[GTO]

It's a commonly accepted fact that the cost of property, along with that of inventory, form the two largest expenses for any car dealership. Of course, we are only talking metro cities here. As a fast developing economy, India's urban property prices continue to shoot skyward. The situation is such that, some car dealers have actually forfeited their franchises and rented their property instead (for a net profit).

Where does that leave car brands who want to expand their dealer network and "urban presence"? Service stations have already started moving to the far suburbs. After all, it doesn't matter where you get your car serviced, and everyone offers free pickup / drop-off facility today. On the other hand, a brands visibility to the mass market is crucial to its success.

Enter the Boutique Showroom:

You'll generally find boutique showrooms in upmarket localities. They are noticeably smaller in size, enough to hold only 2 cars at the most, yet boutiques emphasize on the "experience factor". Plush interiors are the norm here. Touch & feel premium cars, buy accessories & merchandise, be sold on the brands "lifestyle" positioning, have sales discussions in a luxurious environment (upmarket coffee et al).

The advantage of boutique showrooms:

• Enhances brand visibility in the market
• Substantially lowers the cost of rent (and thus, overall operational costs). Ground floor showroom space in Bandra can run as high as Rs. 500 to 750 / sq. ft. per month. Having a massive 10,000 sq. ft. showroom area is impossible for any dealer at such a location. Boutique showrooms occupy barely a 1,000 sq. ft. carpet.
• With commuting times getting longer by the day, potential customers are unwilling to travel to the other end of town. Boutique showrooms allow the brand to go closer to its customers, at a fraction of the cost of running a regular sized dealership.
• Boutique showrooms are not only about selling cars; in fact, they stress on the "brand & lifestyle experience". Skoda's boutique at Bandra focuses on its range of accessories & merchandise. Dippy went & bought a Skoda scale model for his collection

The Cons: Of course, boutique showrooms are more relevant to a manufacturer with luxury aspirations (in this case, Skoda) than an economical mass market brand (like say, Tata). Also, due to the limited space available, it isn't possible to display your entire product range. Typically, a brand will chose its more expensive products (Skoda showcases the Superb & Laura; no Octavia or Fabia to be seen). Such a showroom is perfect for its upcoming Yeti, a product with a "lifestyle" positioning. Then, there's the consideration that luxury car customers expect door service. Which top honcho / businessman walks into a showroom asking for a test-drive? In all probability, its his secretary who calls for the car to his office itself.

Again, the key words here are "visibility" and "presense" in upmarket areas. Is Skoda the first to introduce this concept in India? Not at all. You'll remember the BMW Studio in Delhi (Link to thread). We can fully expect the other premium brands to follow suit (read Mercedes, Audi etc.).

[Sudan_NFS]

Nice move By skoda and I wish they also improve their A.S.S in a similar way and bring down the cost of ownership. I feel that this move is to make sure that Skoda and VW maintain a same Luxury brand image among the mass.

[kiku007]

Nice idea.

IMHO it's going to be tough for a standalone boutique showroom to be noticed i.e it will be better (if possible) to have it in a Star hotel or the airport. Eg. Rado Boutique in Park Sheraton Hotel Chennai.

An upmarket Mall is the most desirable place to be. But then do we have those in India? Having them in the current Malls in India will attract only 'Take a snap with the car' crowd.

[phamilyman]

Interesting. I've seen it with a downmarket brand in Delhi as well.

Infact, its the standard modus operandi for even bajaj/TVS's dealer to open a smaller showroom in a Tier 3 town. How would one classify that?

[acidkill]

Skoda has pursued this small showroom outreach idea for a very long time in delhi. It has only now reached mumbai. Being a strategy consultant, i personally disagree with this strategy completely. Im a strong beleiver in the fact that road presence of a car is its best advertisement, and smaller showrooms like these serve no purpose apart from driving up cost.

In fact the overall per squarefoot cost of having small showrooms in high streets is far far higher than having a targetted large showroom in a prime residential area or a central business district. You may not beleive it, but after a certain size, the bigger the showroom - the lower the effective per squarefoot rental and setup cost. This holds true for both malls and high streets.

Plus Skoda will increase its working capital by a large margin, given the larger number of cars on display and all those really unsaleable accessories.

[vinaydas]

talk about going green !!
a good initiative by skoda to popularize the brand to a higher level and give it a sense of luxury.
obviously they are going the BMW way.

[avishar]

They opened one in kolkata a few months back.It was the same,small floor space but with plush and minimalist interiors.

[ampere]

Nice concept in parallel to the shrinking geometries in semiconductors!

[shankar.balan]

having worked with several top brands in my career so far, I submit the following.

In my opinion, strategically positioned, destination showrooms are a superb brand advertisement - in comparison to blowing big bucks on ATL publicity which loses a great deal of salience, because the audience is far too wide - there is a lot of wastage inherent to that approach because of the very nature of it - carpet bombing usually results in atleast some small number getting hit but given the cost vs benefit scenario, well, suffice it to say that it is not the most efficient of means.

whereas, a combination of top strategic destination showrooms combined with a predominantly BTL approach at least ensures that the target universe is being narrowed down, for a more efficient, "sniper-kill" approach.

