Carvana expands into 25th market: Chicago

Downtown Chicago. Photo from Shutterstock.com
PHOENIX - 

The 25th market for Carvana is its largest one yet.

The online used-vehicle retail platform announced expansion on Wednesday into Chicago, the company’s first market in Illinois where an estimated 13 million consumers in the greater Chicagoland area can now could get free, as-soon-as-next-day delivery of any vehicle from Carvana’s 7,300-plus unit inventory.

“Chicago is our most populated market to date,” Ernie Garcia, founder and chief executive officer of Carvana, said in a news release. “Not only is it the northernmost market we’ve launched in, it’s home to the third largest population in the country. We can’t wait to show them the new way to buy a car.”

As a part of its filing with the Securities and Exchange Commission for its initial public offering this spring, Carvana elaborated about what it takes to expand into another market. After opening Atlanta in 2013, Carvana opened two markets in 2014, six in 2015 and 12 in 2016. Earlier this year, the company made moves into St. Louis and Philadelphia on its way to reaching the 25-market threshold.

“Our growth in retail units sold is driven by expansion into new markets and increased penetration in our existing markets,” Carvana said in its SEC filing. “We define a market as a metropolitan area in which we have commenced local advertising and offer free home delivery to customers with a Carvana employee and branded delivery truck.

“Opening a new market involves hiring a market operations manager and a team of customer advocates, connecting the market to our existing logistics network and initiating local advertising,” the company continued. “Each new market has typically required approximately $500,000 in capital expenditures, primarily related to the acquisition of one to two branded delivery trucks, a multi-car hauler to connect the market to our logistics network, and furniture, fixtures and equipment in a local office space.

“As a market scales, we may elect to build a vending machine in the market to improve fulfillment and further increase customer awareness,” Carvana added.

One of the primary ways Carvana broadens customer awareness is through its noteworthy car vending machines. If customers prefer to pick-up their vehicle personally, they can opt into Carvana’s “Fly and Drive” program where Carvana will subsidize $200 of airfare to a car vending machine location in the Texas cities of Austin, Dallas, Houston or San Antonio as well as Nashville, Tenn.

“Each new vending machine has required $4.5 million to $5.5 million of capital expenditures, depending on the number of stories in the vending machine tower and local market conditions,” Carvana said in the SEC filing.

To date, Carvana said it has delivered vehicles to customers in 47 states. The rundown of markets where Carvana now operates includes: Atlanta, Austin, Birmingham, Charlotte, Cincinnati, Cleveland, Columbus, Dallas, Hampton Roads (Va.), Houston, Indianapolis, Jacksonville, Memphis, Miami, Nashville, Orlando, Philadelphia, Pittsburgh, Raleigh, Richmond, San Antonio, St. Louis, Tampa, Washington D.C., and now Chicago.

“Our capital- and headcount-light expansion model has enabled us to increase our rate of market openings in each of the past four years,” Carvana said in the IPO paperwork.

To thank the early adopters in Chicago who purchased a vehicle prior to Wednesday, Carvana said will fully refund any delivery fee paid.

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