Trent – Apparel Business Model & Value Chain Analysis –

12 January 2021

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Specialist: Uma Talreja (UT)

Title: Former Head, Marketing, Westside at Trent Ltd (Westside)
Moderator: Sandeep Sharma (SS), Third Bridge Sector Analyst

Agenda:

1. Trent's (NSE: TRENT) Westside and Utsa business model analysis, including competitive positioning
2. Zudio business model analysis and competitive positioning in value retailing
3. Trent’s value chain – analysis and competitive advantages

Contents
Q: Trent reported Westside’s SSSG [same-store sales growth] at around 8-9% in FY15 to FY19, and 7.3% in
FY20, which is far higher than Pantaloons’ SSSG at 2.7%, Madura’s at 4.7%, Future’s at about 6% and
Shoppers Stop’s at -2%. What do you think is driving Westside’s stable and market-leading SSSG figures, and
how sustainable do you think it is? 3
Q: What is your take on Westside’s store expansion strategy? Its current count is about 165, far fewer than
other players such as Pantaloons with 342, Madura with 2,600 and Future with over 9,000. Are Westside
stores a franchise model or a company-owned store model? Where do you think the maximum capacity for
store count lies? 4

Q: Did Pantaloons, Madura, Aditya Birla and others expand via a franchise model and then have issues with
assortment management, or did they also use a co-co model? What were the industry trends for growing the
store count? 5

Q: You mentioned that Westside is known for following a capsule model, where it breaks its ranges into core
range, core plus and fashion line, and it also generates over 95% of its revenues from its private label. Could
you explain how the assortment works for Westside, and how it is competitively positioned vs other players?
Where are its unique strength vs other retailers in the market? 6
Q: Could you outline the drop cycles for each capsule or range at Westside? What portion of the assortment
is comprised by the core range, core plus and fashion line? How are these dropped throughout the Westside
store? 7

Q: Do other retailers such as Aditya Birla also follow a similar weekly drop model as Westside, or is that
unique to Westside and its assortment strategy? 8

Q: Westside’s average bill size and ASP is over INR 2,000, much larger than Pantaloons, V-Mart or other
players, and it is consistently growing at 7% CAGR. What is driving this increase in bill size, and why is it so
much higher than for other players? 8

Q: What percentage of sales does Westside spend on incentivising its staff? Do you imagine this is a larger
portion of the HR cost of the company? Do you think it is a viable strategy, and has it worked out for
Westside vs other players in the market? 9

Q: How would you say Zudio is positioned in the Indian value retail market? How does it compete and
compare to V-Mart, Max or others in its pricing, its product line, its walk-ins, SSSG or other key metrics? 10

Q: Does Zudio follow a similar drop cycle and assortment strategy as Westside? 11

Q: Zudio has about 80 stores across 44 cities. What is your take on its expansion strategy and potential
focuses? We indicated it will be in high-density catchment areas, but are there any specific regions you would
highlight? In a recent Interview [see Trent – Store Economics & Supply Chain Analysis – 7 January 2021]
our expert suggested that there might be a degree of cannibailisation if Zudio is focused on tier 3 areas,
where Westside has stores to get rid of unsold inventory. Do you agree that there could be some
cannibalisation in tier 3 areas? 11

Q: Is there any difference in the assortment for a Westside store based on the region, such as a tier 1 store vs
a tier 3 store? 12

Q: How is the Trent value chain and supply chain positioned vs that of peers such as Pantaloons? What
competitive advantage does Trent have along the value chain? 12

Q: Westside is known for deploying capital quite aggressively across the value chain. In which part of the
value chain does Westside invest the most? How does it compare to investments made by other players? You
mentioned that the scaling strategy was focused on properties vs marketing, and on digitisation at the front
end. Could you explain that strategy? 13

Q: Do you think Trent’s strategy has worked out? I understand it hasn’t really built out its omnichannel
strategy as a whole, and it really seems to be focused on its offline sales. Why do you think it hasn’t been
engaging in selling its products online? 14
Trent – Apparel Business Model & Value Chain Analysis

Transcription begins at 00:00:00 of the recorded material

SS: Good morning, ladies and gentlemen, and welcome to Third Bridge Forum’s Interview entitled Trent –
Apparel Business Model & Value Chain Analysis. My name is Sandeep Sharma, and I’ll be moderating today’s
Interview. On our end, we’re pleased to have with us Uma Talreja, former Head of Marketing, Westside at
Trent.

Uma, before we start today’s Interview, could you please state I agree or I disagree to the following statement:
You understand the definition of material non-public information and agree not to disclose any such
information, or any other information which is confidential, during this Interview.

UT: I agree.

SS: Thanks, Uma. Uma, before we get into our questions list, can you start off by introducing yourself to our
audience? Can you tell us a bit about your background?

UT: I’m Uma. I am currently working with Shoppers Stop, where I head marketing, all customer-facing
services, analytics, digital transformation and e-commerce for the company since the last two-and-a-half
years. Before this, I worked with all major retailers in India across sectors. Before this, I was heading digital
transformation and business strategy for Raymond Ltd, which is India’s major textile company, as well as
men’s apparel group. Prior to that, I was a founding CMO for Burger King in India, and I also headed
marketing for Aditya Birla Retail, which is more supermarkets, hypermarkets, as well as for Westside. About
23 years or so work experience, of which almost all my time except for the first five years, where I was in
consumer goods, has been in retail work. That’s it for me.

[00:01:48]

Q: Trent reported Westside’s SSSG [same-store sales growth] at around 8-9% in FY15 to FY19, and 7.3% in
FY20, which is far higher than Pantaloons’ SSSG at 2.7%, Madura’s at 4.7%, Future’s at about 6% and
Shoppers Stop’s at -2%. What do you think is driving Westside’s stable and market-leading SSSG figures, and
how sustainable do you think it is?

