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Fashion at affordable pricing… - Views on News from Equitymaster
 
 
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  • Mar 3, 2001

    Fashion at affordable pricing…

    When the Tata Group decided to sell off their successful cosmetics company ‘Lakme’ to the consumer products major, Hindustan Lever Limited in 1997, the parting was not so comfortable for many. Among these was Ms Simone Tata, the then chairperson of Lakme, who had nurtured the company since its inception and made it one of the top most brands in India. But she decided to move on and was soon thinking as to what should be done with the huge Rs 6 billion warchest that the Group had collected as consideration for the sell off.

    After much deliberation the Tatas’ finally decided to venture into retailing. Thus Trent Limited was born. Starting out with one retail store under the brand name ‘Westside’ in Bangalore in April 1998, the company has expanded fast and has already set up 5 retail stores in the country. Specialising in apparels, Westside is positioned as a store for the family and is aimed at the middle and upper end of the mass market.

    But the going has been far from easy. At the outset, Trent decided to have its own brands in apparels rather than go in for taking up franchises of established brands names like Arrow and Allen Solly. Though this was done to keep its product prices affordable, it presented its own set of raw material sourcing problems and consistency in product quality. But Trent stuck to its motto of providing an international shopping experience and value-for-money proposition and after initial teething troubles it got its house in order.

    Westside now has a team of in-house designers who design exclusively for the store. All merchandise passes stringent quality standards. Currently a typical Westside store portfolio consists of menswear, womenswear, lingerie, kidswear, household accessories, cosmetics and perfumes. However, all merchandise at the stores, except cosmetics and perfumes, bears the Westside label, with the range being constantly updated.

    But the company is still earning an operational loss. The company’s turnover in fiscal year 2000 has grown at a compounded annual growth rate of 193 percent over the last two years to Rs 336 million. Its profits have stood at a staid Rs 125 million, but this is largely because of huge Rs 248 million other income. The other income comes from the huge cash it has kept in investments. But this is slowly changing. The cash it has earned by selling off Lakme is being deployed to set up more Westside stores across the country. The company plans to increase the number of such stores from 5 currently to over 15 in the next one year.

    Trent: Good show
    (Rs m) 3QFY00 3QFY01 Change 9m FY00 9m FY01 Change
    Sales Turnover 107 146 36.4% 315 397 26.0%
    Other Income 50 27 -46.0% 102 76 -25.5%
    Total expenditure 118 131 11.0% 293 342 16.7%
    Operating Profit (EBDIT) -11 15 -236.4% 22 55 150.0%
    Operating Profit Margin (%) -10.3% 10.3%   7.0% 13.9%  
    Interest 2 0 - 4 0 -
    Depreciation 5 5 0.0% 15 15 0.0%
    Profit before Tax 33 37 12.1% 107 116 8.4%
    Tax 4 3 -25.0% 13 10 -23.1%
    Profit after Tax/(Loss) 29 34 17.2% 94 106 12.8%
    Net profit margin (%) 27.1% 23.3%   29.8% 26.7%  
    No. of Shares (eoy) (m) 13.1 13.1   13.1 13.1  
    Earnings per share*       9.6 10.8  
    *(annualised)            

    The effects of this transition are already beginning to take shape. Trent has shown an encouraging performance in the first nine months of fiscal year 2001. The company's turnover has improved 26 percent over the corresponding period in fiscal year 2000. As a result its operating margins have nearly doubled to 14 percent.

    What is good to see in Trent is its consistently improving topline. In the December quarter too, the company has shown a remarkable 36 percent jump in its topline. This is in an environment when overall consumer spending was slowing down. Its bottomline has also shown signs of improvement, in sync with the topline growth. The only area where Trent is showing a decline is its net margins, but this is because the other income is on a decline. This is a good sign. As the company's operations are picking up and the share of other income is going down.

    The company is also contemplating getting into food retailing in a tie-up with the Indian Hotels (a Tata Group Company). But this plan is still on the drawing board and the modalities are being worked out. However, Trent has made a small beginning in this direction. Complementing the Westside stores’ shopping ambience is a coffee shop, managed by Indian Hotels.

    Trent has made a good beginning in the emerging retail segment in India. But seeing the vast potential that exists, competition is picking up. Trent already has to contend with Shoppers Stop, Bombay Stores and Cross Roads. But Trent does have its own USP. Compared to others, its reliance on its own brands sets it apart. Also, Trent has been very conscious of giving its stores a lot of space. Each of its stores covers an area of 10,000 to 20,000 square feet. A lot of its compatriots have loads and loads of brands vying for space with each other.

    The company’s ‘fashion at affordable pricing’ plank seems to have hit off well with the consumers. But to sustain the momentum the company has to expand faster to get more mass base.

     

     

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