Yes given the high cost of showrooms in the cities and inventory carrying cost, the working cap outlay from the dealer is high. also the ROI model cant be all that great because as far as I know these Standalone showrooms dont really "sell or service" the cars themselves.

Unless of course it is the same dealer who is making an additional investment in the brand, in terms of promoting it via "visual merchandising/eye candy" in these destination stores while cross-subsidizing his costs by handling the sales and service aspect out of one or two other locations.

I agree about larger showrooms being available at lower cost - this is exactly applicable in the concept of Anchor Stores in Malls - like say a Big Bazaar or Home Town, where the model is typically one of revenue sharing, because these function as the primary consumer draw in that particular mall. And indeed, given the space/ size, there's no way it can be economically viable if such establishments were asked to pay rent on a per square foot basis!

However, I dont know I would agree with your statement of "unsaleable" accessories - lets just say, these accessories are saleable, but possibly in lower numbers. their main purpose is "brand reinforcement" via BTL method. They are typically licensed brand extensions, which work on a totally different revenue model - royalties, which help "unlock latent brand value".

anyway acidkill - we can debate endlessly on this subject. maybe we should get together off-line and chat!! PM me your details and I will too.
An interaction with you would certainly be interesting and valuable I believe!
cheers

Originally Posted by acidkill

Skoda has pursued this small showroom outreach idea for a very long time in delhi. It has only now reached mumbai. Being a strategy consultant, i personally disagree with this strategy completely. Im a strong beleiver in the fact that road presence of a car is its best advertisement, and smaller showrooms like these serve no purpose apart from driving up cost.

In fact the overall per squarefoot cost of having small showrooms in high streets is far far higher than having a targetted large showroom in a prime residential area or a central business district. You may not beleive it, but after a certain size, the bigger the showroom - the lower the effective per squarefoot rental and setup cost. This holds true for both malls and high streets.

Plus Skoda will increase its working capital by a large margin, given the larger number of cars on display and all those really unsaleable accessories.

[SumitBahl]

I think I have seen one Mercedes Boutique showroom in CP in New Delhi (long time ago, read 6-7 years).

[mxx]

Forget boutique showrooms, i will be more than happy if the sales person is not just a brochure with hands and legs. He/she should have knowledge of the car in question and atleast general knowledge about cars.

[inreverse]

It's hard to find the place to get everything done under one roof. Car Dealers are trying to mimic a studio/galleria for possible car buyers by presenting a better front-end, it is more that what meets the eye behind the back though.

For Eg: The Asset Auto dealership for Skoda is a spanky clean showroom at a prime location in Pune, but their service station is one heck of a bulldozed, bullet holed structure :(

[GTO]

Originally Posted by kiku007

it will be better (if possible) to have it in a Star hotel or the airport. Eg. Rado Boutique in Park Sheraton Hotel Chennai.

Worthy suggestion! Skoda is already marketing at airports, and I'm sure other brands will follow soon. I've often seen a Superb in the arrival section of the Mumbai airport.

About hotels, I'm not so sure. Shop rentals are sky high in 5 star hotels. That's why we mainly see premium fashion / accessory brands (or handicrafts selling at ridiculous prices).

An upmarket Mall is the most desirable place to be. But then do we have those in India? Having them in the current Malls in India will attract only 'Take a snap with the car' crowd.

Car showrooms at malls are already gaining in popularity. The Atria - a mall with fairly upmarket positioning in Mumbai - is home to Mitsubishi, Ducati and Rolls Royce showrooms.

Originally Posted by phamilyman

Infact, its the standard modus operandi for even bajaj/TVS's dealer to open a smaller showroom in a Tier 3 town. How would one classify that?

The difference is, the "Boutique showrooms" we are talking about are in upmarket areas of larger cities. Cities where the high rentals in such areas make a large showroom unaffordable to any brand.

Originally Posted by acidkill

Im a strong beleiver in the fact that road presence of a car is its best advertisement, and smaller showrooms like these serve no purpose apart from driving up cost.

Road presence surely is, but you need to reach out to the customer (via marketing activities) in the first place, to get your cars on the road. Boutique showrooms are just another part of marketing. To premium brands, its going closer to their target HNI market.

In fact the overall per squarefoot cost of having small showrooms in high streets is far far higher than having a targetted large showroom in a prime residential area or a central business district.

I disagree here. A larger showroom also has larger overheads.

Originally Posted by shankar.balan

In my opinion, strategically positioned, destination showrooms are a superb brand advertisement

Absolutely. The showroom in question is located in Bandra W, an area that has amongst Mumbai's higher per capita incomes. Home to a lot of high society types (industrialists, bollywood, models, fashion industry etc.).

[MuraliR]

I saw a similar move by Vinayak Auto, one of the Skoda dealers in Bangalore.
They are opening a showroom in Sadashivnagar, Bangalore.

[shankar.balan]

Two parts to this:

One about rentals and differential pricing/ impact of rentals on costs etc.
Two, about the commoditization of brands and positive impact on cost to consumer.

