The budget-conscious consumer never had it so good. Tata Trent’s Zudio, Reliance Retail's Yousta, Aditya Birla Fashion & Retail Ltd's Style-Up, and Shoppers Stop's InTune have all entered the value apparel sector in the last one year, planning to sell a pair of jeans or a dress at prices lower than street-side shops. Yousta, for instance, sells all items at Rs 999 or less.
The value retail market in India, excluding food and grocery, is anticipated to see a substantial increase, reaching $170 billion by 2026, compared to $111 billion in FY23, according to a recent report by global consulting firm Wazir Advisors.
This segment is projected to achieve a compound annual growth rate (CAGR) of 15 percent between 2023 and 2026, surpassing the anticipated 10 percent CAGR of the overall retail sector. The overall retail sector is expected to reach $1,219 billion by FY26.
Analysts noted that even though the big four metro cities (Mumbai, Delhi, Chennai and Kolkata) comprise the bulk of the value retail market, companies are gradually targeting the tier-2 and tier-3 cities. “As the aspirations of the middle class are improving, companies are targeting the smaller towns with value retail offerings.” said Preeyam Tolia, a consumer and retail analyst at Axis Securities.
Zudio’s headstart
Analysts noted that Zudio, backed by the Tata Group, had a significant headstart in the market and has successfully established a robust foothold and deep understanding of the customer base.
Zudio's growth has been swift, witnessing a substantial increase in the number of stores, from 268 in Q2FY23 to 411 in Q2FY24. The brand had just 57 stores in the calendar year 2020. The store count has seen a remarkable compound annual growth rate (CAGR) of 64 percent from CY20 to CY23.
“Their efficient sourcing and cost-control mechanisms enable them to offer competitive prices while maintaining high-quality products,” said Vinit Bolinjkar, head of research at Ventura Securities.
“Furthermore, their focus on private labels affords them greater control over product design and pricing strategies, contributing to their distinct market position,” he added.
The Youtsa challenge to Zudio
Despite the current positive outlook for Trent, Tolia pointed out that Reliance Retail's Youtsa poses a formidable competition to Zudio.
Toila emphasised that unlike Aditya Birla Fashion and Retail or Shoppers Stop, Reliance Retail can easily adopt the strategies employed by Zudio. “Reliance Retail can easily become a dominant player as they have the muscle power in the market,” he added.
Reliance Retail has successfully secured a funding of Rs 15,314 crore from prominent global investors, such as KKR, QIA, and ADIA. At Rs 83,063 crore, the company reported a robust 23 percent on-year jump in gross revenues for Q3FY23. The expansion strategy for Youtsa involves the opening of approximately 200-250 stores in the next two years.
Nevertheless, industry experts have observed that replicating the Zudio model, especially for players like Reliance Retail, will require a considerable amount of time.
The Zudio approach
According to Tolia, Zudio has effectively adopted the fast-fashion approach, drawing inspiration from Zara. “If you look at Zudio’s products, they bear a resemblance to Zara,” he added. The brand refreshes its inventory every 15 days, a strategy that resonates well with customers.
Additionally, Zudio stands out by manufacturing its brands in-house. Toila pointed out that having too many brands under one roof poses a challenge for companies like ABFRL, as it becomes challenging to regularly update their inventory, resulting in less appealing designs. “ABFRL has also tried to get into a lot of segments like ethnic wear, which made the brand lose focus,” said Tolia.
Analysts noted that Shoppers Stop’s Intune is relatively new compared to Zudio. The brand has 10 stores and plans to add 14 more in 4QFY24. “The aggressive expansion plan of 164 stores by FY26E could be a key lever for growth and re-rating, going forward. However, it will be crucial to expand design and private label merchandising capabilities to enhance the value proposition.” said Motilal Oswal in a post earnings note.
To safeguard its leading position, Zudio must maintain a consistent offering of trendy, affordable, and high-quality products, said Bolinjkar, and added that expanding physical stores in smaller cities, and investing in digital platforms for an omni-channel approach, are crucial steps to stay ahead of potential competitors.
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