Tata group’s retail company Trent is betting big on its value format Zudio for driving its next level of growth, prompting analysts to conclude that it could become bigger than the flagship brand Westside in the coming years.
At the FY23 annual general meeting ,Trent said it would open 200 stores of Zudio in FY24, much higher than estimates of analysts. In FY 23, it opened 117 stores taking the store count to 352 including store in stores.
The company added 14 Westside stores in FY23, taking the total Westside store count to 214.
The Zudio expansion will be equally split between own stores of the company and franchise arrangement.
Zudio, Tent’s value fashion route for faster scale-up, has average selling price of Rs 500. Its 8,000 square feet stores sell fast fashion merchandise. Franchisee need to make investment of Rs 2-3 crore to open stores.
The company is also focusing on “fast fashion” to attract the youth who are now spoilt for choices because of global fast fashion brands such as Zara and H&M.
“Pitched at a younger audience, we recognise it is critical to be fashion forward and closely synchronised with evolving trends. The emphasis is on minimising lead times and landing fresh collections in stores as quickly as possible. The aspiration is to constantly shrink the time window between the initial design concept to being available on shelf,” Trent said in FY23 annual report.
Trent also plans to add 30 Westside stores in FY24 and 10 Samoh stores , an ethnic wear chain, with a gross capex of Rs 800 crore.
“Trent has over the years evolved into a lifestyle platform. As we have gained critical mass with our brands, we now see a growing flywheel of market traction allowing us to accelerate growth,” said P Venkatesalu, chief executive and executive director at Trent.
For a company which traded profitability for growth in the heydays of retail between 2006 to 2012 when other majors such as Future Group, Aditya Birla and Reliance opened hundreds of stores to capture the consumption boom in the country, the expansion plans are big, say analysts who track the company. Trent is also evaluating overseas expansion and new formats.
“With Zudio picking up pace, and the opportunity size in value retail being much larger, we believe this new format would drive Trent’s next leg of growth over coming decade. Zudio has potential to outpace even Westside over the next decade,” Nuvama Institutional Equities said in a recent report.
ICICI Securities in a recent report said that like for like (LFL) revenue growth for Westside continues to be impressive while retail expansion rate of Zudio at over 50% YoY since last two years instils confidence in relative success of the franchise in value segment.
Trent ‘s Q4FY23 revenue grew 75% year on year, led by 23% LFL growth in Westside. Retail expansion stood at 30% YoY to 566 fashion stores including Westside and Zudio.
It’s peer Shoppers Stop posted same store sales growth (SSSG), similar to LFL , of 32% YoY in Q4FY23 and for FY23 it was 57%. Shoppers Stop opened 23 stores (11 departmental and 12 beauty) during FY23. SSL aims to double revenues by FY26 (over FY20) and believes revenue growth should be mid-double-digit with SSSG growth of mid-single-digit, Nuvama said in a report.
Trent has created a unique and strong competitive edge in apparel retail by having complete control over the customer experience through its own stores and private labels. It is able to offer comparable quality products at significantly lower price point (about 25-30% less) than comparable brands, ICICI Securities said.
“It is inspiring to see that emerging categories such as beauty and personal care, footwear, and innerwear, which now account for approximately 18% of the revenue, are gaining significant traction. Contribution from online business is healthy at 6%,” it said.
However, its peers are also seeing good growth in beauty and other categories. Shippers stop saw 29% growth y-oy in beauty segment during Q4FY23 and its private brands saw 35% growth year on year.
Even investors have lapped the stocks of the company , which led to 68% jump in the stock price of the stock in the last one year.
However, Trent has an issue with Zudio on the margins front. The company’s gross margin contracted for the sixth consecutive quarter by 833 basis points YoY to 40.8% in Q4FY23 due to change in revenue mix as 35% revenue contribution came from Zudio which has lower gross margins.
“Nevertheless, the higher inventory turnover at Zudio is expected to counterbalance the effects of the reduced gross margin and have a positive impact on the net profit margin (NPM). It’s worth noting that the NPM, currently at 7% in FY23, is the highest it has been in the last eight years,” ICICI Securities said.