UT: I think, firstly, to understand same-store growth, what would impact that and how Westside has taken
advantage of that. I think store launches actually help Westside. They’re launching at a very rapid pace, so
most of this is, of course, in the tier 2, tier 3 markets, but what really happens is that they have a large number
of stores in their mix which are newer, firstly, but also are up for a short period of time. If you take, for
example, a store which is extremely old, and, in Westside’s case, let’s say, that would have been on the
outskirts of Bangalore in a commercial street, initially, when you launch the first year of the store, the store
does not actually get any growth. It doesn’t get any major impact. After some time, the customer affinity grows
because people get to know about that store, and that’s why, after the first year, the next five years are very
high-growth for that store in terms of same-store growth, as customer affinity grows, firstly.

The second thing, what Westside does very well, is that they analyse the assortment from an IPT, which is item
per transaction, view. What they do is they look at what is actually going into the bill and what are the missing
categories in terms of what customers are not buying. That is where they achieve the label assortment, so they
correct the assortment after the first year, which is to improve categories. Let’s say, for example, trousers are
not really showing up as much in the bill penetration or invoice penetration. Then they will fix the assortment
of trousers, and then they will give tasks to the staff with incentives or instructions to actually sell more

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trousers and correct that. This is what gives them the next five years of very high growth.

In Westside’s case, they have a larger number of mix of stores at this point in time in this bucket, which are in
that +1-5 years of lineage in the business, which is why their overall business actually is far (inaudible 04.38)
heavy. The second thing that they do, and renovation makes a very big difference. The minute you renovate a
store, you are seeing store growth actually double from wherever you were. They do renovate 15-20 stores
every year, and they’ve actually managed to build a renovation cycle which is very short, so they actually finish
renovating a store in less a month. That gives them, actually, very low closure time where they’re not available
to customers, so their fit-out is how they have improved the renovation cycle, as well as managed to, therefore,
renovate 15-20 stores every year, which, again, gives them a jump. If they would be closing, I’m sure Westside
must be nearly maybe 200-odd stores now, but every year, if they’re renovating so many, and equally as many
are being opened, it would give them an edge over anybody else really in the market. That’s not the case really,
therefore. While Pantaloons follows a similar strategy, they’re not as rapid and as fast as Westside is doing it.
Therefore, actually, they do better.

In terms of the others, which are a larger format, I think same-store growth is much more difficult. When you
take the size of an average Westside store, it will be 18,000 square feet, whereas you’re talking about Future
Group, which is primarily Big Bazaar fashion and Big Bazaar, and if you take a department store like Shoppers
Stop, the average square-foot size would be 50,000 square feet. That makes a very big difference in terms of
really getting that same-store growth, where you’re able to get a very sharp-shooting strategy on your
assortment, and adding missing categories and driving process through. Because the number of categories and
the width of assortment in both these other stores are so high, they cannot adopt a similar strategy at a rapid
pace like Westside clearly can. That’s really their secret sauce, in terms of how Westside does this.

In terms of whether this is a stable strategy, and, long-term, is it sustainable, sure, it is. It is a very well-proven
retail strategy which is actually what, for example, a Zara would also do in terms of really localising the
assortment, but more than a preference, so the assortment will be the same. It’s not localised to a preference of
a customer. It is actually localised through gaps. What they would immediately do is, in the case of Zara, if
they realise that they’re not able to sell their fashion but able to sell their basics far better in a store, they
would immediately fix that in terms of how they will actually adopt, whether it’s from a display or assortment
perspective and (inaudible 07.14) increase their depth of certain high-fashion ranges but at lower price points
to be able to immediately get that penetration. That’s really what Westside is doing to get same-store growth,
but pretty much, in the case of other retailers, they do have a high marketing cost to drive this and a very low
focus on assortment agility. In the case of Westside, it’s the reverse, so, therefore, the entire pitch is on the
product assortment and the staff actually being able to drive the sales in the store once the customer really
walks in.

[00:07:50]

Q: What is your take on Westside’s store expansion strategy? Its current count is about 165, far fewer than
other players such as Pantaloons with 342, Madura with 2,600 and Future with over 9,000. Are Westside
stores a franchise model or a company-owned store model? Where do you think the maximum capacity for
store count lies?

UT: I think the way Westside is functioning, they did experiment with the franchisee model at some point in
time. Their thought was that the franchisee store should be where, let’s say, the company cannot actually have
easy access to, and, therefore, let the franchisee run it and with local knowledge. I think they’ve changed that
because it didn’t really quite help them. The way the franchisee model helps is because there is capital
investment which is made by the franchisee. Therefore, it takes away that burden and you have a local
operator who is vested in the success of the brand. I think what Westside immediately realised is that, because
they were not actually localising the strategy where the franchisee actually swayed away from standards, and
in India that’s a very difficult piece to really maintain if you’re actually a small percentage of franchisee stores.
I can see a similarity with a corporate book store, for example, where, in fact, 80% of the business will be
franchised.

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The management of that, which becomes a buy model where the franchisee is actually investing in the
assortment and, therefore, buying sometimes local assortments, you don’t know what is going on. Then he is
actually not liquidating the assortment on time because he is holding onto the inventory to not actually give
away his margins. It didn’t quite work well for Westside, so Westside no longer does grow on the franchisee
legs. In terms of the size of the market, I think the way Westside is addressing it is it’s taking a twofold
strategy, where they have introduced Zudio as well. Between Zudio and Westside, how they actually penetrate
the market is what is going to make the difference in this case. When you mention Future Group, Future
Group is not a single format which actually gives you that kind of penetration into the market. It’s a mixed
market.

I think the most comparable business to a Zudio and a Westside combination would be actually nobody,
because Pantaloons is less a closer fit to the model that Westside has, but the Zudio model is actually very
close to Max, which is from the Landmark Group, Lifestyle. That’s really the closer model. I think that the way
this will pan out is they will continue to open 15-20 stores of Westside, but they will go into catchments which
are now going to be far more in tier 2 and tier 3. In the same city, Zudio will have a very different opportunity.
For example, if I had to look at Bombay, and one would assume that it’s not a value-for-money market, let’s
say, but the way this would operate is to go after value-for-money catchments. The potential for a Zudio would
be outside railway stations, outside colleges, go and open a store wherever there is a Max store, to take away
some of that share. If you have two stores, that will create a form of gravitational pull in terms of attracting
more market and attachment really expands.

