The Rise & Fall of Cazoo: What Can You Learn?
Cazoo seemingly sprung out of nowhere.
The online-only used car marketplace, founded in the UK in 2018, went through massive growth over the last few years.
It rapidly spread across Europe and attracted major investment. The company had ambitious aims and spent big in attempts to achieve them. Cazoo was racing ahead — until suddenly, it wasn’t.
What can we learn from the rapid rise and fall of Cazoo? Was it just bad market timing, or the result of bad decisions? Let’s take a closer look at this fascinating brand.
Green Light for Growth
Cazoo was founded in 2018 by serial entrepreneur Alex Chesterman. He had previous experience founding film rental company Screenselect (which later became LoveFilm and was sold to Amazon), and property listing site Zoopla (sold to a private equity firm for £2.2bn). So, it wasn’t a surprise to see investors place their trust in him.
While it’s not the only online used car marketplace in the UK or EU, Cazoo does operate a bit differently from the competition.
Cazoo has often been likened to Amazon due to the scale of its operation and its promise of quick delivery to customers. It owns every car that it lists, and with a speedy fulfillment process from its massive UK storage facility, it promises to deliver any car you order to your driveway within 72 hours. And, in theory, without having to operate dealerships throughout the continent, savings are passed on to the consumer.
Customers can buy cars outright from Cazoo, or they can arrange to purchase on finance. It can also collect vehicles for trade-in deals.
In 2021, the company’s international expansion began, launching in Germany and France. And the following year, it acquired a competitor in Italy and launched in Spain.
Cazoo became one of the fastest-growing brands in Europe, rapidly raising over $1.4billion of capital investment in total. It was listed on the New York Stock Exchange in a Spac deal valuing it at $7bn at the time.
The Brand Accelerates
Source: Cazoo Press Kit
Cazoo wasn’t the only used car marketplace, of course. So why did it grow so big, so quickly?
Cazoo’s growth was, by most standards, exceptional — and a warning sign of things to come. Multiple factors contributed to its eye-watering valuation at the time of its stock-market listing.
As the Financial Times opined:
“It was the perfect alignment of factors at the point of Cazoo’s float that gave an anomalous boost — surging used car prices, an unsustainable shift to online shopping and heightened consumer spending on durable goods compared with services.”
Market conditions clearly played their part in its growth (and they’re an important factor later in the story, too).
But that mountain of VC cash helped, as well. What did they spend it on? One major item on their bank statements was a range of sponsorship deals inked throughout 2020–2021.
Cazoo became well-known for its huge sponsorship advertising push, particularly in the world of sports. It sponsored teams and events in:
These were all significant deals in the multi-million-pound range per year. Sponsoring teams, as they did with Aston Villa, Marseille and Valencia, involved not just the exposure from the front of the team shirt, but from a wide range of touchpoints. The brand’s logo and messaging would appear throughout the team’s stadium, website, social media, and even collateral from other sponsors, like the shirt manufacturer’s advertising for replica kits.
Large sponsorship deals like this involve multi-year contracts; they take time to set up, and if things go wrong, they’re expensive to get out of (again, something to note for later in the story).
Fans of sponsored teams like this have a high chance of increased brand awareness, which can lead to preferential decisions down the line — in this case, when they want to buy a car, Cazoo would be the first brand they think of.
But, sports sponsorships weren’t the only form of publicity Cazoo relied upon. They also promoted the brand through different marketing channels — a must when you’re an online retailer. However, much of their brand awareness came through these partnership deals — and they were expensive.
The Wheels Fall Off
In a not-entirely-unexpected turn of events, Cazoo’s meteoric rise eventually stalled.
Warning signs emerged in June 2022, as economic uncertainty started to grip the world. Cazoo laid off 15% of its workforce and shuttered its car leasing option entirely. This happened alongside a range of other companies facing similar fates due to market turmoil, and Cazoo blamed the “perfect storm” of economic conditions, implying they had no way of predicting it.
And later, in early September 2022, Cazoo’s outlook changed dramatically.
The company announced that it was leaving the European Union entirely — and shifting operations solely back to the UK. Cazoo had been operating in the EU for less than a year when this decision was made.
It was a massive move that came as a big disappointment for many — not just customers and business partners, but employees, of whom 1,500 lost their jobs.
