Lexus Keeping Eye on Tesla’s Mall-Store Strategy

DETROIT – As sales of its Model S outpace most competing cars, especially in the battleground state of California, Tesla is drawing the attention of traditional luxury brands.

That includes Toyota’s Lexus marque, whose U.S. chief says Tesla’s mall stores are something he and his management team are watching closely.

 “The model that Tesla has to open up their outlets in shopping malls is a clever one, (and) I think they’re getting a lot of folks to stop in and learn about Tesla,” Jeff Bracken, group vice president-Lexus at Toyota Motor Sales U.S.A. recently told a crowd at a late November media gathering here.

Last week in an interview with WardsAuto, Bracken expounds on the matter, noting mall stores such as Tesla’s especially are alluring because of consumer research, indicating some younger car buyers “are not so excited” to visit traditional dealerships.

Tesla’s stores are seen as low-pressure, informational outlets for the brand. Employees don’t work on commission.

Research done on the typical dealership experience finds younger car buyers may see it as more uncomfortable or adversarial than older car buyers, as most Gen Y consumers conduct a lot of research before stepping through a dealership’s doors, and tend to be younger than the salesperson servicing them.

Failure to satisfy younger car buyers at the dealership level could have long-lasting ramifications.

In a 2011 Deloitte survey, 52% of Gen Y respondents said a bad experience with a particular brand’s dealer would cause them to never consider that brand again.

But Bracken emphasizes Lexus is happy with its traditional retail model and won’t commit to a mall-store strategy that would include its dealers.

“We’re interested to watch what (Tesla does), how the business model works and what kind of customers wander into their outlets,” he says. “That’s really interesting to us and that’s about as much as I would be able to share with you today.”

Tesla’s stores are company-owned, which has not only raised the ire of auto dealers, but also spurred litigation across the U.S., as dealer franchise laws in most states typically prevent direct sales by an automaker to consumers.

“If we were ever to consider something like that, we would keep our dealers part of the solution, no question about it,” Bracken says. “But it’s intriguing if young folks are telling us they don’t really look forward to going to a traditional dealership, but they still have an interest in buying a vehicle or shopping for a vehicle. (If) that’s an outlet that could work for them, then we need to take a look at that to see if that’s something that could make sense for us.”

Earlier this year, another Lexus official cited the Tesla Model S as a key reason why sales of Lexus’ aging LS large sedan were flagging.

“They’re right behind Mercedes (S-Class) in volume,” Lexus Vice President Brian Smith, head of marketing for the brand in the U.S., told WardsAuto in June, noting some LS buyers may be leaving Lexus and trying Tesla.

Through November, WardsAuto estimates Tesla sold 12,864 Model S sedans in the U.S., down 21.4% vs. year-ago.

Despite the drop-off, the Model S still is the second best-selling Upper Luxury Car in the U.S. this year, albeit 10,000 units behind the segment-leading Mercedes-Benz S-Class. S-Class sales through November were up 96.1% to 22,444.

LS sales were down 22.0% in the same period, to 7,539, placing the car behind BMW’s 7-Series (8,648), but ahead of Porsche’s Panamera (5,420) and Audi’s A8 (5,172).

Lexus this month is launching sales of its new compact CUV, the NX, in the U.S., and continues to roll out its new RC coupe, which went on sale in November.

Bracken confirms the brand again will advertise on the Super Bowl. The annual NFL championship game is set for Feb. 1 in Phoenix.

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