Nexa's Rise: From Slow Start to Strong Sales

author: FutureCar Staff    

"If I had my way, I'd remove January from the calendar altogether and have an extra July instead," wrote Roald Dahl. The lines must resonate with the team at Maruti Suzuki. For the first time, the number of cars that rolled out from the carmaker's Nexa chain of outlets in July this year topped the volumes sold by rival Hyundai. Compared with 52,540 cars that drove out of the Nexa showrooms, the number that customers took home from Hyundai's outlets was 50,701.

To be sure, the premium showrooms of the Nexa network, which was put in place way back in 2015, have been doing brisk business over the past year or so. By one estimate, the volumes have averaged some 45,000 a month. But it wasn't always this way. In the initial years, dealers struggled to make ends meet because the models of the time — the first generation SCross, Ciaz, Ignis and the XL-6 — weren't exactly setting the market on fire. In fact, had it not been for the very popular Baleno, the Nexa showrooms would have seen even fewer footfalls.

As Chirag Jain, senior analyst at Emkay Global, points out, the economics for Nexa dealers wasn't too bad since the majority of them was already running an Arena outlet; typically, Maruti invites Arena dealers to set up Nexa showrooms. But there was, undoubtedly, stress. "The Nexa dealerships were newer and more plush which meant the dealers had incurred costs. Since the models launched saw subdued demand, there was some strain," Jain said. The slowdown in the passenger vehicle sector in 2018 -2019 and the pandemic thereafter in 2020, and for the large part of 2021, only added to their woes.

But where Maruti's foray into the premium segment might have been underwhelming, it's now turning out to be a promising proposition. Eight years later, Maruti can rightfully claim that creating an aspirational ambience for customers to choose from its expanding range high-end models, has worked. As Shashank Srivastava, senior executive officer (marketing and sales) at the carmaker recalls, the Nexa was conceived with the idea of providing the customer a unique and superior experience. Global attributes were introduced with a touch of innovation. "The higher level of design and performance, which probably would have never come to us had we pursued the same values, is the one major benefit Nexa has generated," Srivastava believes.

According to Raghunandan KL, director, Nuvama Institutional Equities, the Nexa channel did three things for Maruti. It helped Maruti set up additional outlets in the very same localities of the cities where it was present, virtually doubling the network and without one channel cannibalising the other. That way it was able to pull in new, non-Maruti customers, an important factor at a time when the market was moving towards premium products."The very same Arena dealers were happy to open Nexa showrooms and those that didn't want to do so were not unhappy if others came in since the product range was completely different," Raghunandan said.

Indeed, Maruti has kept pace with the premiumisation that's taking place following from the sharp rise in disposable incomes in the hands of consumers. The eight models that are showcased in the 460 Nexa showrooms across 286 cities include the Baleno, Fronx, Jimny, Invicto and the Grand Vitara. While the much-bigger Arena channel with 2,081 outlets retails nine models, all the launches over the past one and a half years or so, have catered to the Nexa's clientele.The country's biggest carmaker has been looking to enhance its presence not merely in the high-end segment but especially in the SUV space where it clocked a market share of 30% last month. Consequently, the Nexa chain is being beefed up and the number of outlets will be increased to 525 by March, 2025; around 60 outlets were opened last year. To be sure this is way smaller than the Arena chain which has 2,801 outlets. But, what's important to note is that the share of the company's sales from Nexa outlets is moving up. Not so long ago in FY21, only 20% of Maruti's cars rolled out of Nexa's showrooms. In July, one of every three cars sold was from the Nexa outlets.

The investments made by Nexa dealers, experts believe, have been worth it and most of them should have turned profitable by now. While the initial investments are not too big, holding inventory can be costly since working capital does not come cheap. "The gross margins are typically 4-5% for the Arena and maybe a little higher at about 5% for the Nexa so it is important that stocks are churned quickly," explained an analyst. Raghunandan estimates that depending on the city and the location a dealer would need to sell anywhere between 400 and 600 units a year to break even. In addition, they would earn from insurance fees. For Maruti, the additional promotional and marketing spends have been more than justified since it can better display its 17 models and also manage stock levels so that it is cost-efficient. Also, sales executives can be more focused in their efforts as they are selling a limited number of models.

Srivastava says the Nexa could be the channel for the launch of the company's EV SUV to be launched in October next year and retailed in January 2025. "There are companies who have separate channel for selling EVs. We are still working on the channel strategy and may use the Nexa dealership," he said.

FutureCar Staff