India’s youth are about to be spoilt for choice between two of the biggest conglomerates. Image: Bloomberg
Asia’s richest man, who caused a sensation this year with a $600 million wedding party for his son, is now locked in a battle to sell fashion to paying customers. In this fight, however, Mukesh Ambani is being outdone by a much older conglomerate. Things are getting serious enough for him to ask for Chinese help.
Sales at Trent Ltd., the retail unit of the $165 billion Tata Group, have tripled from pre-pandemic levels in dollar terms. Net profit has jumped 12-fold. Zudio, the retailer’s fast-fashion brand, has captured the attention of a young clientele with trendy clothes at affordable prices.
Four years ago, there were 80 Zudio stores in the world’s most populous country. Last quarter, the number reached nearly 560, in 164 cities. Rapid inventory turnover in places where rents are reasonable means big profits even with low margins.
All of this is a problem for Ambani. Besides being a petrochemicals czar, a telecom titan and a media mogul, the 67-year-old is also India’s largest seller of all kinds of goods. His flagship company, Reliance Industries Ltd., has invested more than $2 billion in its retail unit over the past year, according to a recent report in The Economic Times.
But that’s not all. Reliance Retail raised more than $6 billion during the pandemic from sovereign wealth funds in the Middle East and Singapore, along with General Atlantic and Silver Lake Partners. Last year, it received more money from Qatar Investment Authority, Abu Dhabi Investment Authority and KKR & Co., valuing it at $100 billion. Ambani’s No. 1 task now is to lead the unit to a blockbuster initial public offering or a spinoff. For that, he urgently needs the fast-fashion crown.
Enter — or rather, re-enter — Shein. New Delhi had responded to its 2020 border skirmishes with China by banning some Chinese apps. The e-commerce firm, hugely popular among Indian teenagers, had to go. As the government begins to relax its stance, Shein is making a comeback, according to media reports, but with the platform, data and operations allegedly controlled by Reliance.
This is good news for Shein. The world’s largest fashion brand, founded in Nanjing and based in Singapore, has its own initial public offering coming soon. A partnership with the firm may be Ambani’s best weapon.
A year ago, Ambani launched Yousta, a store where everything is available for less than Rs 999 ($12), competing directly with Zudio. But the results are yet to come. Reliance Retail’s 8 per cent year-on-year sales growth in the June quarter was mainly driven by air conditioners, refrigerators, televisions and groceries. The company cited “tepid discretionary demand” for fashion and lifestyle.
True, with revenues of more than $36 billion, Reliance Retail is much larger than the $1.5 billion-a-year Trent franchise. But the Tata firm posted a 56 percent rise in sales last quarter.
According to consultancy Wazir Advisors, retail, which is growing five percentage points faster than overall sales excluding food and groceries, will be a $170 billion market in India by 2026. Apparel accounts for the largest slice of the pie. With an IPO looming, Ambani needs a quick win. As part of his succession plan, the tycoon appears to have reserved retail for his 32-year-old daughter, Isha Ambani. She would prefer to hand over a mature business — a solid number one in key categories — rather than one that struggles for market share and guzzles cash.
This should make for an interesting competition between Ambani and Noel Tata. Ratan Tata’s half-brother, the 86-year-old chairman emeritus of the group’s parent company, set out to build a cheaper, more ubiquitous Indian version of Zara (Zara’s owner, Inditex SA, has long been a Tata partner). And he has succeeded. Trent’s shares have tripled in the past year.
Trent is also replicating the success of Zudio’s private labels elsewhere. At Star, the hypermarket chain he runs in partnership with Britain’s Tesco Plc, the share of private labels has grown from 63% to 72% in a year, according to the latest quarterly earnings filing. That figure is no more than 15% to 20% for Reliance Retail, according to news website Ken. Ambani has some catching up to do. Shein is a big name for attracting young shoppers, but it may not be enough to close the gap.
On the other side, there is also a lot at stake. Maintaining success at Trent is also important for Noel Tata, 67. He has the chance to join the board of the holding company that controls the sprawling empire.
Whatever the outcome of the contest, one thing is clear: When it comes to affordable casual wear, young adults in India are about to be spoiled for choice between two of its largest conglomerates — and all for under $12.
Disclaimer: This is a Bloomberg opinion piece and these are the personal views of the author. They do not reflect the views of www.business-standard.com or the Business Standard newspaper
First published: August 20, 2024 | 7:59 a.m. IS
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