In terms of the total potential, Westside can easily double the store count from an India perspective. It’s not
going to be very difficult for Westside to do it as well, and they do have the means to be able to do it. The
potential for Zudio, because it can go into smaller markets where there is value consciousness with high-
fashion affinity that is growing, but literally following a local transportation network, to have high-density
catchments like railway stations, colleges. Because India has such a high presence of youth, that will be the
sweet spot for Zudio, is what I think.

[00:12:08]

Q: Did Pantaloons, Madura, Aditya Birla and others expand via a franchise model and then have issues with
assortment management, or did they also use a co-co model? What were the industry trends for growing the
store count?

UT: In India, I think, mostly, whenever a retailer has adopted a franchisee model, there are two ways to do it.
One is that the retailer decides that they want to control the assortment, and, therefore, it is the stock belongs
to them, and the risk of the assortment being right or wrong is actually taken by the retailer itself. This is much
more prominent for brands where the product is far more in their control, and they want to actually display
the style basis what they want to. For example, if Westside wanted to franchise, or if Pantaloons wants to
franchise, this is the typical model they should ideally follow because assortment is at the heart of their
strategy, in terms of what they want to actually sell.

If I flip that around to somebody who has got a manufacturing capability and a manufacturing mindset, let’s
take the Madura Group is what you mentioned, or let’s take Raymond, for example, where you know that the
product design, as well as manufacturing, is the backbone of the company. They run their own factory. The
model that operates over here is the franchisee actually does not take charge of the inventory. Sorry, the
retailer doesn’t take charge of the inventory, but the franchisee has to, and they buy. Typically, how this would
operate in the case of whether it’s a Raymond or a Madura is that they would run a trade show, where all their
franchisees would be called, so the franchisee actually makes the larger investment in terms of both the fit-out
as well as in terms of the inventory, and they would actually buy.

The risk that happens in such a case is that, if their selling process is more attuned to actually making sure that
they’re able to actually clear stock, rather than manage the bestseller in the assortment from the brand side,
then they end up dumping stock, and the franchisee buys very safe styles. Therefore, you will never see the
accurate presentation of the brand. In such a scenario, what you would see is, because the franchisee does not

Private and confidential 5

actually liquidate as fast, so does not actually drive that kind of rate of sale. Because he’s bought the way he
has bought it, you find that, actually, there is a higher component of debt in these companies because the
franchisee is used to liquidate primarily your stock, and he is sitting with that primary stock but he will not
actually pay for that stock until he has actually sold it.

That is a risk that runs in these kinds of models, where it’s a very factory-driven mindset where there’s a sales
team involved, unlike the retailers. If you take Madura or if you take Raymond, they’re not retailers. They’re
product companies. If you take Westside or if you take Pantaloons and Future Group, they’re retailers, and the
mindset is completely different. In the case of a factory-driven production and a factory-driven product
company, they think of the retailer as a distributor, whereas in a retail company, they think of the retailer as
the primary source of their business and it’s their business model itself. That’s really the key difference.

[00:15:42]

Q: You mentioned that Westside is known for following a capsule model, where it breaks its ranges into core
range, core plus and fashion line, and it also generates over 95% of its revenues from its private label. Could
you explain how the assortment works for Westside, and how it is competitively positioned vs other players?
Where are its unique strength vs other retailers in the market?

UT: This data is actually not correct. Westside is 100% private label, and has been 100% private label since a
long time. Probably what you’re seeing as data is SKUs by shopping bags, etc, creeping in. Westside, I would
say, until about 2010, 2012 maybe, they did have some amount of non-private label, but it was only in the
beauty section. They had Lakmé and Chambor and a few other brands that they had in the beauty and
fragrances, in the beauty section. At least in the last five years, Westside is 100% private brands. They have no
other brands in apparel, and they have no other brands in beauty. They launched Studiowest, and when they
launched Studiowest, Studiowest is their beauty brand, at that point in time, they only had Lakmé. They
phased out Lakmé when they brought in Studiowest, which would have been about 2016, maybe. Since then, I
think they have been 100% private label. This little bit of non-private label that they had in the past was in
beauty and, I think, in the lingerie section, but they never actually had branded apparel within Westside.
While this data keeps coming up in many reports, if you talk to anybody at Westside, they tell you they have
zero external presence, and what you’re seeing is probably errant SKUs, non-trading SKUs which are replacing
SKUs in the accounts. I don’t think they have anything, and if you go to a store, you won’t find a single thing
which is non-private label, as well.

Actually, their strategy has always been very clear. I think, until about 2014, Westside was a single-store
brand. All of their merchandise, almost all their merchandise, was called Westside, and it was almost like one
single warehouse, so Indianwear to menswear to women’s western wear, kids, home, everything was just
called Westside. What they did after that is that they have consciously actually segmented their customer base,
which is much more by occasion. This occasion-driven segmentation was actually done on the back of
customers, how they use the product and what is it that you have in a wardrobe. Typically, let’s say, a women’s
wardrobe is far more complex, and that is actually the strength that Westside always had, because Westside’s
biggest trend came from a legacy of Indianwear, especially the mix-and-match kurtas. Using that trend, they
first segmented the women’s wardrobe, which in India is far more complex compared to the western wardrobe
that women would have. They divided their Indianwear portfolio, which was the most complex portfolio, into
occasions. They were the only brand which managed to segment their Indianwear portfolio into what you see
as the value and casual wear, which is everyday wear, which I think is called utsa. They actually segmented a
corporate customer, who probably wants a formal but… it’s almost like someone is looking for a replacement
for a sari, and it’s close to original fabrics like hand-loom, cotton, silk, and they introduced Zuba.

