Mumbai: In 1998, the Tata Group sold the Lakme brand to Hindustan Unilever for about ₹200 crore. The Indian cosmetics brand, created under the watch of the late J.R.D. Tata in 1952, had taken wing in 1952 when Simone Tata, Noel Tata’s mother, joined the board. After selling the cosmetics brand, Tata decided to use the sale proceeds to enter organized retail by acquiring Littlewoods International in the same year it sold the cosmetics business. Trent Ltd, chaired by Noel Tata, is now India’s fastest-growing apparel retail chain, enjoying a market capitalization of ₹2,40,903 crore. It has multiple formats including ethnic wear, cosmetics and grocery retail, under its fold, which are being incubated before it is scaled up like Westside and Zudio. Edited excerpts from an interview with Noel Tata:
Q. Trent commenced its retail journey 25 years ago and now has multiple growth engines. Where do you see Trent in the next five years?
I was asked this same question at the shareholders’ meeting of 22-23, where I said that Trent had the opportunity to be 10X its size, but don’t ask me by when. We will continue to grow at pace while always trying to keep our customer proposition and service at the forefront of everything we do. Successful retail is not only a numbers game. There is a saying that “Retail is detail” which is very true. There are an amazing number of moving parts that need to fall in place together to deliver a successful customer proposition.
Q. Trent now has the fourth-highest market cap among the Tata group companies. Do you see it getting more valuable from here?
It is a difficult question. As you know, all our group companies are doing exceptionally well, and each one is constantly raising the bar. So, I don’t know what the future holds in relative terms.
That said, we will continue to focus on our customers and our market cap will be what it is.
Q. Trent is seen as a late bloomer in India’s retail scene. Investors have rerated it after its transformation, as its verticals are scaling profitably while its peers play catch-up. Can you elaborate on some key factors contributing to Trent’s success?
There is a lack of understanding around this issue. Launching a private label brand differs significantly from launching a multi-brand store format. With Westside, since we chose to be completely own branded, we had to develop the entire product portfolio and constantly evolve it to meet our customers’ acceptance and find properties. Back in 1999, the required competencies for this did not exist, so we had to train and learn on the go. Retailers who today try to pivot to be predominantly private labels will realize how difficult it is.
However, when we launched Zudio, we already had all the necessary competencies in place, and we could replicate the Westside processes to a different audience very quickly. Zudio owes a lot of its success to our experience with Westside and the infrastructure we had built.
Q. Trent is currently in a good position with its growing businesses, Westside and Zudio, seeing rapid revenue and profitability growth, is the focus now shifting to Star Bazaar, which has been a modest performer. Will the grocery vertical experience growth similar to that of apparel business models?
We will continue to focus on growing both Westside and Zudio, as both brands have a lot of headroom for growth. In addition, we will start to grow the Star business, where we had paused opening new stores for a couple of years while we refined the model. The grocery business has the potential to be bigger than both Westside and Zudio because food is the biggest category in the retail market in India. That said, grocery retailing is extremely tough and competitive, with an emphasis on execution excellence.
Zudio owes a lot of its success to our experience with Westside and the infrastructure we had built.
Q. Are the lessons learned from incubating Westside and Zudio enabling you transform Star Bazaar?
Well, we are adopting the same Westside and Zudio play book in Star where today close to 70% of our revenue comes from products that we control. Four years ago, we launched our own brands in food, personal care and home needs. Last year, we launched our own brand of hard lines and soon, we will launch our own brand of cosmetics in Star. (Hard lines refer to general merchandise while soft lines include clothing). This approach is different from much of our competitors, but I believe in the long run, it will be beneficial to both our customers and our shareholders.
Q. Apart from Star Bazaar, Trent is developing several other retail formats, such as Misbu (cosmetics), Samoh (apparel), and Utsa (apparel). Some analysts tracking the company suggest these could become future growth drivers and engines for further expansion. When will they reach a size where you can consider accelerating their growth?
We will continue to add growth engines where we can make a difference to customers and will keep experimenting with these formats to address incremental opportunities. As and when we find the format is ready for expansion, we will grow rapidly. There is no pressure on us to launch new formats immediately.
In fact, it is better to experiment, evolve, and reasonably settle on a format with a few stores before rapidly expanding it. As you can appreciate, if you build a lot of presence with an unviable format, it is very difficult to modify the model at a later stage.
