If retail stock performance is any clue, it might be.
Despite 3.5 million weddings slated between November and mid-December, expected to inject ₹4.25 trillion into the economy, key retail and consumer stocks are sliding.
This month, shares of Tata Group’s Trent Ltd fell 8.3%, alongside Titan (14%), Raymond (9.8%), Nykaa (9.2%), Shoppers Stop (21%), and PC Jeweller (15%). The big question: Are these stocks catching their breath before a rally, or have they already hit their peak?
While the market holds its breath, retailers aren’t sitting still—they’re gearing up for the wedding season with new launches and expanded collections.
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Reliance, Nykaa, and Shoppers Stop are banking on premium beauty, while PC Jeweller and Senco Gold are focusing on wedding collections. Trent, however, is charting a different course by targeting affordable beauty and jewellery.
Earlier this month, as India’s peak festival season got underway, Trent launched its first Zudio Beauty store in Bengaluru, alongside its lab-grown diamond brand, “Pome.” A media slip-up temporarily drove Trent’s stock up by 10% after reports wrongly suggested a new “foray” into beauty. The company later clarified that Zudio Beauty is an expansion of its existing portfolio.
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Could Zudio Beauty and Pome be Trent’s next big revenue drivers? Let’s dig in.
Trent’s mass-market approach
Most firms, from Mahindra & Mahindra to Reliance Retail, Nykaa, and sister company Titan, have focused on high-income consumers, recognizing that premium products typically deliver higher profit margins.
More here | Luxury demand soars—meet the under-the-radar company cashing in big
Trent, however, has taken a different path—targeting the mass market. The results have been impressive: Trent’s stock has surged 1,280% over the last five years, with profits and sales growing at an annual average rate of 57% and 36%, respectively. Last year, those numbers accelerated to 100% and 53%.
The driver of this growth? Zudio, Trent’s affordable fashion concept, which offers a lifestyle experience at budget-friendly prices. Zudio thrived even during challenging retail conditions, expanding from a section in Star Bazaar to a full-fledged brand by 2018. Today, Trent operates 559 Zudio stores—more than double the number of its Westside outlets (228).
This success has pushed Trent’s price-to-earnings (PE) ratio to 213x, well above its 10-year median of 164.8x, suggesting the company may now be looking to replicate Zudio’s success in the beauty and personal care (BPC) space.
Why beauty and personal care segment?
According to the Meesho Smart Shopper Report, 80% of India’s online shoppers are from mass-market households, earning between ₹2.5 lakh and ₹10 lakh annually, often residing beyond tier-2 towns. These consumers are increasingly buying beauty, electronics, and home products.
A PwC’ report, How India Shops Online, found that price influences 53% of urban consumers when buying BPC products. A 2022 Redseer report projects beauty and personal care (BPC) segment to grow at the fastest pace within the FMCG sector, with a CAGR of 5.8% through 2027, even outpacing fashion at 5.7%. BPC also offers lucrative margins, with an average gross margin of 72%.
Much of this growth will come from “masstige” products—affordable items marketed with a prestigious, luxurious appeal. While companies like Nykaa and Shoppers Stop have found success with premium beauty products, Trent is betting on affordable beauty.
Trent’s presence in beauty and personal care
Trent already offers BPC products through Zudio stores and its concept store, Misbu, which targets Gen Z and millennials with affordable fashion and beauty accessories. By March 2024, Trent had opened 10 Misbu stores across six cities.
While the company hasn’t disclosed specific revenues from BPC, it reported high sales volumes. In FY24, Zudio sold 19 fragrances and 17 lipsticks every minute. Nail cosmetics and lipstick sales doubled and tripled, respectively, compared to the previous year.
Planting the seeds for Zudio 2.0
Trent’s strategy revolves around building exclusive brands at different price points and scaling them through offline stores. Westside caters to premium customers, while Zudio targets price-conscious consumers. Instead of splurging on marketing, Trent relies on word-of-mouth to pass savings to customers. This strategy has been key to Zudio’s success.
The question now is whether Trent can replicate this model in the BPC segment, which remains largely unorganized. While e-commerce players like Meesho dominate the affordable beauty space, most of Trent’s sales come from offline stores—a critical differentiator. Competitors like Hindustan Unilever’s Elle 18 lack dedicated stores, giving Trent an edge.
After launching its first Zudio Beauty store in Bengaluru, Trent plans to expand to cities like Gurugram, Pune, and Hyderabad. If these stores gain traction, Trent could significantly scale its beauty business and capture the mass-market audience.
For more such analysis, read Profit Pulse.
It’s still early days, but even if Zudio Beauty’s pilot fails, Trent’s cautious expansion strategy should help minimize losses. Morgan Stanley is optimistic, noting that BPC’s contribution to Trent’s revenues has grown from 10% to 20% within Westside and Zudio stores.
The next Westside
Trent isn’t just focusing on beauty—it’s also entering the jewellery market with its lab-grown diamond brand, Pome. Lab-grown diamonds (LGDs) offer the same quality and appearance as natural diamonds but are far cheaper to produce.
According to Kotak Equities, Pome’s LGD jewelry costs between ₹13,000 and ₹17,000 per carat. This means a piece of jewellery valued at ₹5 lakh with natural diamonds could be sold at an 80-85% discount using LGDs, all while maintaining a 25% gross margin for Trent.
Will Zudio Beauty and Pome deliver?
Trent is clearly planting seeds for its next growth drivers with Zudio Beauty and Pome. Based on its past success, the strategy appears sound. And even if these ventures don’t work out, they’re unlikely to make a significant dent in the company’s financials.
Also read | Could Raymond Lifestyle’s new journey trigger a 37% rally?
But if they succeed—well, your guess is as good as mine as to how big these businesses could become.
Note: This article relies on data from www.Screener.in. In instances where data was unavailable, we have used alternative, widely accepted sources.
The content is intended to share intriguing charts, data points, and thought-provoking opinions. It is not an investment recommendation. Please consult your financial advisor before making any investment decisions. This article is strictly for educational purposes.
Puja Tayal, a seasoned financial writer with over 17 years of experience in fundamental research, delivers comprehensive and well-researched insights into companies through her articles.
Disclosure: Neither the writer nor their dependents hold positions in any of the stocks mentioned.