Then taking light-occasion wear, because the heavy-occasion wear is not Westside’s customer at all, and
they’re not a destination for wedding, then they introduced something called bulk, which is more value-added
occasion wear, which you can wear very easily for a puja or to a club and then to whatever engagement, maybe
a party, etc. They managed to do that extremely successfully. Then they actually build their children’s portfolio
as well, quite sharply. They’re the only ones in children who have been able to, again, segment it, not just by
age group but be able to create synergies between the women’s Indianwear and the kids’ Indianwear, because

Private and confidential 6

that’s a very big, growing segment, for kids’ Indianwear. They were able to leverage the prints and the fabric
for that as well. I think that’s what they managed to do to grow, and, similarly, for menswear and for home as
well. There’s clear segregation between soft goods and hard lines, and introducing very accent furniture which
has a high ROS. It is not they’re propositioned as a destination for expert purchases in a category, but it’s
always going to be easy buying where you keep supplementing your wardrobe, and I think they got that
positioning extremely right in terms of the balance between value and fashion styles. Their learnings with the
Inditex JV were very, very high in terms of how Zara manages that cycle.

At some point in time, where, actually, Westside needs to operate a season, they moved to drops which were
far more frequent, and this is maybe over 10 years old. Today, what Westside does, they literally have weekly
drops, so they actually refresh some of their merchandise in a week’s time. They have capsules which are
actually dropped every week, and this has given them a very high repeat cycle, which is what you see in their
customer results. You quoted from loyalty data in your question, but that’s really has helped, because they see
a higher repeat. Despite not having a width of categories the way a department store like Lifestyle and
Shoppers Stop will have, their frequency is actually higher, for the simple reason that the customer comes
back, is able to add this assortment at frequent cycles because you always don’t mind adding a kurta or you
don’t mind adding slippers, and you don’t mind adding a little bit of home décor. You’ll buy a little bit of a
smaller seating with an extra coffee table or a little bar, etc. That’s how they have built their assortment for
frequency, and their entire business is, therefore, modelled around that, where they do frequent drops,
customer comes back, picks up something. There is always something fresh, and that’s what they actually
absorbed from the Inditex JV quite well.

[00:22:35]

Q: Could you outline the drop cycles for each capsule or range at Westside? What portion of the assortment is
comprised by the core range, core plus and fashion line? How are these dropped throughout the Westside
store?

UT: The cycle, the way it starts is, when they start with planning for a period, I don’t think they’ve got a season
anymore, and most brands are moving away from seasons, but then let’s say they plan for a three-month cycle.
If they’re planning for a three-month cycle, and I’m going to use this as an illustrative example. Let’s say they
take a western-wear brand called ‘Wardrobe’. What they would do is, actually, they will put together a three-
month trend in terms of the story, so let’s say orange is the trend or pink is a particular trend, stripes are a
trend, a particular silhouette may be a trend, etc. They will put together this entire canvas, which is, what is it
that they are going to actually forecast that what it’s going to be for three months. Once they do this, in their
office, they have many walls and tables where they actually plan this display. It would start with, very basically,
printouts, saying that, “When I do my first launch,” so let’s say I’m doing my first launch on 1 Feb, and, “If I’m
doing my first launch on 1 Feb, this is exactly what that will be.” This is their mix of, let’s say, the same orange
and of prints and stripes, and that’s what my wall is going to have. Then they will plan their core and core plus
on the tables. Let’s say, for core, they would decide it would be some kind of trousers or some kind of a work
shirt, etc, and they would plan that.

This entire thing they would plan for three months, so there would be a consistent approach which is there
where their core will outlast, and their core will not change, but what will happen in the core is they will
introduce new colours, or they may introduce a different seam length, or, let’s say, if it’s a trouser, they will
keep the fit, etc, the same, but they may introduce just a slightly different fabric. This cycle, this one, they don’t
change that often. In the case of the core, it will work on core and core plus, works for them on auto-
replenishment, and it’s more about stock replenishment. When that style runs out, the next style actually
replaces it with a slight value addition from the old one, or slight minor difference from the old one if they
cannot. Otherwise, it will be consistent.

The fashion line, on the contrary, what will happen is that it is a far more complicated way of planning, where
they will replace some styles of the orange which they will assume may be a… they will predict a rate of sale,
which will be either a fast seller or a slow seller, and they will pick the styles they want to replace. Let’s say the
slow seller has to be replaced because it’s not selling. Their slow seller of orange will, therefore, get replaced

Private and confidential 7

by, let’s say, another complementary style, which will actually go back and replace that, and then the slow
sellers will actually keep going back to a warehouse for end-of-season sales. This, they do every week. About,
let’s say, 15% of your range in the fashion line could be predicted to be slow sellers, and that’s what will get
replaced, but it would be a complicated exercise where you’re actually learning, over a period of time, to
predict what will work well, and then keep replacing that with styles which will work in your display.

Westside buys to sell. They don’t actually buy and then figure it out. They buy basis the walls and the table,
and they make basis the walls and the table, and this is really what they would do, which is why they do it
every week. Every week, there will be a drop, which is one. It’s the stock which is not there, because most of
the stores don’t have enough back of the house, so you would replace or, rather, replenish a fast seller, and you
would replace a slow seller. A slow seller they would give two weeks. If it’s not, then they’d move it in the back.
They will actually put it in the back, bring other styles in the front, and then, after that, they replace it. That’s
really what they do, but the drop is literally every week. They have staff which are dropping to a store every
week in a cycle, and in terms of a planning cycle, it is between two weeks to a month.

[00:27:07]

Q: Do other retailers such as Aditya Birla also follow a similar weekly drop model as Westside, or is that
unique to Westside and its assortment strategy?

