Trent changes gear

Trent is trying hard to make up for lost time. Consider this: In the last 10 years, the retail arm of the Tata Group set up only 68 stores with around one million sq ft of space.

Compare this with what others have done. Reliance Retail, which started operations in November 2006, has 950 stores covering over four million sq ft. Aditya Birla Retail, which set up shop around the same time, has over 700 stores over two million sq ft shopping space.

But Trent’s slow pace is history now. By the end of this financial year, the company will sign up for an additional two million sq ft space to open 25 new stores. Says a top executive: “We have learnt our lessons in retailing. What we have done in the first 10 years, we will do 10 times of that in the next 10 years. We want to be a Rs 5,000 crore company in the next five years from around Rs 1,000 crore now,” he says.

The newly planned stores for this year include five hypermarkets called Star Bazaar, a dozen Westside apparel stores, five Landmark book stores apart from a couple of stores each in tieups with international brands such as Topshop, Sisley and Zara.

The pace will quicken in the following years. For example, Trent’s low-profile Managing Director Noel Tata has already committed to invest Rs 2,000 crore to open 50 hypermarkets in the next five years.

Analysts agree with the hypermarkets strategy. "The moment you enter the hypermarket business, the whole dynamics will change. You will attract customers who spend more on food and grocery. Hypermarket brings in more volumes,'' Purnendu Kumar of Technopak Advisors, a retail consulting firm, says.

The Trent official, who did not want to be identified, however defends the company’s earlier conservative strategy, saying it has helped Trent remain profitable even during the downturn. “We have not closed a single store in the last one year. That’s the main consideration for us,” he says.

The company has also capped its rent to sales ratio at 10 per cent overall and 3 to 15 per cent depending on its formats, and pays a rent of Rs 1,000 a sq ft to keep costs under check.

However, Trent, which posted a 97 per cent drop in its consolidated net profit (Rs 1.03 crore) for FY 2009 mainly due to losses from the hypermarket, has little option but to expand.

Analysts say the company compromised growth for profitability. "Trent needs to expand fast as they will otherwise lose out to competition. If you wait for every store to break even, you have to wait for 200 years to open 200 stores,” says Raghav Sehgal, an independent retail analyst based in Mumbai.

Analysts also say slower expansion and lower margins are not very positive for investors. While Trent's operating margins are 3.25 per cent, that of Pantaloon is over 6.10 per cent.

“Trent is very small compared to the big players. When the retail sector picks up, big players will get the highest benefit,” an analyst says.

Trent’s new strategy was best articulated by its MD: “the best way of driving cost down was growing the business as fast as possible”. The retail chain, it seems, is finally implementing that.