London - The disruptive influence of connectivity is changing the way business is conducted even in traditional industries such as automotive. High real-estate costs, expensive resources and need for innovation to stay afloat have compelled many automotive dealerships to shrink store space by about 20 percent and resort to digitisation for interactivity with the customer. As bricks and mortar gives way to a bricks and clicks sales model, European OEMs are pushing for standalone digital formats while North America seems to prefer digitisation within existing franchise models.

New analysis from Frost & Sullivan, The Advent of Digital Retailing and its Impact on Car Dealership Structures, finds that global passenger car companies are desperate to innovate and adopt a new retail model to the next generation of young car buyers, the so-called generation Y, a generation that engages through collaborative consumption and targeted digital marketing campaigns. Frost & Sullivan expects that by 2020, 60-70 percent of new car sales leads are likely to be generated by a digital platform, be it Web sites, mobile sites, social media or apps.

Automotive major, Audi, is at the frontline of this change in retail network. Its digital showroom (Audi City), in an upscale shopping zone in London, presents the entire line-up of 40 models virtually. It encourages visitors to configure their dream cars on multi-touch tables, investigating all the possible options by themselves.

"The halo effect of the digital showroom in the heart of the city is expected to drive sales to outer stores and potentially affect dealership network setups, both in terms of size and total number of traditional dealerships," said Frost & Sullivan Director Growth Consulting Automotive & Transportation, Julia Saini.

Car companies are also using fashion merchandising and combining lifestyle elements into retailing globally. Lexus Intersect Tokyo and L' Atelier Renault, Paris conduct special events and exhibitions for new product launches, offering a strong automotive brand experience through lifestyle-related concepts of art, fashion, music, design, food and technology.

The advent of digitization in car retailing has led to the development of new and additional performance indicators. It has seen the introduction of innovative sales strategies, and both cost reductions and additions in upfront investments. New KPIs such as brand awareness, digital engagement of customers, customer age, lead response time and vehicle configurability satisfaction will be of increasing importance in future digital retail formats.

"Better quality leads and easier follow-ups through integrated social media strategy define the success of digital showrooms," noted Saini. "By 2016, automakers are expected to open more than 100 digital showroom/lifestyle stores globally, specifically aimed at enhancing both the retail and brand experience with limited on-floor physical inventory."

With European and North American OEMs expected to invest between $500 million and $5 billion in updating store technology, training staff and digitally integrating various aspects of the car retailing process, soft digitisation technologies such as digital tools, signage and kiosks are anticipated to grow strongly in the short term.