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Last Updated : Dec 06, 2019 04:18 PM IST | Source: Moneycontrol.com

Royal Enfield takes hinterland route to fight slowdown, opens micro stores

It has so far opened 500 studio stores across the country, and another 300 of them will become operational by the end of the year.

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Niche-bike maker Royal Enfield has tasted success with its experiment of opening micro stores, most of which are focused on the hinterland market, in the hope to reverse the overall downward sales trend.

It has so far opened 500 studio stores across the country, and another 300 of them will become operational by the end of the year.

Lower cost of setting up and operating a store is the main reason behind the Eicher Motors-controlled company is banking hugely on them. It also has 932 full-sized operational stores that are concentrated heavily in cities.

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"We have 932 large-format stores including the four that were opened in the last quarter. But we said that we need to get into a lot more into the rural areas and thus we came up with this unique concept called the Studio Store. It was so successful in a few areas that by August we added 250 of them and by October, we launched another 250. We have now 500 of them, fantastic response for these," said Vinod Dasari, CEO, Royal Enfield.

The average size of these stores are around 500-600 sq ft, which will be set up at an investment of Rs 5-6 lakh per store. In comparison, a regular Royal Enfield showroom is spread over a area of 2,000-4,000 sq ft that comes at a cost of Rs 50 lakh to Rs 3 crore, depending on the location.

Since a major chunk of studio stores are coming up in the rural pockets the investment required is thus a lot lower compared to those that come up in the cities. There is a difference in pay-back period too which is faster in studio stores.

"They were set up with the idea that, depending on location to location, they would do anywhere between 8 to 10 motorcycles a month. And it is not about sales only, it is about service too. So it is a full, smaller size, but a full Royal Enfield store. It is a proper dealership in that sense. So, all put together, from a motorcycle sales perspective, they were to do 8 to 10. The start has been extremely promising," said Lalit Malik, CFO, Eicher Motors.

Domestic sales of Royal Enfield bikes fell 19 percent to 4.53 lakh during the April-November period as against 5.59 lakh sold in the same period last year. Royal Enfield claims to have a huge fan following in the rural areas given its long standing association with the armed forces and the huge number of people joining the forces from the rural areas.

"They are pretty much 20-40 kilometers, depending on location to location, away from the main dealership. The break-even, generally speaking, is about 8 bikes a month, and that is only on bike only because service income will start in some period of time. We will add 200, 300 store more between now and March," added Malik.

Tata Motors and Volkswagen are also following a similar strategy to reach out to the larger consumer pack while also remaining cost-efficient to the investor.

The size of a typical VW ‘pop-up store’ would range between 2,000 square feet and 3,000 sq ft as against a regular showroom measuring 25,000-30,000 sq ft. Such compact stores would house two cars as against 8-10 units accommodated in a regular showroom. The cost of erecting such a store would be Rs 55 lakh as compared to Rs 15-18 crore required for a regular metro store.

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First Published on Dec 6, 2019 04:16 pm
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