UT: Aditya Birla Fashion, I would have to divide that into two parts. One is Pantaloons, which is all private
label, and in the case of Pantaloons, their supply chain is just not as agile as Westside’s. Westside has invested
over the years in capability of very high level of supply chain management, which is both at the warehouse,
and then now they have two warehouses, one is very state-of-the-art warehouse at Vapi, their older warehouse
is at Poona, and then fleet management, in terms of actually making sure that they’re able to manage this
delivery cycle. That is not what Pantaloons has done. Also, agile manufacturing. Because they’re invested in
fabric development, and they occupy 100% of capacity of many factories, they’re able to move like that because
the factories are dedicated to them. It’s the same way that Zara has dedicated factories all over the world. They
use 100% capacity of that factory, but Westside has taken 5-7 years to work on a plan that they have been able
to execute. That does not exist with Pantaloons, which is a similar model. So while their core process would be
the same, their execution is just not the same in terms of how they have built a focus on supply chain. In the
case of Westside, it’s extremely strong. Also, their merchandising capability in terms of how they manage the
open-to-buy, their working capital, is also extremely strong.

In the case of Madura, it cannot work like that. Because it’s manufacturing sector, they actually do six-month-
level planning. They cannot work like that because they don’t operate like this at all. They would actually have
their own factory or outsourced factories, but they’re more like through distribution. Madura’s business, a
large part of their business will actually come from other retail networks and not just their own, their
department stores, multi-brand formats like Planet Fashion, etc, online. There are multiple, and then the
smaller stores which are there all over the country. Madura will also operate very differently. In fact, it’s
almost like an FMCG company operates. They will manufacture, might have their own flagship stores, but
then, finally, what they will do is they’re distributing, and that’s how they work. They cannot be as agile. They
work on a manufacturing cycle. They don’t work on a fashion and a replenishment cycle. That’s not how they
work.

[00:29:55]

Q: Westside’s average bill size and ASP is over INR 2,000, much larger than Pantaloons, V-Mart or other
players, and it is consistently growing at 7% CAGR. What is driving this increase in bill size, and why is it so
much higher than for other players?

UT: One way to look at it, if you see, what you will find, especially retailers from private labels, usually, what
happens in the case of the bill size is when their average selling price increases, so they take a price correction,

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let’s say, or they will take certain styles and take a price correction. For example, way back in the past, what
Westside had done for this, they took all their core, and that’s when core plus was introduced, because core
plus allowed them to create a higher price point. Because I take a polo-neck T-shirt, and let’s say I add a small
rivet to a collar, I’m suddenly able to add a price. The cost of the rivet might be only INR 2, but I’m able to add,
let’s say, INR 50 to the price of the garment. That is one way of doing that, which is where the core-plus
strategy of Westside actually helps them, and they keep doing this, where they actually are able to introduce
products which have a minor value add in terms of whatever, but then they’re able to actually fetch a price
which is higher, and also margin on core plus which will be far higher than on core.

The second thing, really, in the case of Westside, they have a very high unit per transaction. In the case of their
unit per transaction, they would be at about three-and-a-half, so three-and-a-half items per bill. If their
average item cost is, let’s say, INR 350 or INR 400, that’s the kind of bill value that you will end up with. This
is what they do, is they incentivise the staff, so it’s a pure operations input. One is, of course, making sure that
on the pricing, like I said, introducing these kinds of items which give them a mid price which can be on large
volumes. If you take, for example, the kurta, they will have multiple different strategies for different
categories. In their case, on the womenswear side, the key category is definitely the kurta, so the scene for
kurtas, it’s actually a large part of the entire store, only the kurta business, probably. The women’s kurta
business would be about 25-30%, if I’m not mistaken. In this, what they do is, to increase their IPT, they
actually have bundles. If a kurta is for INR 499, you will have this buy two and buy three at the pricing, and
they have enough prints to do that. Very rarely that a women will go to Westside and buy one kurta. The
average number of kurtas that they would sell in a bill would be three, and this is what actually helps them,
one.

The second is the core plus. Like I said, the T-shirts would be a key category for them, running across both
men as well as kidswear, where the core plus actually has been to drive the bill value because in the case of the
core plus, they’re able to drive that slightly extra effect. That core plus, again, is a significant penetration into
their assortment now, compared to core. Initially, core was high, and core plus would have been maybe 10%
than core in terms of the amount of assortment, but that has changed now. Core plus is a very big assortment
for them, which cuts across women’s western wear, so things like trousers. In the case of youth SKUs, this is
Nuon things like jeggings, athleisure. The core-plus range, it is on the cusp of core and fashion, and they’re
able to drive their ASP as well as IPT through these tools. IPT is item per transaction. There’s a regular
incentive, so staff are incentivised to sell a certain number of items per transaction. That’s where their HR
money, actually, in terms of staff incentive, is set. Based on many other stores, they would actually do it at a
larger level, saying that a store achieves their target or overachieves their target and they get an incentive. In
the case of Westside, they have incentivised their staff for item per transaction.

[00:34:38]

Q: What percentage of sales does Westside spend on incentivising its staff? Do you imagine this is a larger
portion of the HR cost of the company? Do you think it is a viable strategy, and has it worked out for Westside
vs other players in the market?

UT: I’m not sure what is the percentage to sales that they would allocate to incentives, but I would assume
that they would be allocating, time to time, at least 0.2-0.3% of their total margin which they earn to
incentives, is what I would assume will be viable for them, but I’m not sure about that, if that’s a reasonable
guess that I’m making. In terms of is it, then, a strategy that works, yes, but it is the overall way they have built
the business model. If I had to get up and say that, “Can I do this somewhere else? If I just do incentivisation
for staff on IPT, that’s going to be the magic formula,” the point is that it is linked to the way they have
planned their assortment strategy, and the way they have actually planned the rate of sales. If they have
decided that this is how they’re going to work, where they’re going to actually put merchandise out every week
and they have a planning cycle like that, then ROS, ROS is basically the rate at which they turn their
merchandise, becomes critical. It becomes very critical to their model, and, therefore, IPT is very important
because they need to clear the volume. They have to clear the volume, and, therefore, their bill value is driven
through volume. It is not driven through the higher-priced merchandise.