From August, the company reported losses of £243m in the first half of the year — double what they were previously — and they had to switch focus to save cash and achieve profitability quickly.
The UK market is still regarded as a big opportunity for Cazoo, though:
“Growth in the UK remains strong… the demand for our proposition leaves management very excited about the future opportunity for Cazoo and its ability to capture a 5% or greater UK market share.”
There’s not much optimism around many aspects of the UK economy right now, so we have to take this statement with a pinch of salt. But alongside the anticipated savings of £100m from leaving the EU, it does at least provide some hope that Cazoo can perform another U-turn — this time, a positive one.
Reverse Gear Engaged
What will happen to Cazoo’s brand after such a rapid turnaround?
Firstly, their consumer reputation might suffer. Newspaper headlines about the “troubled” company won’t do any favors for consumer confidence.
And while most retailers are having a tough time, this does represent an opportunity for competitors to step in. The used car market is dominated by dealerships, of which there are around 15,000 in the UK. Furthermore, other online dealerships and directories offer the same end product (a used car) with a slightly different service model. If customers care more about price during such an economic environment, they’ll be willing to forgo the convenience of Cazoo’s online-only approach and find a cheaper option.
Cazoo might have trouble recruiting the best talent in the future if there’s an underlying fear that the rug might be pulled once again. High numbers of job losses mere months after entering new markets is never a good sign.
There’s also the potential for embarrassment as their wide-ranging sponsorships throughout Europe will have to be altered. Their deal with French soccer team Olympique de Marseille, announced in March 2022, will instead be canceled, along with those of other clubs across the continent — including Freiburg, Bologna, and Real Sociedad. Fans won’t be happy if this impacts their club’s ability to spend money on the best players.
And investors won’t forget either, with the company valuation plummeting more than 90% since its peak in February 2021.
Lessons From Cazoo’s Rise and Fall
Source: Cazoo Press Kit
Failure can be a learning opportunity, as we’ve seen with various failed product launches that big brands bounced back from. Setbacks like Cazoo’s don’t necessarily signal the end.
So for brand managers of all backgrounds, there are two major takeaways from this unfortunate situation. And they’re better to know up-front, rather than learn from bitter experience.
1. Growing in the good times? Prepare for the bad times.
It’s a bit too easy to say “we told you so”, but it’s hardly surprising that a company over-valued in 2021 is struggling in 2022. Cazoo is certainly not the only example. But it’s worth reiterating for future brand-builders operating in a bull market — good times rarely last forever.
When conditions are positive, it might seem like you can conquer the world. But do you have a plan for when things go sour? Do you have enough cash in the bank to sustain your core business and keep your brand alive?
When people’s jobs are at stake, you better have a backup plan.
2. Sponsorships don’t always get you sales
Or at least to the extent you want them to.
Cazoo bet the farm on sports sponsorships being the way to achieve multinational success. VC-backed brands have a mandate for rapid growth, and Cazoo was operating on quarterly timelines. Sponsorships, in contrast, are often a long-term play, aimed at building brand recognition through multiple exposures over time — not prompting an immediate uplift in sales. You have to blend brand sponsorship with more practical, ground-level marketing activity if you want to get those sales rolling in quickly.
Reporting in Smart Company, Sarah Jane Kelly suggests that sponsorships are hard to measure, and lack data proving their impact. They’re not a short-term solution:
“To make matters worse, there is generally a lag between a promotional activity and the effect showing up in increased awareness and sales. Seeing a real impact also often requires several ‘exposures’ — for instance, a long-term partnership with a sport or team.”
Sports brand sponsorships can certainly be worth investing in — but they have to be part of a wider brand strategy for the long term.
A bumpy road lies ahead for Cazoo. But if it drives carefully, it may well reach its destination, albeit a little later than planned.
The company’s new focus on “cash preservation” and breaking even signals a more conservative approach to its brand strategy. The used car market will change in the years ahead, but it won’t disappear — there are plenty of opportunities still out there.
But how badly will Cazoo’s sudden U-turn affect its brand? Will customers and potential employees continue to trust the company? Will it be granted a second chance in the market?
Any brand looking to replicate Cazoo’s success would be wise to examine its setbacks, too. Even if it does end up as Europe’s premier used car marketplace, it’ll be taking the scenic route to get there.
Originally published at https://latana.com.