans to shake up its U.K. business.

In a Wednesday (Jan. 18) earnings statement, the online auto seller 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 British retailer remains “extremely mindful of the current economic environment” and is confident that “the right course of action for 2023 is to focus on further improving our unit economics, reducing our fixed cost base and maximizing our cash runway.”

The new plan drops the firm’s sales target down to 40,000 to 50,000 U.K. retail units this year, reflecting a focus on higher-margin and faster-moving inventory, the retailer said in the statement.

The release added that the company will be closing some of its vehicle preparation facilities and making further layoffs in a bid to cut costs and improve efficiency.

The new business plan for the U.K. comes as Cazoo’s withdrawal from mainland Europe nears completion. The company is disposing of its Italian and Spanish businesses and largely wound down its French and German operations last year.

On top of the European exit, the online retailer said it expects the recently announced cost-saving measures to help keep its business afloat without having to raise further external funding over the next 18 months to 24 months.

And as it continues to pursue profitability, Cazoo’s goal of achieving a 5% market share in the U.K. highlights an increasingly single-minded focus on securing a dominant position on its home turf.

As the company stated Wednesday, the U.K.’s used car market is the largest in Europe, worth over 100 billion pounds (about $124 billion) annually. And judging by that number, Cazoo’s full-year 2022 earnings of 1.42 billion pounds (about $1.8 billion) leave plenty of room for growth before it hits its 5% target.

Overall, however, the U.K. saw declining used car sales throughout 2022.

As the Society of Motor Manufacturers and Traders (SMMT) has reported, transaction volume declined sharply in the first three quarters of the year, at which point sales were down 9.7% compared to 2021. Last year was the first in which third-quarter transactions dipped below 2 million since 2015.

Across the pond, U.S. company Carvana has also been forced to cut costs and has been making a similar argument to Cazoo about the need to increase efficiency.

In a Q3 earnings statement released in November, Carvana founder and CEO Ernie Garcia echoed Cazoo’s emphasis on higher margin sales.

“We plan to continue to rapidly reduce expenses, to continue to put our focus on efficiency gains throughout every area of the company, and to continue to evaluate and test what levers we should pull to maximize the number of our more profitable sales and to minimize the number of less profitable sales,” he told analysts.

For all PYMNTS EMEA coverage, subscribe to the daily EMEA Newsletter.