The changing conditions of shopping, spurred by the coronavirus pandemic, has led to new interest in online retailer Carvana.
Carvana, an online-only car retailer, is eight years old and was founded to change the way people buy cars. Shoppers can browse and purchase pre-owned models through the company’s website, and then arrange for the purchase to be delivered by truck to their home or office.
The online retailer has yet to turn a profit and has been fighting off tougher competition in the online-retailing space. However, the company is headed in a positive direction due to the surge in online shopping caused by the pandemic.
According to research firm J.D. Power, used-vehicle sales rose 17 percent above the pre-pandemic forecasts in June. Several contributing factors added to the demand, including low-interest rates and the influx of cash from federal stimulus checks.
During a time when many dealerships are still closed because of the Covid-19 pandemic, Carvana posted a 25 percent increase in vehicles sold for the second quarter. Total revenue for the company grew 13 percent to $1.12 billion for the April-to-June period.
As of June 30, 2020, the company had cash and cash equivalents of $246.3 million compared to $76 million as of Dec. 31, 2019.
According to The Wall Street Journal, the company beat estimates on the bottom line, posting a smaller net loss than analysts expected.
“What we needed was an event that would generate the willingness to try something new,” CEO Ernie Garcia said. “That may be happening now faster than it ever has.”
However, Carvana has been facing an unusual problem for this pandemic: there is a higher demand for cars from the retailer than supply.
At the onset of the pandemic, the online retailer suspended some purchasing operations and reduced capacity at facilities where it conducts car inspection and reconditioning. These actions lessened the amount of inventory available.
In a letter to shareholders, the company said, “Over the immediate term we expect our sales volume to largely be dictated by our production capacity.”
Used vehicles are not required to be sold through a franchise dealership network the way that new cars are. This difference allows Carvana and its rivals, Vroom Inc. and Shift Technologies Inc., to operate without bricks-and-mortar storefronts.
The Wall Street Journal reported that Carvana has expanded into more than 260 markets in the U.S. in the past three years. The online retailer expects to sell up to 265,000 cars in 2020, a nearly 50 percent increase over 2019.
While Carvana has made great strides in the used-car industry, there are still wrinkles that the dealer needs to iron out.
Compared with more-established dealerships, Carvana must spend more money and time on marketing to grow its brand recognition. The company must also expand its physical network — building more reconditioning centers where the used cars go to get ready for sale.