ProfitNama

ProfitNama

Trent Charts Expansion Plan Riding Pvt Label-only Model

Trent’s Focus on Private Labels: A Strategy for Differentiation and Growth

Source: Economic Times (January 5, 2024)

Layman’s Analysis

Trent, led by Noel Tata, has adopted a strategy of exclusively relying on private labels or owned brands across its retail formats, including Westside, Zudio, and Star Bazaar. The company has experienced significant growth following this approach, with revenues growing fivefold from 2018 to surpass 8000 crore INR in 2023, and profits rising sixfold to 394 crore INR.

This private label-centric strategy is being applied across various segments, including apparel, value retail, and grocery. Zudio, which focuses on affordable fashion in small towns, is contributing significantly to sales, and Star Bazaar, the grocery chain, directly sources fresh produce from farmers. The use of owned brands allows Trent to have control over the consumer experience.

Trent’s success has led to its valuation crossing 1 lakh crore INR, making it part of the elite Tata Group. Unlike its competitors, Trent is expanding cautiously but profitably, aiming for long-term sustainability despite a slower initial rollout.

Trent Charts Expansion Plan Riding Pvt Label-only Model

Impact on Investors

For minority shareholders of Trent, the private label-focused strategy and measured store expansion provide medium-term earnings visibility, rewarding patience. Trent’s 31% Compound Annual Growth Rate (CAGR) in top-line growth and 26% in bottom-line growth over five years have been achieved without excessive dilution from capital raises. The protection of margins from owning brands also helps withstand inflation or economic slowdowns.

However, the strategy limits very high near-term growth triggers compared to peers. Trent’s niche position in full-price fashion retail, particularly on high streets, insulates it against discount wars. The company’s valuations seem to factor in steady profit delivery over time.

For the Tata Group, Trent contributes to its presence across channels and accelerates consumer-centric models through the Tata Neu platform. Star Bazaar complements the group’s grocery ambitions, especially with Big Basket. Investors need to assess how Trent’s category leadership in apparel fits into the overall retail consolidation plans of the Tata Group.

Impact on Industries

Trent’s differentiated positioning stands out in India’s organized retail industry, avoiding heavy discounting battles and maintaining a unique stance compared to competitors like Reliance Retail. The success of Trent puts pressure on other listed fashion retail players to step up their investments and adapt to changing market dynamics.

With Star Bazaar, Trent increases competition in the grocery sector, challenging major players like Big Bazaar, Reliance Fresh, and DMart on value positioning. The company’s direct sourcing from farmers also contributes to the formalization of agri supply chains.

Trent’s operating discipline prompts industry peers to reassess loyalty approaches beyond pricing or promotional reliance. Developing owned brands allows for deeper consumer connection and valuable data insights. The strategy signals that tuned supply chains and selectivity matter more than scale alone.

Long Term View

Over a 5-10 year period, Trent’s differentiated positioning helps sustain growth despite retail consolidation by competitors like Reliance and Amazon. In discretionary segments like fashion, curated offerings help avoid price wars, and loyalty to own brands acts as an entry barrier, fostering personalization at scale.

Star Bazaar’s concept disrupts the grocery sector by bringing the farmer economy closer to consumers, eliminating middlemen and improving bargaining power for the agricultural sector over time.

However, margin pressures persist unless operating efficiencies offset inflation, and global economic slowdowns can impact domestic consumption, affecting revenue visibility. Continued innovation in designing owned brands across price tiers is essential.

Promises of profitable growth instill investor confidence over the longer term. Scaled-up manufacturing under Tata Consumer may aid sourcing synergies in soft goods like apparel, and Trent’s multi-channel approach helps balance offline retail rebound with online channel initiatives via Tata Neu.

Short Term View

In the next 6-12 months, Trent is expected to accelerate the rollout of Westside and Zudio to tap into latent consumer demand. Strong performance is anticipated, barring any COVID-related shutdowns that may cause demand destruction.

Star Bazaar’s foray into the grocery sector is expected to gain prominence with expansion beyond the four lead states, deepening supply chain linkages. Integration with Tata Consumer and Cliq platforms aids in synergy realization.

However, margin pressures may arise from higher property and manpower costs, impacting profitability metrics. Effective demand forecasting and inventory discipline are crucial to minimizing markdowns, although partial insulation is provided by relying on owned brands to limit external inflation pass-through. Overall, strong revenue growth visibility aids stock performance in the near term. Normalization of operating metrics, such as shrinking losses for Star Bazaar, will help prove the concept’s sustainability. Consistent performance builds credibility for Trent’s patient expansion approach, relying on loyalty to owned brands.

Companies Impacted by Trent’s Private Label-Only Model:

Indian Companies Potentially Gaining:

  • Tata Cliq/Tata Neu: Direct beneficiaries of Trent’s private labels online, increasing platform traffic and potential sales.
  • Indian Textile and Garment Manufacturers: Trent’s sourcing focus on domestic manufacturers could benefit companies supplying fabrics and garments for its private labels.
  • Indian Farmers (Fruits & Vegetables): Star Bazaar’s direct sourcing approach benefits farmers supplying produce, potentially improving their access to markets and income.
  • Indian Logistics & Supply Chain Companies: Increased store expansion across Westside, Zudio, and Star could create demand for logistics and supply chain services from domestic providers.

Indian Companies Potentially Losing:

  • Consumer Goods Companies: As Trent focuses on its own brands, competition for shelf space and consumer loyalty could decrease for some established consumer goods companies.
  • Online Marketplaces: Trent’s exclusive presence on Tata platforms might limit its reach compared to retailers selling on multiple platforms, potentially impacting competition in the e-commerce space.
  • Traditional Brick-and-Mortar Retailers: Trent’s successful expansion with value-centric Zudio could further threaten smaller, independent retailers in similar segments.

Global Companies:

  • Limited direct impact: This news primarily affects the domestic Indian retail landscape. However, global apparel or consumer goods companies with Indian operations might need to adapt strategies to compete with Trent’s private label focus.

Market Sentiment:

  • Short-term: Positive for Trent and related sectors like Tata platforms, textile manufacturers, and logistics companies. Potential uncertainty for consumer goods firms and traditional retailers facing increased competition.
  • Long-term: The success of Trent’s model could shape future retail trends in India, potentially influencing consumer preferences and impacting market dynamics across various sectors.
error: Content is protected !!
Scroll to Top

Subscribe to Profitnama to access all articles, explanations, stock analysis
Already a member? Sign In Here