Zudio, Tata's Retail Sensation, Is Now Bigger Than Westside

The eight-year-old brand has nearly doubled its revenue over the previous year to Rs 6,744 crore as of March, according to Kotak Institutional Equities estimates. While Trent discloses only combined financials for its fashion concepts, the brokerage projects Zudio's revenue to have surpassed that of Westside in the fiscal gone by, aided by aggressive store expansion, higher inventory turns, and an improvement in sales per square foot.

Simply put, Zudio sold 90 T-shirts and 20 pairs of denim jeans every minute in fiscal 2024. The brand also saw 19 fragrances and 17 lipsticks flying off the shelves every single minute, according to Trent's annual report.

Zudio —with few peers of similar scale—has achieved a compound annual growth rate of 89% in revenue between FY18 and FY23. During the same period, it outperformed Trent's own CAGR of 31% and consistently defied the general slowdown in discretionary consumption.

Moreover, Zudio's rapid expansion contrasts with Trent's traditionally conservative, profitability-first approach. Trent, a Rs 1.65 lakh crore market-cap company, took 26 years to open 232 Westside outlets, marking its presence in 91 cities. In comparison, Zudio expanded to 545 stores in 163 cities, with five million square feet of retail space, in less than a decade. In the fiscal year ending March 31, 2024, it opened 203 outlets.

Zudio's average revenue per square foot is estimated to be Rs 18,500.

Zudio's meteoric rise was unimaginable until recently, with Trent's flagship brand, Westside, accounting for over 60% of its sales until 2022, according to experts.

"We got this completely wrong," said Vivek Maheshwari, equity analyst at Jefferies, in a recent note, implying that the brokerage "underestimated" Zudio's ramp-up and how effectively their management could execute plans.

But Zudio's success suggests that trendy and affordable fashion has enduring appeal. "Moreover, the brand has several unique advantages—an extensive supplier network and in-house design team, a modern and inviting store layout that requires minimal capex, and a zero-budget marketing strategy—that are difficult for others to replicate," Rakshit Ranjan, co-founder of Marcellus Investment Managers, told NDTV Profit.

Zudio's closest competitors are V-Mart Retail, Reliance Trends, and Landmark Group’s Max Fashion. The brand's pricing is comparable to that of DMart, despite the latter having a limited range of apparel. Zudio's rise to fame also sparked the entry of new peers such as Reliance Retail Ltd.'s Yousta, InTune by Shoppers Stop Ltd., and Aditya Birla Fashion and Retail Ltd.'s Style-Up.

The average size of a Zudio outlet is roughly 8,000 square feet, similar to V-Mart stores but approximately half the size of a Westside store.

"We believe a profitable retail business requires high inventory turnover," says Marcellus' Ranjan, adding that Zudio meets this parameter because of its ability to refresh its inventory every few days, unlike any of its peers.

India's value retail market is estimated to be Rs 5 lakh crore and is growing at 15–16%. However, only 30% of this market is organized.

Trent Chief Executive Officer P. Venkatesalu sees significant potential for Zudio to grow in the country's value retail sector, considering that the brand currently holds less than 2% of the total market share.

"The Zudio model is now very different from three years ago and will be different three years from now," he told Motilal Oswal Financial Services Ltd. analysts recently. This is because customer preferences and tastes keep changing.

The current trend is shifting from "slim fit" to "oversize," Venkatesalu explained, emphasizing that a brand can quickly become irrelevant if it fails to evolve with changing styles. Zudio strives to remain relevant in the current environment while also maintaining store economics.

The country's apparel market is mostly concentrated in the top 24 cities, accounting for more than 40% of branded sales. With at least 56% of its stores in these cities, Zudio is "well-placed" to capture this market share, UBS Research Analyst Ashutosh Joytiraditya said in a March 15 note.

Tier-2 cities and beyond, which account for 71% of total retail spending, are underestimated and untapped, providing apparel retailers with a large headroom for growth, according to Joytiraditya. "We believe Zudio's store format and size are ideal for rapid expansion in tier-2 and below cities."

Another distinguishing feature of Zudio is that it is not an omnichannel player. Trent doesn't operate the brand online, as offering free returns and additional discounts is not conducive to its business model. It accepts returns in-store, thereby reducing costs.

"I found myself drawn to Zudio like a moth to a flame," said Ritweeka Sarkar, a self-proclaimed fashion enthusiast, as she recounts her first visit to one of the outlets in Noida.

"I entered the fitting room with an armful of clothes to try them, but I ended up buying all of them," she said. "I had no idea it was a Tata brand, and I can't believe I was able to purchase five tops for under Rs 2,700."

In a nutshell, she described Zudio's stylish tops and dresses as "Zara in a budget" and with new arrivals constantly coming in, she knew that her addiction to Zudio was far from over.

Zudio has quickly become a popular choice for fashion-forward consumers like Sarkar, looking for on-trend pieces without breaking the bank. It has been a bustling hub for fashion lovers amid the wider economic downturn.

Currently, mass-priced products constitute 75% of the total fashion market in India. "We estimate approximately 60–65% of Zudio's stock-keeping units to be below Rs 600 and therefore, more appealing to value-seeking consumers," according to UBS Research's Joytiraditya.

"The market is very competitive, and the challenges are real," Trent's Venkatesalu wrote in a letter to shareholders.

But, brokerages remain upbeat about Zudio's growth prospects.

Kotak Institutional Equities expects a revenue compound annual growth rate of 47% for Zudio and 17% for Westside between FY24 and FY27.

Zudio currently has thinner gross margin of nearly 40%, as compared with Westside's industry-leading margin of 57%. The operating margin for Zudio is pegged at 10.3% versus Westside's 15%. The margin, according to the brokerage, are expected to increase for both Westside and Zudio.

UBS Research projects Zudio's sales contribution to total standalone revenue to rise to 65% by FY26 from almost 45% in FY23.

"We see Zudio as a key beneficiary of the push towards value fashion and estimate 54% CAGR in revenue for the format over FY24-26, driven by 200 new store additions per annum," according to Systematix Research.

"For the next two years, I don't see the business stagnating in any aspect," said Marcellus' Ranjan.

Trent's shares soared nearly 12 times in the past five years, as compared with the benchmark Nifty 50's 90.21% jump. Rival Aditya Birla Fashion and Retail Ltd. has risen 41.23% during the same period.