Why some Infiniti dealers criticize brand's proposed shift from standalone stores

Infiniti Canada is floating a plan to allow its dealers to consolidate the luxury brand and Nissan nameplate under one rooftop as a way to reduce brick-and-mortar costs in the wake of the explosion in online shopping.

But some retailers criticize the automaker’s shift from standalone stores, saying it means expensive renovations to retrofit their Nissan stores and ignores the real problem facing Infiniti: lack of new product.

“For the past five years, Infiniti has promised us we have all this product coming, it was going to be a booming franchise,” said Rick O’Neill, president of O’Neill Auto Group, which operates an Infiniti store in Mount Pearl, just outside of St. John’s, Nfld. “Now they are saying we’re not sure the throughput’s going to be what it needs to be.”

Steve Rhind, managing director of Infiniti Canada, said in an email that the automaker’s decision to relocate its headquarters to Japan last year as well as market trends were among the factors that prompted the brand to “reevaluate and reset its product strategy.

“With a renewed focus on the customer-centric approach to luxury that has always been a hallmark of Infiniti, we are committed to offering buyers of the future with choice,” he said, declining comment on future products.

Twenty-four of Infiniti’s 37 dealerships are standalone stores, according to the company.

The lineup currently consists of the QX50, QX55, QX60 and QX80 utility vehicles, the Q50 sedan and the Q60 two-door coupe.

QX60 IS COMING, BUT IS THAT ENOUGH?

Infiniti’s rollout this fall of the new generation of its best-selling QX60 midsize crossover is viewed as a bet-the-franchise launch for the brand. But O’Neill worries it might be too little, too late.

“You can’t make a franchise on one model,” he said. “There is nothing else on the horizon for two years out.”

About a decade ago, Infiniti steered dealers to build upscale stores to showcase the luxury brand.

O’Neill said he is now losing $350,000 a year on his Infiniti store.

“They now want me to spend even more on my Nissan building to bring Infiniti in.”

Daniel Beaucage, president of Groupe Beaucage, said he does not plan to shutter his Infiniti store in Sherbrooke, Que.

Retrofitting his Nissan store to accommodate the Infiniti operation would cost $6 million to $7 million, Beaucage said.

“It’s too much money,” he said. “And I’m still stuck with the Infiniti building.”

Rhind said the new strategy’s intent is to help dealers lower costs and achieve better economies of scale by combining Infiniti and Nissan service departments and back-office operations, especially as online shopping accelerates.

The switch, he said, should be less impactful than in the past since the COVID-19 pandemic has accelerated online sales as well as vehicle pickup and delivery services.

“Customer expectations are changing. So, dealers are asking for a different approach to what their facility might be.”

CONSOLIDATION IS OPTIONAL

Rhind said the rooftop consolidation plan is not mandatory.

“This is something that we’re making an option for dealers. We are working with them when they want to do it.”

He also said that prior to the pandemic, about 27 per cent of the dealer network was already in “a dual store or a synergy store.”

For example, the building would feature “a Nissan on the left and Infiniti on the right, and there’s a service drive in the middle.”

Rhind declined to speculate on how many dealers might make the switch. “We are having the conversation, so we don’t know yet how many will go there.”

To ensure brand differentiation, Infiniti requires dealers to have a separate customer entrance and, in most cases, dedicated service lane in the combined store.

“It would never be a showroom within the showroom,” Rhind said. “You will have dedicated Infiniti salespeople, dedicated Infiniti service people, so the customer has a premium experience.”

SALES PLUNGE

In many cases that will require exterior and interior building work and additional investment in new dealership materials, such as furniture and signage, dealers said.

“New decoration, new tiles, everything has to be changed,” Beaucage said.

The shift in retail strategy reflects Infiniti’s diminished market position as sales plunged and as the product rollout slowed. Deliveries in Canada fell to 5,783 units last year after peaking at 12,581 in 2018. In 2019, sales totaled 10,974.

Infiniti’s share of the Canadian premium market has fallen to 2.8 per cent through June 2021, from 5.9 per cent in 2014, according to the Automotive News Research & Data Center.

Increased competition has taken a toll on dealer gross margins, said Greg Carrasco, vice-president of operations at Oakville Infiniti and Oakville Nissan in suburban Toronto.

With auto sales gravitating online, “we don’t need these giant $30-million facilities to be able to sell the same amount of cars,” said Carrasco, who supports Infiniti’s new strategy “in theory.”

“For the process to have a favorable outcome, Infiniti must support their dealer network on whatever decision individual dealers choose to make,” he said.

“Dealers must be treated fairly from a financial perspective, and the only way to achieve this fairness is with clear and transparent communication.”

MAKES SENSE

Infiniti’s decision to co-locate with Nissan risks tarnishing the brand’s premium image, warned Jessica Caldwell, executive director, Insights, at Edmunds in Santa Monica, Calif. As mainstream brands dial up the content in their vehicles, premium automakers are having to differentiate by elevating the brand retail experience, she said.

“Creating an upmarket dealership with amenities and services that appeal to the busy luxury vehicle buyer is an important and clear way to set the tone for a luxury brand,” Caldwell said.

But Infiniti’s new strategy makes sense as the industry shifts to electric vehicles, David Mondragon, vice-president, enterprise product management, at consulting and research firm IHS Markit in Michigan.

“Parts and service efficiencies will be more important over time as brands migrate to EVs with lower parts and service dependencies than internal combustion engines,” said Mondragon, also a former Ford Canada CEO.

A dual location, he said, is a “natural feeder for future sales ... as customers mature in the purchase cycle, many will migrate from non-luxury to luxury.”

If managed correctly, “shared locations can be a win-win for the customer, dealer and [automaker].”