Fashion-forward & pocket-friendly: Retailers eye value fashion to tap the young consumer

The most recent foray, however, was India’s largest retailer Reliance Retail, which launched ‘Yousta’, with the first store opening in Hyderabad on August 24.

But what is value fashion or value retail? As per these companies, these are stores that are positioned as those selling exclusive brand offerings that are entirely designed and manufactured in-house, targeted at the young consumer and the value-conscious consumer. Pricing plays a key role here. Everything sold in these stores is priced under Rs 999. The average selling price is around Rs 500.

“The style is peppy and it suits the 15-25 age group. The youth are either buying through their first salaries or through their pocket money. Since they're digitally exposed, they also have the highest propensity to consume fashion. So, you have two factors that are important: fashionability, and it has to be kind to their pocket,” said Akhilesh Prasad, president and CEO of Fashion and Lifestyle, Reliance Retail.

This is not an entirely new segment. V-Mart has been present in this segment for several years, along with other players like Max, and Trent’s Zudio. But what’s interesting is that more retailers are now eyeing this space, at a time when other consumer segments are eyeing premiumisation for better margins. Value retail, typically, doesn’t offer a high gross margin.

Motilal Oswal, in a report, said with low gross margins, it is challenging to achieve double-digit EBITDA margin at the store level for value fashion stores. It is only possible if the rent is Rs 50-60 per sq ft for stores with an average size of 4,500-5,000 sq ft, or if revenue/productivity is high.

But according to experts, this is a segment that was waiting to be leveraged, given the massive opportunity it presents.

“It’s not the sudden interest, but why it has taken retailers so long is what surprised me. India has been and continues to be a traditional country and purchasing power is low so, how do you match aspiration with affordability has to be the most obvious problem to solve,”  Arvind Singhal, CMD of Technopak Advisors, said.

Angshuman Bhattacharya, Partner & National Leader - Consumer Products & Retail at EY India, said the biggest opportunity here is unleashing the purchasing power of the tier-2 and -3 consumers.

“What e-commerce has taught retailers is that the consumer is also evolving in terms of income. They also have their aspirations and they want to get the branded products, which they typically don't. And they've got the taste of blood through e-commerce and other digital channels and now that's converting into offline sales as well,” he said.

These markets are something Aditya Birla Fashion and Retail also identified a few years ago and forayed into the segment with Style Up, with about 16 stores currently, with plans to expand to 35 stores by the end of this financial year.

“Style Up is fairly and squarely for the value proposition. We, as of today, have about 15, 16 stores. We have created this proposition in a completely new manner with great merchandise at great value, a very nice retail environment delivered through a very good retail identity, and small compact stores. And we've seen initially good traction on these stores, while it's still early days,”  the management said during the first quarter earnings call.

Zudio’s success has shown that building a successful value fashion chain is possible. Zudio, started by Trent in 2016, is one of the company’s biggest growth drivers. In just the past quarter (Q1 FY24), revenue grew 77 percent to Rs 1,250 crore. According to data from 5Paisa, Zudio's revenue contribution was Rs 3537 in FY23, and now accounts for 40 percent of Trent’s revenues.

On the other hand, Trent’s flagship store Westside (started in 1998) grew 36 percent in Q1 FY24 to Rs 1,280 crore. Trent opened more than 40 Zudio stores in Q1 as against just 7 of Westside. It has surpassed Westside in terms of total store count as well with Zudio having 388 stores today, as against Westside's 221.

Zudio Vs Westside

Experts say Zudio’s success lies in executing a good topline, along with a healthy bottom line. According to Motilal Oswal, Zudio’s revenue per sq ft of around Rs 15,000 enables healthy store-level profitability.

But at a more macro-level, the success has been in cracking the price-aspiration equation. “You can give good products sometimes but the price is high. Meeting the aspiration of customers when they walk into a store where the product is priced low but performs very well, that's the magic it has been able to achieve. Meeting the store experience, performance and price point,” Singhal said.

Incumbents, too, will have to watch the growing competition closely. But the likes of V-Mart say they are not worried.

“I will not say that it is keeping me awake at night, but definitely good competition. You should always be on your toes. So, it will also force you to innovate, it will also force you to do something different and better,” said Anand Agarwal, CFO of V-Mart Retail.

Given the rising competition and low margin in this segment, succeeding will not be an easy task and execution will be key, according to experts.

“It’s a myth that high gross margins mean more profits. It is productivity, which in this case is how fast you can turn the stock in your stores, that determines profitability,” Singhal said.

Retailers also identify that active control of the value chain is integral to evolving a sustainable business model for this concept.

“Apart from ensuring differentiated fashion and experience for customers, active control of the value chain is integral to evolving a sustainable business model for this concept, which is one of the strengths of us as an organisation,” Nair of Shoppers Stop said in the investor call, adding that the company expects Intune to be breakeven from the first year itself and not deal a significant impact on the bottom line.

EY India’s Bhattacharya said standing out in this competitive market would also be determined by the ability to identify the right store locations, making sure you’re capturing the white spaces within the segment. “But in the long term, there's enough depth in the market for many more to coexist,” he said.