In the case of a department store like Shoppers Stop, if I had to drive bill value, I would incentivise my staff to

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sell watches, and, therefore, I would have to sell very few watches to get my sales. I would have to sell
expensive watches, and I would be there at the same level, but that would mean that I don’t have the number
of customers who can actually help me to clear my apparel sales. Imagine the entire staff is now chasing
watches, and, therefore, our average price of a watch, let’s say, is INR 10,000. Because people are taking that
INR 10,000, that is three customers lost of apparel for me to get one watch, or any other category, for that
matter. What happens is, because I’m going after fewer customers, buying very expensive products, I’m never
going to be able to clear volume of the products which actually require faster frequency. Westside doesn’t have
such products at all. They don’t have that strategy at all, so everything is built around the high-frequency
purchase, and they have to clear and rotate that merchandise that fast. Therefore, their incentive to staff
works.

[00:37:21]

Q: How would you say Zudio is positioned in the Indian value retail market? How does it compete and
compare to V-Mart, Max or others in its pricing, its product line, its walk-ins, SSSG or other key metrics?

UT: I think what they have done very smartly with Zudio is that the pricing is the same as V-Mart, and the
pricing is the same as Max, so there is barely any difference between these three brands from a pricing
perspective. Their learning that they have applied, which is what they have from Inditex and Westside, is what
they’re applying in terms of the presentation, so a Zudio store is far better in terms of its appeal, and the
product is far more fashionable than you would probably find at a V-Mart. V-Mart is still a little bit of a
hypermarket feeling, and it doesn’t have the brand equity. If Westside went after, for example, let’s say, the
youth segment, because Zudio is for youth, Westside has a brand called Nuon. Why didn’t they call it
Westside? They could have called it Westside Young, but they didn’t do that, because nobody who is young
wants to wear a brand called Westside Young, right? They want a brand which has some kind of value which
they can attach to it, and that’s what they firstly did with Zudio. If they’re going after the value fashion
segment, fashion becomes a very important component. That’s the DNA of Westside. (1) It’s their DNA, and
what they have learned very well from Zara. The DNA of Zara is fashion. It is value fashion, not whatever. For
example, TRF and Nuon are quite similar in the same way.

What they learned from this is what they have applied in Zudio, which is basically keeping it aspirational from
a fashion perspective, but really keeping the pricing the same as what you would find in the apparel section of
a hypermarket. Knowing that this customer segment is not going to buy fashion from a Walmart, it would be
akin to that. They have actually hived this off as an independent store, which is actually selling apparel at a
great style and a very low cost. That pricing is the same. It is far more comparable, in terms of what they have
wanted to do, to Max, actually, than to V-Mart. I don’t think Westside considers V-Mart as a benchmark. Max,
yes. The opportunity was put from a lens of how Max has actually managed to do it. In the case of Max, kids is
the strongest, but in the case of Zudio, I think it’s both menswear and womenswear, because they’re going
after the college market, which is actually the strongest. For Max, the kids is the strongest, followed by
women’s Indianwear. In the case of Zudio, it’s straight away the college segment. Probably 60-70% of what
they would do would be with the college-going segment.

Average size of the store will be 6,000-8,000 square feet, so very easy to find property in dense catchments,
because if you had to look for something next to a college, or you have to look for something which is next to a
railway station, or you have to look for any… you probably would not find Zudio on a high street where the
rent is very high, but go after high-dense catchments of this fashion where the customer already exists, so your
marketing cost is next to zero because you’re really relying on the foot traffic which is already available in that
location. 6,000-8,000 square feet is a reasonable rental, where, in the case of Westside, for example, rent
would be 14%, and our CAM would be 1%. I think, in the case of Zudio, the rent could be 10-12%, is what I
would assume because of the kinds of catchments they may go after. Then only 6,000-8,000 square feet vs a
Westside, which is an 18,000 square feet, so for Westside, SPSF, sales per square foot, let’s say, would be INR
11,000. In the case of Zudio, they’ll be able to get INR 13,000-15,000 sales per square foot, and that’s really
how the model works.
[00:41:35]

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Q: Does Zudio follow a similar drop cycle and assortment strategy as Westside?

UT: The merchandising process is completely common between Zudio and Westside. The supply chain and
the merchandising efficiencies, and the process, is exactly the same. I think they are trying to building a
sourcing efficiency in terms of factories. Let’s say, if I’m working with some factories where I’m using only 80-
90%, 70% of a capacity, can I use the balance capacity to actually manufacture now Zudio, because all the
factories would not be 100% capacity of Westside. Try to build a sourcing efficiency, capture the factory share,
and also in the fabric ecosystem, if they are looking at fabric purchasing, which is actually because it is, again,
Zudio all private label, which they still have to do, which unlock a lot better value. Something that it’s still new,
to actually consolidate sourcing efficiency, but on the supply chain as well as the merchandising side, it’s the
common practice and it’s the common system and the common team. Not on the buying side, on the
merchandising, which is more the inventory management, I’m talking about.

[00:43:00]

Q: Zudio has about 80 stores across 44 cities. What is your take on its expansion strategy and potential
focuses? We indicated it will be in high-density catchment areas, but are there any specific regions you would
highlight? In a recent Interview [see Trent – Store Economics & Supply Chain Analysis – 7 January 2021]
our expert suggested that there might be a degree of cannibailisation if Zudio is focused on tier 3 areas, where
Westside has stores to get rid of unsold inventory. Do you agree that there could be some cannibalisation in
tier 3 areas?

UT: I don’t think Zudio will focus in tier 3 specifically like that. I think, if you look at the value-for-money
market of India, Zudio’s biggest focus will be east and south, from what I know, because here is where value
for money and fashion will actually play out well. I don’t think they will go after just tier 3. It is the catchment
which is value-conscious that they will actually focus on. I don’t think they are going after only tier 3. Maybe
the initial pipeline has been like that, because it’s just about 70-80 stores at present, which they might have
used to capture that, but that’s not going to be the strategy, going forward, from what I can actually see or
what I can tell. I think they will go after catchments which are this kind, and the dominance, I think, that they
will look at will be east and south. Yes, it can create cannibalisation. If you have a Westside store and a Zudio
store next to each other, can it create cannibalisation? It can create cannibalisation, for sure, because there will
be a set of customers who come to Westside which will downgrade, which will actually downgrade to Zudio,
and there could be others, also, who do that. I don’t think that Westside would do this, open stores close to
each other or in the same market close to each other.

