In today’s Finshots, we explain why Trent’s stock price jumped by 20% this week. Or rather, we dive into why Trent’s stock price has soared by nearly 180% in the past year.

The Story

“Amidst the apparel slowdown, Trent remains an anomaly.”

That’s the opening line of HDFC Securities’ latest report on the Tata-owned retail store.

To be fair, Trent isn’t only about fashion and apparel. It has food & groceries too under the Star Bazaar brand. But the segment isn’t a money spinner. To put it into perspective, out of the roughly ₹12,000 crores of revenue that Trent will make in FY24, 95% of it will probably come from apparel.

So let’s just ignore Food and Grocery, no?


Now if you do a quick Google search to see what on earth HDFC Securities is talking about, you’ll find headlines such as:

“Apparel retail sector is likely to face another quarter of slowdown.”

“Why are clothing retailers experiencing a lack of sales…”

“Food inflation hits India’s fashion retail sector as sales decline.”

On the other hand, Trent just reported that its Year-on-Year revenue grew by over 50% in the latest quarter of FY24.

So what’s Trent’s secret fashion tip, you ask?


See, Tata’s affair with apparel actually began in 1998. That’s when they set up the first Westside store. And the objective was to provide affordable fashion to India’s urban middle class. But in true Tata fashion, they didn’t embark on frenzied growth. It was a slow and steady expansion of adding outlets in the big cities of India.

And since the 2000s, Westside consistently delivered a revenue growth of close to 25%.

But sometime in the mid-2010s, Tata felt that it could stamp its authority in the fashion world even more.

And there are a couple of ways you can expand the pie in fashion.

Either you can choose to go broad by adding more categories. For instance, if you start off selling casual clothing, you could expand to formal wear, athleisure, and maybe even celebration wear.

Or you could choose to go the pricing route. And add either premium brands or value brands to the offering.

Now Westside had gone broad and it was quite successful at it. So maybe Tata realized it was time to go broad.

They must’ve noticed the success of other value plays in fashion. We’re talking about ones like V-Mart Ltd which has around 70% of its stores situated outside Tier 1 cities. It’s a true-blue small-town player targeting ‘value apparel” below ₹500. And it’s a segment that makes up nearly 60% of the overall Indian fashion market.

Meanwhile, that would mean Westside’s Average Selling Price (ASP) of over ₹1,500 wouldn’t cut ice with the more value-conscious buyers. Heck, they even tried in cities like Salem in Tamil Nadu. But customers turned their noses away.

So Tata had to go down the value chain without diluting the Westside brand.

And in September 2016, they set up the first value fashion store in Bengaluru. They called it Zudio.

And guess what?

It was located in the same spot as Westside’s first store in 1998!!!

That couldn’t have been a coincidence. Maybe Tata believed the spot had brought them good luck after looking down proudly at Westside’s phenomenal growth.

In the first couple of years, they tested the waters. Zudio expanded to only 7 standalone stores. But once they realized that the value fashion idea was working, they went on a blitzkrieg. Especially in smaller towns. As an article in the Financial Express put it,

“[Zudio’s expansion is] putting smaller towns such as Vapi and Godhra in Gujarat, Muzaffarpur in Bihar, Rudrapur in Uttarakhand, Dibrugarh in Assam, Khammam in Telangana, Thrissur and Pattambi in Kerala, Davanagare in Karnataka, Hanumangarh in Rajasthan and Sangli and Solapur in Maharashtra on the retail map.”

And it made sense because two-thirds of the Indian middle class would soon be dwellers of smaller towns. So there’s a market that’s just waiting to boom.

The end result of this?

Zudio has over 450 stores as of today while Westside is only at 227.

And Zudio already contributes to over 56% of Trent’s fashion revenues. Mind you, it was just 16% in FY20. So you can see the phenomenal effect it has had on Trent.

Zudio’s strategy to win over the market was simple:

#1: Keep costs low!

Zudio didn’t spend much money trying to make the stores look fancy. It had to simply look cool and that could be done with cheaper fittings, lighting, mirrors and trial rooms. It spends roughly around Rs 1,800 per sq. ft, compared to Rs 5,500 per sq. ft for Zara. And by concentrating on ‘ignored’ retail locations, it could keep rents low too.

#2: Keep churning inventory!

Zudio might have taken a leaf out of Zara’s book for this one. Zara has one of the highest inventory refresh rates in the fast fashion industry. And Zudio decided to do that too. The brand refreshes its inventory every 15 days and maybe Trent picked up this trick after being on Zara’s India board. Yup, Zara operates in India through a partnership with Trent and you’d imagine that’s a big learning for the company, no?

#3: Concentrate on volumes!

Because Zudio’s ASP is close to ₹500, the profit margins are lower than Westside. So the only way to compensate for that is by pumping out large volumes. For instance, let’s look at a popular metric in retail stores called sales density. Think of this as how much revenue is generated per square foot in a store. And for Zudio, this comes to around ₹18,000 per square foot. For Westside, it’s just ₹12,000. The higher the better because it shows that the floor space is being used more efficiently.

Now if you have been reading this keenly so far, you could argue and say, “Hey, Finshots. Don’t you think that it’s the rapid addition of stores that led to this growth? Maybe Zudio can’t keep expanding at this pace.”

And that’s a valid point.

So we should look at something called Same Stores Sales Growth (SSSG). This only accounts for the revenue growth from stores that have been around for at least a year. So it weeds out the expansion-led growth.

In the case of Trent, it’s at a healthy 10% compared to the same quarter last year. And let’s just say that it’s far ahead of many other fashion outlets.

But of course, there are risks to the entire thesis.

The biggest one being Reliance. Yup, they probably saw the success of Zudio and decided to launch a similar value play with the Yousta apparel store. While it’s early days and it’s not even a year old, the plan is to ramp it up to 250 stores. We don’t know how long Reliance will take to achieve that target but judging by Zudio’s expansion plans, we’d bet it’ll be sooner than we think.

Another thing is that investors are willing to pay an arm and a leg for the stock — the P/E ratio is at a whopping 150 times. This simply means that investors believe that every Rupee that Trent makes is actually worth ₹150. And for context, it’s double the P/E of the sector it operates in.

Sounds crazy, right?

But until investors stop believing in the Zudio narrative, it looks like the Trent fashion juggernaut will roll on.

Until then…

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