Just to share with our friends on TBHP, since Fore-warned in Fore-armed.

Shop rentals are pretty high in 5 Star hotels - yes. However, they also assure the brand of a semi-captive clientele who prefer the sanitized/ safe environment of the 5 star, rather than the high street. Plus lets never forget the huge "consumer draw/advertising value" which accrues to the brand by virtue of its presence in such first class locations.

Going by general trends these last 7-8 years in India, shop rentals in premium malls are also quite mad - take Emporio in Delhi or Saket or indeed even Mantri/Forum/UB City in Bangalore OR high street rentals in Indira Nagar Bangalore, Linking Road in Bombay or other.

The fact is, India has a clear law ref MRP - Maximum Retail Price, which means no branded product can be sold at "a higher differential price than the declared / printed MRP" anywhere, regardless of the cost of retail and other overheads that may be encountered across different locations. However, any retailer can sell any branded product at a price "below" MRP since he is parting with his margin by way of "discount to consumer."

Handicrafts and un branded products are not governed by MRP per se, simply because there are very few easily accessible alternate reference points available to the consumer. Here it is more a matter of "perceived value" pricing - say for a Pashmina Shawl or a Kashmiri Carpet or Brass Ornament, at a 5 Star boutique. Margins in this are often as high as 300-400-500 percent so a smart shopper regardless of where he/ she is from, will first do a lot of shopping around before buying.

Therefore a typical branded item say of clothing or an accessory, is priced the same (at MRP level) in a high end mall in a boutique environment and in any other high street multi brand retailer location. It is however true, that at a typical multi branded retailer, regardless of whether such retailer is located in a Mall or on a High Street, one can get a better deal, since such retailer is more open to negotiation in the hope of a firm sale, than a typical company owned boutique is.

IN this sense, developed markets whether high street or mall oriented, in the West and in S.E. Asia, have only an RRP - Recommended Retail Price, and it is sensible in those markets to shop around a bit across different markets and catchments, because one may end up getting a sizeable discount on the same branded item.

Higher end locations like Rodeo Drive Hollywood, the Ginza in Tokyo, The Peninsula Hotel OR maybe Nathan Road in HongKong and say Via Montenapoleone in Milan, Place Vendome in Paris or Jermyn Street in London, do carry high end branded products at a higher price than several other different locations in these cities, where these same products are available!

Such differential pricing wherever it exists, is dictated mostly on account of higher cost of retail/ overheads (tangibles) and the "ambience"/ "environment" (intangibles) provided at these shopping districts in comparison with other ones.

Airport/travel or Duty/Free retail is a completely different case in point where the clear benefit is passed on to the consumer in terms of the lack of duties payable, which results very often in a clean 15-16 percent drop in prices (depending on the item).

The common impression earlier was the Dubai Duty Free is the cheapest for Liquor, Tobacco, Electronics and Watches/Timepieces. Nowadays that has changed, with locations like Bangkok, Colombo, Bangalore, Chennai, Hyderabad, New Delhi and Bombay having emerged as possibly where the BEST Duty Free Deals in the World are available!

Live Examples recently encountered:
1: Other than Duty Free - for example the Carrefour Shop at the Mall of Emirates in Dubai has a particular Camera available at the equivalent of Rs 19800/- - the same product is available in Dubai Duty Free at about 17800/- and hold your breath, the exact same thing is available at one of the organized sector Electronic Retailers (Non Duty Free) in high street Bangalore at a "special deal" of Rs 17500!!

2: A particular Watch is priced at USD 2600 in Dxb DF (at Rs 45 per USD = Rs 117000) , the same thing in Bangalore DF can be negotiated down to 2500 USD = Rs 112500) and glory of glories, in the brand's boutique in Bangalore, costs Rs 136000 + (clearly indicated by the sales chap as a Non Negotiable price) and then the same thing at another Quality Multi brand retailer's store, can be negotiated down to Rs 1 lac flat!

Of course, he is parting with a large part of his margins plus he may be clearing off a product which he may have bought much earlier and literally converting inventory into working capital since locking up that working cap for a longer time carries a higher cost and after all, most of these kinds of businesses are primarily turnover and volume based.

Now despite all the math and the cost vs benefit calculations, cost of retail, rentals and blah blah blah, the bottom-line is that a smart buyer will always negotiate and a smart seller, will always welcome it, especially when he sniffs out a serious consumer and is pretty sure of a Firm Sale.

Plus all possible Luxury brands/ items are slowly getting "commoditized", especially in the emerging markets of India and China, where aspiration for such brands run very very high and where also, consumption power and capability is very high, in comparison to the relatively saturated Western/ Middle Eastern markets.

Therefore, notwithstanding whatever the big brands may keep saying, they are all quite open to some subtle negotiation and are finally available to one at a price. End of the day, everyone wants a Sale, the variable is only "at what cost/ profit to the retailer/ brand, such sale is achieved."

Just being a bit smart while shopping and being patient as well, thats all it really takes to save some seriously big bucks!