Chic and affordable attire. That’s what Zudio has on offer and the reason why buyers are flocking to its stores. Even as India’s apparel market explodes, Zudio continues to make a style statement. As Nikhil Sethi, partner and national leader (FMCG), KPMG India says, “Styling is very tough. You need to see it through from the concept to shelf cycle”. Moreover, as Sethi points out, staying stylish across so many SKUs is never easy especially when retailers need to launch products regularly.
Indeed, the Tata-owned private label brand, housed in Trent, is growing at a scorching pace; as analysts have pointed out, Zudio posted revenues last year of Rs 6,744 crore, up 90% over the previous year, overtaking revenues of Westside which came in at Rs 5,115 crore. Trent typically caters to middle-income consumers across metros and smaller cities though as Angshuman Bhattacharya, partner, National Leader (retail) EY, says it would be incorrect to think that only low-to-middle income customers are shopping at Zudio. “More affluent consumers too are buying here because the product and the price are compelling,” he says.
Anand Ramanathan, partner and consumer products and retail sector leader, Deloitte India, asserts that while earlier it was more about cost, now even in smaller cities and towns, youngsters want fast fashion. And Zudio is giving 16-30 year olds just that, at sharp price points starting Rs 99 and going up to Rs 999, with no discounting or end–of-season sales. Palaniswamy Venkatesalu, executive director & CEO of Trent, however, has said in various media interactions, he doesn’t think the prices are what people think they are. Indeed, Zudio has a sharp price point of below Rs 999. “We don’t discount, so the prices are really at a premium if somebody were to do the maths,” he says. Not discounting, say experts, is a good policy because it pushes customers to buy then and there rather than wait for discounts.
Zudio’s average revenue per sq ft, analysts at Kotak Institutional Equities estimate, doubled to Rs 18,537 from just Rs 9,261 in FY22 and is tipped to hit Rs 20,000 by FY26. Zudio’s ability to respond to changing trends is remarkable. As Karan Dhall, partner Kearney, explains, it operates on quarterly planning cycle rather than seasons with a high number of hits per cycle. “The tech-based auto replenishment model ensures new styles hitting stores every week, leading to whole store refresh in 1.5-2 months,” he points out. As the management says the idea is to minimise lead times and land fresh collections in stores as quickly as possible. This has pushed up the entry barriers.
Experts point out the differentiated offering is in contrast to the offerings of other retailers such as V-Mart, Style Bazaar, City Kart, and V2 Retail. “These players target the lower middle-class families with a wider range of products and local preferences but with low differentiation. Hence, they face intensive competition and a few of them are yet to recover to their pre-Covid levels due to the continuing weak consumption in the smaller tier cities,” an industry expert opined. He added that other brands such as Yousta, Style-Up and InTune are yet to become as popular.
Zudio’s price advantage lies in its strategy to offer private labels which means the margins don’t need to be shared. According to KIE, its Ebitda per sq ft doubled to Rs 1,900 last year. But there are also big savings in the integrated platform. Westside, Trent’s other big brand and Zudio are integrated at the back-end making logistics, warehousing, IT, procurement and inventory management more efficient. As Venkatesalu says, the idea is to leverage the platform and not spend too much. In fact, the company doesn’t advertise another factor that has helped boost operating margins to double to 10.3% last year.
The continuing growth in the business will give it more scale benefits and drive up margins further this year. Zudio’s chain of stores has expanded to 545 stores, with 203 exclusive brand outlets having been added last fiscal. This year, the retailer intends to add 200 stores. Store sizes are anywhere between 7,000 and 10,000 sq ft allowing it to operate in many more cities and have more stores within a catchment. As Deloitte’s Ramanathan says typically, buyers won’t travel too far for fast fashion as they might for higher value products like jewellery. “So, it helps to have several stores even within a radius of 4-5 km,” he points out.
Experts feel Zudio’s staying away from the online channel is prompted by the significant logistics costs incurred not only to deliver products but also to pick up the returns and re-deliver.
Venkatesalu says that Zudio simply “can’t take the complexity of being online”, adding the company has enough presence. EY’s Bhattacharya, however, believes the world today is omni-channel. “Retailers gain from being on platforms because there is no direct customer acquisition cost. A Zudio customer would be as inclined to shop online,” he feels.
Ramanathan too believes an omni-channel approach would appeal to the target group. As KPMG’s Sethi points out, the advantage of being online is that inventory can be shipped out to another location in case it can’t be fully liquidated in one place. “That way the retailer could recover potential sales losses of 5-7%,” he estimates. But Zudio needn’t hurry; it has a huge Rs 3-3.5 trillion market, growing at around 10-11% annually, to cater to.