Online used car retailer Cazoo has blamed customers buying cheaper cars for its decision to cut jobs and reduce investment, ending a breakneck sprint for growth at the start-up.
“We are starting to see an impact on consumer confidence and a marginal shift in the type of cars people are looking for as cost of living starts to bite,” founder and CEO Alex Chesterman said in a call to investors on Tuesday. “We are assuming things don’t get any better and potentially get worse, which is why we are being cautious.”
Cazoo on Tuesday announced 750 job cuts, amounting to a total headcount reduction of 15%, the end of its subscription services and cutbacks to its ferocious marketing campaign.
The company was already hurting from a recent fall in its share price, which cut the valuation of Cazoo from a heady $7 billion (£5.58bn) to around $1bn as investors re-evaluated the company’s business model.
The investment community’s loss of optimism that Cazoo and other similar companies can disrupt the used car market with the direct-delivery model has choked off the easy supply of fresh money to allow the business to grow, Chesterman said on the call. “We’ve seen a significant deterioration in the financing climate for businesses like ours,” he said. “We’re going to assume none of this is going to get better.”
Chesterman referenced last week’s closure of Carzam, a UK rival to Cazoo. Carzam founder Peter Waddell told The Times newspaper he directly blamed Cazoo’s falling share price for scaring off investors from putting more money into the company.
Chesterman said Cazoo will “largely pause” its phenomenal recent spending drive to snap up businesses deemed helpful to achieve its goal of achieving a 5% market share of the used car market across Europe.
Cazoo’s purchases since December 2019 include vehicle reconditioning business SMH Fleet Solutions for £76 million; Smart Fleet Solutions Ltd, another reconditioner, for £39m; vehicle data cruncher Cazana (£24m); online van retailer Vans 365 for £7.9m; and, this year, Italian online car retail Brumbrum (€80m).
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I've been surprised at the speed with which Cazoo and other similar companies have grown. Maybe it's a classic case of growing too fast. I also wonder about the business model itself. It seems to rely on traditional dealers to allow people to try cars first before then buying via the online retailer. And I'm not keen on the idea of their 7 day money back guarantee either - you don't get your old car back, just the money which leaves you car less or you swap it for another. Puts you on the spot a bit. That said their prices have been good and perhaps I'm just a bit old school.