BLOG Consistent excellence – Arnold Clark

Last week, Arnold Clark filed their financial results for calendar year 2021.  As a private company, there was no press release or media event associated with this – they were just filed with Companies House.

We know that the last year or so has been remarkably good for dealers due to the combination of government support during the pandemic restrictions and strong pricing due to product shortages affecting both the new and used markets, but the results for the group still stand out.

For those who are unfamiliar with Arnold Clark, they are one of the largest groups in Europe – ranked third by turnover in our 2021 rankings to be published soon – and the largest purely UK group.

Having said that, their roots are very firmly Scottish, and that remains the foundation stone of the business.  Arnold Clark founded his first showroom in Glasgow in 1954, and although he did add dealerships and franchises, perhaps more important to the shape and success of the business today is that they established their own finance arm in 1960, entered contract hire in 1966, launched their own insurance services business in 1993 and created their own training company in 2007.  In parallel, they had expanded into the English market from their native Scotland with an asset-light approach, and invested heavily and broadly in digital channels.

They have consistently turned in profits that are higher than the UK average, typically in the 3% plus range, though the 2021 result of over 5% profit pre-tax was outstanding.  Although this was helped by the market conditions, it did not include any government support for staff furlough, although there were reduced property taxes during the period.

When it is normal for large groups to only perform in line with national average or slightly above, it is worth trying to understand what it is that Arnold Clark does that allows it to perform more in line with good small owner-operator dealers on a consistent basis.

My observations are not based on ‘inside information’ and probably miss some aspects that senior management would point to as also being influential.

However, over the years I have had the privilege of speaking on a number of occasions to Eddie Hawthorne, the current CEO who joined the business in 1989 and became Managing Director in 1998, and have had other contacts with the business, as well as discussions about the group with manufacturers and fellow dealers.

Clearly scale and a strong balance sheet helps.  This allows them to invest in resources that are beyond the reach of a small owner-operator, and when deals are around from the manufacturers they can buy big, without the pressure to liquidate that stock immediately.

However, what impresses me most about the business is that when they decide on a particular action, they are bold.  This might be considered as foolhardy by some, but it certainly leaves no one in any doubt about the commitment to launch a new activity or to avoid being taken in a direction that they do not consider is right for their business.

This influences their choice of manufacturer partners, with a willingness to move on quickly from those whose demands they view as unreasonable, and their enthusiasm to expand with those they believe in.

We saw it with their rapid development of infrastructure and sourcing to grow their share of the tyre business – an area often neglected by dealers.  We have also seen it with their launch of two multibrand Innovation Centres, providing brand-neutral advice to potential BEV buyers in an unpressured environment.

Perhaps more importantly for the group’s success has been their multi-faceted expansion in the digital world.  Again, this has been a series of bold moves, with progressive improvements to their website, but also a ‘My Arnold Clark’ app offering a range of functions to prospective and existing customers.

One example is that you can scan the registration of any car that has caught your attention as a possible next car, and the app will then identify the make and model and propose a range of matching models that are available in Group stock.

They have also leveraged these new digital capabilities to greatly expand their presence outside of Scotland and a limited part of northern England, without investing in a traditional network of franchise outlets.

Instead, a small number of click and collect outlets allow customers to order online, then collect relatively locally without the cost of expensive single car home deliveries.  All of this is supported and steered by an in-house team of developers and data scientists.

The approach on people has been no less comprehensive.  Their training organisation, GTG, launched fifteen years ago, now has multiple centres and holds accreditations from a number of bodies.

In that same spirit of bold actions, they not only train staff for the Arnold Clark organisation, but also for external customers.  Reflecting the size of the business, but also the recognition of the broader social need, Arnold Clark is a major provider of apprenticeships, but goes further by supporting candidates who need further development.

They have taken their own spin on the product genius concept by appointing non-commissioned support people into this type of role, working with the sales executives, providing initial product explanations and demonstrations.  Staff pay plans and working rotas have been amended to improve work-life balance and retention.

None of this is intended to be an advertorial for Arnold Clark Group, but it is too easy to say that their high and consistent profitability is the consequence of the extremely strong position they have in their main market areas.

That is obviously a factor, but I have not come across a group which pursues such a broad range of improvement actions, generally with good results, in such a relentless fashion year after year.

They have also created a network of businesses that complement each other and create more opportunities to maximise profit within the group.  These are the factors that impress me most about the business – the profits follow.

Steve Young is managing director of ICDP