Let’s take, for example, let’s say we’re the Banaras. If Banaras has to have a Westside, and Banaras has to have
a Zudio, there is a potential, because in the main market of Banaras, which is the couple or 2-3 malls that they
would have, they could still look at Westside. Because there is BHU and there is a large amount of student
population, they could look at something which is a closer catchment to the college. If they had to have one
Westside which is 18,000 square feet, and they had to have 1,000 (inaudible 45.58) square feet, is there a
market for that? Yes, there is a market for that, and how they would allocate the assortment, they would have
to be careful because then they would have to create the Westside assortment much more like a family-
audience assortment, reduce their presence of Nuon within that, which is their youth merchandise, and then
focus on Zudio to actually cater to the youth audience. It is doable. I think it will require planning on how they
will avoid cannibalisation, which means that the two business verticals will have to come together to have this
as a documented strategy, in terms of how they will work. It is very easy to fall between two stools in
execution, where you end up creating two similar propositions which can then cannibalise each other. If they
manage to do that, the potential does exist in the value segment because it is catering to a similar mindset but
not necessarily the same demographic.

[00:46:59]

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Q: Is there any difference in the assortment for a Westside store based on the region, such as a tier 1 store vs a
tier 3 store?

UT: I don’t think the assortment varies by region, but there might be seasonal variations only. For example, in
the winter, there may be more in a place, obviously, where it gets colder and things like that, but no, they don’t
localise assortment. In the past, they could have actually localised assortment. In Chennai, people don’t wear
seamless, so they would have done things like that, but I don’t think that exists anymore. I think the
assortment is now done more by the size. What they do is they profile the catchment and they look at the
opportunity. If the size of the store is such that they have to eliminate a (audio cuts out 47.57), they could do
that, but, generally speaking, I think they have standardised their sizes in terms of what they buy and the flow
grades that they buy.

Localisation of assortment is not really a very big strategy. I think their localisation might take place in terms
of how they set the rules for replenishment and growth. Let’s say that there is a store, it reopened for a year,
year-and-a-half, and after you make all the changes, let’s say you’re not seeing the frequency. If it is a
catchment, let’s say it’s an office catchment that they have opened in. I’m just giving you an example. I don’t
know if they have one. If it is an office catchment and they don’t find that rate of sale they’re able to influence,
then they may change their drop cycle and the shifts, how they actually plan the merchandise. I don’t think
they localise the assortment to that extent at all. It’s by the size. If you go to Kala Ghoda, you’ll find a bigger
range, but you will find the same brands, probably, in Hughes Road. Both will be premium catchments, but
they will not have an option but to shrink the size of the home display, because home takes a lot of space, and
because home will not have that kind of frequency of purchase the way, let’s say, kurtas will have. They would
rather give the space to kurtas. That’s the kind of thing they will do, but they don’t really localise the styles.

[00:49:23]

Q: How is the Trent value chain and supply chain positioned vs that of peers such as Pantaloons? What
competitive advantage does Trent have along the value chain?

UT: If I could take the starting point for Westside, Westside starts with an assortment plan. In the assortment
plan, the key of Trent, in terms of capabilities that Westside would have, is buyers. Their business is actually
led by buyers, and every department will have a business buying head, and their capability is from buying with
a strong sense of design, but very little in terms of indigenous design capability, other than Indianwear. Let me
divide it into three categories. It operates differently for anything which is western, whether it’s women or
men, and there is Indianwear and there is home, if I had to divide it like that. What will happen in the case of
Indianwear is that they depend on original designs, and there, their team actually will be designers, and their
head is also a designer, and then they lead from design. They will buy prints that will belong to them, so they
will invest in the print and they will invest in design, and that team will be far more adept at actual design
development because it does not operate the same way like western wear. In the case of western wear, it
operates by stories which are similar. In the case of Indianwear, no, it’s not. It’s much complicated. It will be
prints, it will be embroideries, it will be all of that. Therefore, it comes from a design (audio cuts out 51.21).

Then they have a sourcing team which is specialising in Indianwear and works with Indianwear factories. They
will work with even villages to own blocs, so a (inaudible 51.34), etc, they will develop, design, and they will
own the bloc itself. In the case of western wear, they start with a mood board. In their mood board, they will
say, “Okay, this comes from trend forecasting,” and the trend forecasting is coming from a forecast which is
done by western designers. It is coming from a WJS (inaudible 51.53), etc, which tells you what will happen
eight months ahead and 10 months ahead of time. Then, following that, it will be pretty much the kinds of
styles that you will end up seeing across the world. If yellow is the colour and orange is the colour of the
season, you will see that in Westside. You will see that in Vero Moda, you will see that in Zara, you will see that
somewhere else, etc. In different proportions, maybe, but it starts from that, which is following a trend
forecast.

Then the third is home. In the case of home, Westside actually does not design. Westside only buys. They put
together what they call styles. Let’s say they decide that, “I’m going to focus on three styles. One is oriental,

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one is Scandinavian, and let’s say one is contemporary Indian.” Then everything, their entire range, will be
bought across these three, and they will work with vendors to develop this. It will be done in terms of how they
work with the vendors to put the assortment together, and they will only get a set of buyers who will actually
work like this, where neither design, neither the trend is actually forecasted or controlled by them, but it’s
really much more dependent on the vendors that they work with and how they’re able to build these stories
which then have a continuous supply which is possible for them in terms of the vendor being able to manage
that capacity. These are the three different ways that, actually, Westside will end up working.

