The Zudio effect: How V2 Retail plans to take on the Tata brand in value fashion

Delhi-based V2 Retail Ltd is going full throttle on its plan to establish an online presence by the third quarter of FY25, aiming to give value-conscious consumers more options for shopping apparel.

“Our pilot in Delhi will go live in the next two months, allowing us to perfect the tech, compliances, and omnichannel integration," Akash Agarwal, director of V2 Retail, told Mint. "Once we feel confident about it, we will replicate the model in other cities." The firm will use its five stores in Delhi to fulfil online orders, Agarwal added.

V2 Retail was founded by Ram Chandra Agarwal in 2011, shortly after mounting debts amid a crashing economy prompted him to sell his first venture, Vishal Mega Mart, to private equity investor TPG and Shriram Group for just about ₹70 crore.

The founder used the proceeds to build V2 Retail, with a market capitalisation exceeding ₹3,300 crore today.

V2 Retail’s focus on offline operations has significantly expanded gross margins in the last six months, and this expansion plan has led to a stock price surge of up to 190% during February to August, according to Agarwal. The share is currently trading at ₹962.05 on the National Stock Exchange, up 5% from the previous close.

Rapid product development and the ability to capture fast-moving fashion trends have made V2 Retail a tough contender in the value-fashion category.

Now, its plan to go omnichannel will help it tap the growing demand in tier 2 and tier 3 cities, said Agarwal.

“We are a product company, and we have to be present on all channels. We don’t want to miss out on any customer who only shops online," he noted.

India’s value-fashion segment is growing fast driven by increasing disposable incomes and growing consumer aspirations in small cities for budget-friendly branded apparel and footwear.

The industry is projected to witness a compound annual growth rate (CAGR) of 6% from 2020 to 2025, but the organised sub-sector is expected to surpass this, achieving a 13% CAGR, according to estimates by Motilal Oswal Financial Services.

The success of Zudio, owned by Tata Group, has resulted in the influx of newer players like Reliance Retail’s Yousta, Aditya Birla Fashion and Retail’s Style Up, and InTune by Shoppers Stop.

In FY24, Zudio opened a record 203 new stores and crossed the ₹7,000 crore revenue mark.

“... The emphasis is on minimising lead times and landing fresh collections in stores as quickly as possible. Merchandise is almost entirely sourced from within India as a matter of choice, affording access, speed & flexibility," Zudio's parent Trent had said in May.

 

Omnichannel for the win

A healthy mix of online and offline is a common strategy in retail as an omnichannel presence helps firms expand their sales channels and capture a wide set of audiences.

While V2 Retail expects its online business to contribute only 1-5% in the short term, it believes that online retail is a natural extension of its offline business, which sees a footfall of 90,000 across its 141 stores every day, according to Agarwal.

The company will fulfil online orders through its offline stores, helping save about 70% in logistics costs, Agarwal said.

However, Agarwal acknowledged that cracking e-commerce for products with low average selling prices can be tough.

“We won’t start marketing right away. We will work on maturing the channel first and see how we can make it profitable," the executive added.

In the fourth quarter of FY24, V2 Retail posted a 53% year-on-year increase in operating revenue at ₹296 crore. It logged a net profit of ₹3.6 crore against ₹7.7 crore lose a year ago.

“Tier-II cities have recorded a massive surge in retail developments over the last three years. India’s first retail REIT has encouraged developers to aggregate and upgrade their existing facilities, apart from developing new malls," according to Ram Chandnani, managing director, advisory and transactions services, CBRE India.

As more domestic and international fashion brands look to expand in non-metro cities, fuelled by a well-aware and well-travelled consumer set, V2 Retail has its task cut out for competing effectively and capturing market share.

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