Q. Covid appears to have been Trent’s inflexion point. Can you give us a sense of how this has played out?
Indeed, at the beginning of Covid, we went from 100% revenue down to zero overnight. Only retail companies faced this kind of dramatic playout. Faced with this, we drastically cut every possible cost but still could not prevent making a loss, our first loss ever, in 2020-21.
But the one cost we did not stop was our search for new properties. We used the two years to sign a large number of properties as we did not want Covid to affect our growth aspirations. So, when Covid ended, our turnover jumped as all the new properties kicked in.
Q. We understand that Neville Tata is now part of the leadership at Star Bazaar’s food vertical after a long grooming period. Are you personally mentoring him, and how is he shaping up?
Yes, I enjoy mentoring our next generation of leaders, including Neville.
You know, at Trent, we have moved to offering our colleagues a career rather than a job by grooming and mentoring our people. It is in the same spirit that we launched our in-house leadership development programme called Trent Homegrown a few years ago.
Q. Unlike your peers, we understand you prefer something other than inorganic growth or acquisitions. What’s the reason for this preference? Does that mean that you are not in the race for Fab India?
It’s not that we are averse to inorganic growth. It’s just that we have not found a direct-to-customer business that has met our internal targets which has sufficient headroom for creating further shareholder value. That said, organic growth is so much more enticing.
To answer your question, we are not looking at Fab India as an opportunity, and I do not even know if its shareholders are looking to divest.
Q. Indian retailers have grown through alliances and acquisitions. Trent has been an outlier in growing profitably through private labels. Do you see your private labels tomorrow competing with household brands such as footwear brand Bata and other lifestyle apparel brands?
Indeed, several years ago, we transitioned our vision to be a “portfolio of brands” selling directly to customers, and yes, our brands will compete with other brands in the marketplace over the years.
The market is huge and continues to grow. So, there is enough room for multiple players and formats to succeed.
Q. Cash generated from Westside funded Zudio’s growth. With two engines firing—Westside and Zudio—will Star Bazaar see investments flowing into it as you scale up the grocery and fresh foods vertical?
We have always been very committed to calibrating capital deployment. We will, along with Tesco, invest in Star based on the potential we see and the consumer traction we are increasingly witnessing.
Q. Trent’s decision to stick with apparel has paid off. Can Star Bazaar, a low-margin, high-volume business, replicate similar success?
To answer your question, look at D-Mart’s success. Grocery retailing is a very difficult and competitive business, but if the customer proposition and execution are right, D-Mart (Radhakishan Damani’s Avenue Supermarts) has shown that it can be substantially value-accretive to shareholders.
We will, along with Tesco, invest in Star based on the potential we see and the consumer traction we are increasingly witnessing.
Q. Noel Tata is perceived as more comfortable with brick-and-mortar store business and has avoided online commerce. What are your views?
It’s not at all about what I am comfortable with or not. We should follow our customers’ lead and offer them the best online and in-store options.
Having said that, online apparel retail is very inefficient from a sustainability point of view due to the high rates of returns (of customers rejecting garments) of between 20 to 40 % that apparel retailers worldwide have been experiencing.
This leads to millions of garments being sent to landfills overseas, as it is sometimes difficult to connect returned garments back to the collections.
Q. What are your views on consumer slowdown in the recent quarters, given the muted sentiments reported by most players?
There is a slowdown in customer demand currently, and the main reason customers give is inflation. The correct picture is not the inflation percentage but the absolute high prices. During Covid, due to supply chain problems, you will recall, many companies took price increases to compensate for their increase in costs, but did not bring their prices back down despite the supply chain costs broadly returning to normal. Customers are now finding their budgets stretched, resulting in weaker demand.
Q. Trent’s competitive intensity is increasing exponentially in the value space. How are you navigating this environment, and what do you see as the headroom for growth for Trent over the medium to long term?
India makes up one-sixth of the world’s population, and there is huge headroom for all current and future competitors to address this market. Given the income disparity in India, I hope the government will strengthen and encourage the value segment, including by keeping the GST rates low for this segment.
This will benefit millions of customers nationwide, making each rupee go further. Also, the retail sector is one of the largest employers for youngsters at the entry level, especially onboarding a large portion of women into the workforce each year.