What will happen in the case of western wear is that the menswear, the womenswear, as well as the kidswear,
they have a very strong set of buyers, and they have mostly buyers who in all three cases are international.
They are all expats who have worked in the European market, or from South Africa who have worked as well.
People who have worked in that market are actually at Westside. They work to a cycle where they do have
teams, their own team, as well as they have teams for western wear who only scout the market to put the
samples together which are for the trends. If they know that there are certain things on trend, there will be
someone who is scouting the entire UK to put that sample range together, and then they will balance that.
Let’s say that they’re making the full range which is going to be orange, but then they will also have a deviant
sample which is sitting within that, and how they will adapt that. Balance of designers, balance of Primark
brands, balance of all kinds of high-street brands in London, they will pick the styles to match similar trends,
and then they will build a range over here, and then it will literally be done. Therefore, this is literally done
with samples of some other product, and they will have a printout saying, “This is how I’m going to adapt it.
I’m going to change this sleeve. I’m going to change the length. I’m going to change the collar. I’m going to
change this cut, neck, whatever it is.” This is what it will be. They will mark out all these changes, and look for
what they call as a range review will be that.

After this, it goes into sample development, and then they will showcase the sample. The second piece is the
sample development. Sample, in this case, is done by vendors. How? This will vary. Pantaloons will do the first
cycle as well, but they have a set of designers as well. They have designers, and designers will actually design as
well as look at samples, so they have a combination of designers and buyers. The designers and the buyers will
visit these international markets. They’ll pick it up and they’ll infuse their own designs into it as well. They
have a sampling studio, so the sampling unit actually then generates the sample. Westside is very much an
external ecosystem which is actually tightly controlled by a set of buyers. In the case of Pantaloons, it will be a
mix of the design and the buying team actually working together. The buying team would give the direction to
the designers, saying, “This is what I’m really looking for,” and that’s how they would actually work.

Eventually, both of them have a strong ecosystem of factories who can convert for them right after this. All of
them have factory-to-warehouse. Nobody does factory-to-store, so everybody does factory-to-warehouse, and
from warehouse, everyone has a mix of own and third-party logistics, which is basically for shipping out. I
think that Pantaloons, if I’m not mistaken, would have drops every three weeks, and Westside has, like I said,
drops every week in the store. This is what I would actually say. In this, I think there are back-end systems
which would control in terms of how much buyers actually buy. There is a set process in the case of Westside.
They applied theory of constraints way back in 2010 or 2011 or something, and, therefore, they have a very
tightly controlled open-to-buy, where their focus is far more on inventory management, and they will never
have too much cover of stock. They manage their week’s cover very, very tightly. That does not happen as well
in Pantaloons. These would be the key differences.

[00:57:10]

Q: Westside is known for deploying capital quite aggressively across the value chain. In which part of the value
chain does Westside invest the most? How does it compare to investments made by other players? You
mentioned that the scaling strategy was focused on properties vs marketing, and on digitisation at the front
end. Could you explain that strategy?

UT: What they do is they control the tight size. If they’re looking at an 18,000-square-foot store, you can’t
have major back of house, I think which is why if you see rent, rent is the highest component in any retailer’s
P&L, which will be 14% upwards. If you want to tightly control your rent, you have to tightly, obviously, in the

Private and confidential 13

absolute value, control the size of your store. You remove all the unproductive areas, which is what Westside
has done very well, so very few stores have a very small back of house. They don’t even have a staffroom. They
don’t have anything like that. Department stores like Shoppers Stop will have a big staffroom. They have back
of house, they have everything, but that is not what it is. Westside will invest in the warehousing capability and
the logistics capability. Total investment in supply chain would be 2%, out of which 1% would be warehouse.
That’s what they would do, but this investment has meant you then tightly control the rent because, otherwise,
what they have to do is they have to actually manage inventory at the store level and keep enough stock over
there, which will actually increase their cost in terms of non-productive-area rent. That’s really how they
actually have made this plan. Marketing is 1.2% in the case of Westside, which includes the points for the
Clubwest programme.

SS: Is this marketing in line to what other players are deploying, or is it a fair bit more conservative?

UT: No, it’s much more. It’s 1.2% vs 3-5% of other retailers.

[00:59:20]

Q: Do you think Trent’s strategy has worked out? I understand it hasn’t really built out its omnichannel
strategy as a whole, and it really seems to be focused on its offline sales. Why do you think it hasn’t been
engaging in selling its products online?

UT: Currently, they only sell through Tata Cliq. While they do alright on Tata Cliq, I don’t think they have a
kind of presence. Should Westside do digital, I think the kind of assortment that Westside has is, at present,
too narrow for digital. Where they would benefit from digital is if they had to build an application which is for
their loyalty customers, a low-scale application which actually is built on the back of certain services, where
they are able to actually deliver fast to customers because their customers are used to that. They’re used to any
booth, store go pick-up, availability is great, pricing is great, standard sizes. They would benefit from that, but
that would look like a very large-scale acquisition to a dot-com of their own. I think that the width that they
have, in terms of how much they have, it’s only an 18,000-square-foot store width, it will not create the pull for
new customers, but it could be a great thing if they could do an application which actually helps them to have
an increase of frequency. While they’re a frequency at four, if they had an application like that, they can take
their business to a frequency of six, and also improve the new-to-repeat. When they are at 80% of loyalty, their
repeat is currently at 70%. That means that the customers that they acquire, they were not getting as much
repeat as well, and then they have a four frequency which can be higher.

If they had an app, they could improve these metrics, so they can unlock 20-30% growth if they did this
smartly for their existing customers, but their width the way it is, imagine their home section. It will fall short
for an online expectation. If they had to go out and market it to acquire through Google and through Facebook,
it would not work. Very expensive if they do a dot-com which is aimed at acquisition, but would be very good if
they do it for retention.

[01:01:39]

SS: Uma, I think we have come to the end of the time we have allocated to today’s Interview, so let me close by
saying thank you so much. Clients, if you would like to speak to Uma in a private call or in a meeting, then
please let your relationship manager know. Everybody, thank you once again for joining Third Bridge Forum’s
Interview today. This concludes our meeting. Thank you so much, Uma. We appreciate your insight. Have a
wonderful day.

UT: Okay, thank you. Thanks, bye. Thank you.

SS: Bye.

Transcription ends at 01:02:02 of the recorded material

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