Royal Enfield is following Harley-Davidson’s tyre treads by turning to merchandising
In a Mumbai hotel, a screen displays a blurred highway sign that assures its viewers that Leh is not too far away. A few in the crowd call it “that funky 3D effect”. This isn’t a film screening: it’s Chennai-based Royal Enfield launching a new bike and CEO Venki Padmanabhan roars into the gathering on the new offering. But the bike isn’t the only launch of the day.
Recently, SIAM data revealed a 4% drop in two wheeler sales in India; almost simultaneously Enfield declared its sales had grown at 44%, selling 79,000 units. The niche bikes company in August touched 1% market share in a crowded market. The need of the hour was to build on the increasing buzz that has been following the company. So, Enfield decided on an apparel line. But why merchandising when the line to toe has been free tanks of petrol, extended warranties and cashback offers?
Enfield’s products, the legendary Bullet, Classic and now the Thunderbird, are priced at almost three times that of, say, a Bajaj Pulsar that costs around Rs.60,000 (ex-Delhi). This premium segment isolates a majority of the consumer base that cannot afford the Enfield brand. “Through the apparel line, we want to create an aspiration value for the bikes,” says Siddharth Lal, CEO, Eicher group (Royal Enfield’s parent). The thinking being that those who cannot afford a Bullet, may want to put on a company-branded leather jacket (retailing at Rs.14,000) to know what it feels like to be part of the exclusive Enfield-owners’ club.
That’s a branding model Harley-Davidson has perfected. Over the years, the American bike manufacturer has positioned itself as a “highway cruiser”, a term that Enfield has adopted as well. But while Harley has outsourced design and manufacture of its apparel line to external agencies, Enfield has kept it in-house. “We hired designers, bought the raw materials and manufactured the products,” says Padmanabhan. This has increased its cost, making break even a tough task. The company line remains that the apparel range will remain a promotional feature available only at its showrooms and will not be retailed anytime soon. But Padmanbhan does not rule out a possible mass retail option.
The hog recorded revenue of $172 million in the first quarter of this year, a growth of 20.3% over the same period last year, and merchandising, one of its key income streams, was about $74.6 million, up 19.2% y-o-y. Apparel and merchandise recorded a gross margin of 35.9% in the first quarter of 2012, compared with 33.1% in 2011. What brings in these impressive numbers for Harley is its cult appeal and global retail reach. Whether Enfield can get anywhere close is still in question, but it has dutifully made the start.