John Good

WHEN LSH Auto Group Australia opens its destination store at Breakfast Creek Wharf in Brisbane next month it will begin operating a new model within the Australian car retailing industry that few companies could emulate.

Some dealers have sought to reduce the real estate overhead on their operations by building apartments or offices above their showrooms in high-rent locations, but the $100 million investment in Breakfast Creek Wharf (BCW) takes the concept to a completely new level.

At a time when we hear that the average net profit on sales in Australian dealerships is down to 0.4 per cent, such an investment bears scrutiny and it turns out that the LSH Group is able to bring a unique variety of corporate assets to the table that add up to that holy grail of businesses everywhere – the unique advantage.

The LSH Group is a large international company based in Hong Kong where the owners are also based.

There are five core businesses; automotive, machinery (the world’s largest Caterpillar dealer), property, trading and financial services. All are leaders in their respective segments. The financial services division focuses on asset-backed funding and is one of the largest asset-backed finance groups in Hong Kong.

The first element in its competitive advantage on destination premises is that, other than Porsche in South Korea and Vietnam, LSH Auto Group is totally focused on retailing Mercedes-Benz vehicles with the surety of all the financial, customer and marketing benefits that flow from such a premium brand.

The automobile division operates in seven international markets, 118 cities and has 278 mostly Mercedes retail outlets with more than 24,000 employees, including about 16,000 in China. Daimler AG owns 15 per cent of LSH Auto International.

By focusing on Mercedes-Benz, the company avoids the distraction of juggling many brands which is the lot of most large dealer groups. Around one in 10 vehicles made by Mercedes is sold by LSH.

Worldwide, in 2018, LSH sold more than 256,600 passenger cars (up 2.5 per cent from 2017), sold 44,100 used passenger cars (up 30 per cent) put 2.26 million cars through its service bays (up 11 per cent) and generated revenue of $A22.2 billion.

The second element, and crucial to the strategy, is the property division.

Internationally, the company owns nearly two million square metres of space, mostly in Asia, running at an occupancy rate of nearly 90 per cent. It just finished a new development in Beijing which houses a Hyatt Regency hotel. The LSH Plaza development also houses the headquarters for Daimler North-Asia.

The company has determined that, in the coming retail revolution, a brand like Mercedes-Benz will thrive if its customers and potential new customers become part of an unmatched retail experience; one that is so far removed from the normal dealership that its location becomes a desirable and unique destination.

But, as many dealers responding to demand for premises upgrades have found out to their cost, the numbers of cost versus return often do not stack up.

The managing director of LSH Auto Group Australia, John Good, told GoAutoNews Premium: “Breakfast Creek is a beacon in the area. The star is now illuminated in readiness for the opening in mid-July. The first tenants have been signed and the property division is working on securing further tenants.

“The plan is for a unique auto retail destination around the Mercedes cars but also auto-related businesses selling like-minded lifestyle activities and brands. A premium restaurant will occupy the rooftop with sweeping views of the river and the CBD and well as trattoria-style cafes on the boardwalk along Breakfast Creek.

“So we are creating this precinct that is not just automotive.”

Asked about the investment strategy, Mr Good said: “We are long-term investors and we invest from a long-term strategic perspective.

“The group’s property division is a very strong division. So it is a property investment strategy as well. We have the dealership which runs the operational part of the business and the property division is investing in the development.

“If you take the strategy we took with BCW, we looked at it from a more holistic basis and it comes back to LSH wanting to deliver an experience that puts the customer first.

“There are a lot of challenges in the market at the moment but for us the customer experience is at the forefront and it will continue to be a highly important part of the whole retail process.

“To provide a unique and very strong customer experience also requires a focus on the facilities and what is inside the facilities. In the Breakfast Creek Wharf development we are investing in creating a unique destination that provides a unique package experience for the customer.

“They can experience the world of Mercedes-Benz with the products on display, they can have a premium fine dining experience on the roof and the retail connection with like-minded brands within the whole complex.

“It is all part of this unique destination.

“Clearly, as part of that, we are able to strengthen the return on investment for our investors.”

Mr Good said it was “certainly right” that the future of auto retailing would mean introducing other like-minded elements to generate returns in order to make the investment in the auto side make sense.

“We have certain strategies and the message is very clear that we really need to continue to create unique experiences and that has been in the forefront (of our thinking) for some time,” he said.

“To create this unique destination where the customer has something that is completely different to what they are experiencing today in the automotive segment will continue to add a lot of value and will continue to support both the automotive side of the business and support the property side.

“LSH is well placed to pursue this strategy because it has a very strong automotive division supported by the benefits of selling a premium brand and a very strong property division. That is not a standard combination.

“That, plus the luxury of being able to take a longer view under private ownership, allows LSH to build value in those sites for the long term so the operating business does what it has to do but the property business is building the overall value in the site.

“So the trend is to provide a destination that is more than just a place to do business about a car.”

Mr Good said BCW should be seen as the first of such developments.

“Without revealing too many in-depth plans, at the moment we are certainly developing ideas with the property team to look at concepts in other cities,” he said. “As to where they will be, the destination factor is critical.”

Mr Good said that the choice of facilities would come down to the brand promise and that they “must evoke a destination”. They must also be in the PMA so that “geographical limitations could limit our options to a degree”.

By John Mellor