The move is also aimed at lowering investment cost of dealers and improve margins, following closure of several dealerships in the last two-three years owing to poor returns on investments.
By Pritish Raj
As vehicle sales continue to remain sluggish, automakers are betting on small-format outlets or studio stores in villages and rural pockets to garner more volumes by expanding customer base. The move is also aimed at lowering investment cost of dealers and improve margins, following closure of several dealerships in the last two-three years owing to poor returns on investments.
Studio stores are typically smaller, about 200-300 sq ft in size, compared with the ideal ones, which are spread over 3,500-5,000 sq ft. The cost of opening them is less than a couple of crores, unlike the large ones, which need an investment in the range of Rs 20-40 crore, depending upon the size.
Companies, including Tata Motors, Royal Enfield, Toyota and Maruti Suzuki, are at the forefront of opening these small-sized showrooms, which will offer a digital experience to the buyers. “Compared with the larger outlets, fewer variants will be at the display for customers to touch, feel and take a test drive and basis their requirement, vehicles will be sourced for them,” an industry executive told FE.
According to Mayank Pareek, president for passenger vehicles at Tata Motors, small towns and villages have a lot of potential and pockets to buy cars. “We want to increase our addressable market to over 90%, which is currently around 60-70%, by opening more of these outlets,” Pareek said.
Besides, mobile showrooms are also in fashion, with many companies contemplating putting their hands on it. Mobile showrooms could be a huge bus or a truck converted into a retail unit which has a small office with a demo car. The unit can be taken to places where there are no outlets.
Maruti Suzuki, the country’s largest carmaker, has recently set up a mobile showroom and will also be opening small-format showrooms for its Nexa chain of dealerships, through which it sells models such as Baleno, Ciaz and Ignis. The dealerships will improve the reach of Maruti’s products in small towns and rural areas.
Earlier this month, Royal Enfield, in an investor presentation in the UK, said it is planning to start 350 studio stores in 2019 in smaller towns and rural areas, thereby increasing its retail footprint to 1,100 towns with 1,350 stores. These stores will typically sell 12-20 bikes a month compared with 80-120 for larger stores, and if the concept does well, the number of such stores could go up to 1,000.
Analysts at Axis Capital said Royal Enfield is focusing on a few markets outside of major Indian cities where propensity for over 125 cc motorcycles is less. “It has aggressive plans to expand its network in an innovative manner in these markets,” they wrote. A senior executive at Toyota Kirloskar Motor said though the company has enough touchpoints to meet its sales targets, there is still room for more touch points in India’s hinterland. “We are considering the option and very soon there will be small-sized digital showrooms in areas where car penetration is very low,” the executive said.
Dealers said since the investment on real estate will be much less owing to smaller space, there won’t be a need to hire many sales executives, which would further lower costs.