India’s apparel market is estimated at $ 59.3 billion in 2022 and the Indian fashion industry is slated to be the sixth largest market in the world. In recent years, private labels have emerged as the rising stars of retail and e-commerce.
Private labels or in-house brands, typically offer shoppers value for money while earning higher margins for retailers with potential to develop into self-sustaining brands. There is also a growing emphasis on enriching customer experience. Window displays, in-store ambience, coordinated product displays, lighting, music and communication help build brand presence and awareness.
Trent is India’s leading retailer with a presence across various consumer categories (550+ stores). Inherent strength of brands (Westside, Zudio, Star, Zara) and accelerated store additions have led Trent to be among the fastest growing companies.
• ‘Westside’ (72% of revenues) has proven to be one of the most profitable business models as it primarily focuses on selling private label brands (EBITDA margin: 11%, consistent SSSG: 10%+)
• ‘Zudio’ (28% of sales), the value fashion brand, continues to be the next leg of growth for Trent (revenue CAGR: 72% FY19-22). Trent reported a superlative performance with industry best revenue growth and strong beat on almost all parameters (change in useful life of certain stores impacted PAT).
• On a favourable base, sales grew 405% YoY to 1653 crore. On a three-year CAGR basis, revenue growth was at 29%, which is the highest among other lifestyle retailers.
• Gross margin contraction was higher than anticipated. Lower gross margins could be possibly owing to limited price hike in Zudio format as it continues to price products at sharper price points (< | 500) despite significant increase in cotton prices.
• EBITDA, in absolute terms, came in much higher.
Trent’s current stores across the cities
|Trent’s Alliance||STAR||ZARA||Massimo Dutti|
On a three-year CAGR basis, revenue growth was at 29%, which is the highest among other lifestyle retailers (215% of preCovid levels). The growth was driven by a robust store addition trajectory over the last two years. Fashion portfolio now is over 450 stores (Westside & Zudio) vs. ~200 in pre-Covid levels (2x+).
The growth was also driven by healthy SSSG for Westside, which was at 24% in Q1FY23 (over Q1FY20). Back of the envelope calculation suggests Westside has crossed the 1000 crore quarterly revenue mark for the first time (three year CAGR: ~17%). Also, revenue/sq ft for Westside appears to be significantly higher at ~13,500 (annualised) that is higher than average run-rate of ~10,500.
Zudio – The powerhouse for the growth
Zudio continues to gain market share in the value fashion space with robust growth. It has been the new growth engine for Trent given its scalable business model (one-third size of Westside format) and strong acceptance in Tier II/III cities with sharp price point assortment (ASP < | 500). Zudio stores have multiplied ~6x in the last three years.
The exclusive offerings are curated in-house and made available at very sharp price points. As of March 2022, Zudio was present through 233 stores, including stores co-located with Star. The Zudio concept continues to see traction and registered encouraging results following the second wave with revenues exceeding 1,000 Crore in FY22.
With an average store footprint of 6,000-8,000 sq.ft., the concept affords expansion across numerous micromarkets. The capital employed for a new company leased and operated Zudio store is in the region of 3-4 Crore including capex, deposits and inventory.
Star food business model improving metrics
The model Trent has pursued with its Star food business over the last couple of years – tight footprint stores, sharp pricing, focus on fresh & own brand offerings etc is resilient and has strong economic viability. The customer traction witnessed by Star stores has been encouraging. In this context, Trent is actively readjusting properties based on this model and is looking to pursue a significantly accelerated expansion program. Management is optimistic that Star biz is a differentiated & scalable model to pursue on account of increasingly positive economics at the store level.
Online medium to boost growth
WestStyleClub has witnessed positive offtake from customers with a significant jump registered in ongoing recruitment, initial spends, broad basing of category penetration and renewals (up 37% QoQ). The recently launched super app Tata Neu seeks to unite the Tata brand universe.
Online revenues through Westside.com, Tatacliq and Tata Neu contributed ~6% of Westside revenues, registering a 129% growth in Q1FY23 over the corresponding quarter. Trent is investing significantly in resetting the technology stack across the entire value chain to make it commensurate with the growing scale and the growth agenda.
Key triggers for future price performance
• 227 store additions between Westside and Zudio for FY23-24E
• Liquidity position remains robust with cash & investments worth 600+ crore that will enable it to tide over the current situation better than peers.
• Zudio continues to be the growth engine for Trent.
• In the long run, the company aims to grow its revenue at CAGR of 25%+
Shuchi Nahar is a Certified Research Analyst. She can be found on Twitter at @shuchi_nahar
Note: This article is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment relatedinvestment-related decision.