Trent Ltd Management Discussions.

The economic scenario coupled with demographic factors play a significant role in influencing growth across sectors including organized retail. While the economic and demographic proff le of the country has stayed largely positive, the respective approaches of the individual companies operating in the retail industry and their ability to leverage tailwinds have sharply affected the performance in the recent years.

Economic backdrop

Following demonetization coupled with certain global headwinds, India witnessed a growth rate of 7.1 percent in FY 2016-17. In FY 2017-18, GDP growth is estimated to have been around 6.5 percent, again slower than previous financial year, and also below expectations. Nevertheless, growth for India has averaged 7.3 percent for the period from 2014-15 to 2017-18, which is the highest among the major economies of the world. (RBI Monetary Policy Reports, Economic Survey 2017-18)

Additionally, in FY 2017-18, Indias economic sentiments were impacted by implementation of the transformational Goods and Service Tax (GST) regime, concerted attempts towards resolution of problems associated with non-performing assets of PSU banks, further liberalization of FDI regulations & stronger inflows and generally improved pace of structural reforms. With the accelerated pace of remonitization and the relatively smooth transition to the GST regime from a consumer perspective, discretionary spending especially in the first half of FY 2017-18 witnessed a relatively sharp uptick.

In FY 2018-19, Indian economy is expected to grow at 7-7.5 percent. And the long-term growth prospects of the Indian economy also remain encouraging due to its favorable demographics, increasing urbanization, higher per capita income, growing e-commerce & digitization and increasing integration into the global economy. (RBI Monetary Policy Reports, Economic Survey 2017-18)

Consistent with coverage in earlier reports, the following factors constitute relevant considerations in the evaluation of the opportunities and challenges facing organized retailing in the country.

Attractive demographics

With median age of 27 years, India is one of the youngest nations, which makes it very attractive from consumption point of view. Also, more than 50 percent of its population is in the working age group of 15-54 years leading to a declining dependency ratio. (Analyst reports, Internal analysis)

Following demographic trends are also contributing to the growth in overall spending:

• Changing family level organization, role definitions and exposure

• More meaningful participation of women in the workforce and in decision-making

• More nuclear families with lesser number of kids

• Kids being more informed and demanding

• Youth gaining more exposure and independence in their lifestyle choices

Increased exposure to global culture and aspirational lifestyles through social media and "influencers" have boosted the appetite for fashionable clothing and lifestyle products across age segments. Immense scope is seen for brands offering compelling product range to meet the aspirations of the brand conscious consumers.

Growing GDP per capita and disposable income

Indias GDP per capita grew at a CAGR of 4 percent between 2011 & 2016 and it is expected to grow at double the pace between 2016 & 2021. Also, India is at an inflection point of GDP per capita of USD 2000. Empirical evidence suggests that apparel consumption and revenues in various nations grew exponentially as GDP per capita crossed USD 2000. (Analyst reports, Internal Analysis) Expectations of rising income in the next decade are also significantly attributed to more women entering the workforce. With more disposable income in hand, the ratio of spending on discretionary items has consistently increased over the years. Empirical evidence suggests that shopping and eating-out have become more of regular activities in contrast to a decade back.


Urban population has grown to 31% in 2011 from 18% in 1961. Higher job opportunities in service & manufacturing sectors are the key factors driving urbanization. Rapid urbanization in tier 2 and tier 3 cities is influencing the traction for organized retail in these cities. 69 percent of Indias population which lives in tier 2 and tier 3 cities contributes 54 percent to the total retail consumption, which indicates significant purchasing power and retail potential.

Separately, recent research reports also recognize the emergence of 4 more cities that qualify as metros taking the total metros to 8 in the country apart from 42 more "emerging markets". These markets already command above average per capita income (vis--vis national average) and are slated to be consequential retail destinations in the years to come. (Analyst Reports)

E-commerce and social media

Internet penetration and usage have grown exponentially in the recent years because of the availability of broadband & 4G with better network performance and popularity of smartphones available at cheaper prices. There is a greater influence of digital mediums and apps in consumer life. Multiple possibilities like online shopping, social networking, streaming media, video-on-demand online, integration through mobile apps, net banking, instant feedback, access to price comparison etc., have increased the convenience and influenced the level of customer expectation & engagement.

This has also opened multiple platforms for the brands to reach out to their target audience, for both retailing and marketing leading to intensified competition across categories. This challenge was even more pronounced for retailers offering primarily third-party brands.

Less cash society

The government decision to demonetize high value currency and promote digital payments has, in many ways, accelerated the integration of the unorganized players into the organized sector and also led to the general traction witnessed by organized players. Studies suggest, in addition to driving speed and transparency for various transactions, cashless transactions also lead to the following benefits:

More data available because of digital payments, which can be utilized for analyzing and improving practices by businesses

Economic and business growth as spending grows with increased convenience and spontaneity in payments

Goods and Services Tax (GST)

GST brought in force on 1st July 17, has subsumed several indirect state and federal taxes. There are five tax rates which prevail currently – 0%, 5%, 12%, 18%, 28%. Notwithstanding transition related challenges, GST is expected to benefit businesses over the medium term including by way of simplification of operations, homogeneity of rates across states & categories and reduced/ digital documentation.

Being a destination-based tax, it creates a trail of various transactions across the value chain, which is expected to enable robust tracking of movement of goods across states, drive higher compliance and widen the tax base. Over time, GST should also accelerate formalization of the economy, reduce cascading effect of indirect taxes and consequently, further serve as a tailwind to the growth of organized retail.

Nevertheless, the law is still evolving and further significant changes are expected in terms of rationalization of rate slabs, simplification of filings/ compliances and evolution of the enabling GSTN IT infrastructure.

Retail opportunity

India is one of the fastest growing retail and e-commerce markets in the world (CAGR 2015-20: 16.7%) and is expected to reach USD 1.3 trillion by 2020 (BCG Report 2020) including on the back of factors discussed above. Recently, the retail industry in India has emerged as one of the most dynamic industries due to the entry of several new players and growing consumerism. The apparel retail market has evolved significantly in recent years and increasingly there is also a clearer stratification of brands across value, mid-premium, premium and luxury positioning.

While the overall apparel retail market is expected to grow at a CAGR of 9 per cent, the branded apparel retail is slated to expand by 12 per cent between 2015-21. Consumer sentiment was relatively positive in FY 2017-18 with established branded apparel retailers expanding aggressively and new brands witnessing encouraging off take in both online and offline space. (Analyst Reports)

An exponential growth in e-commerce driven by heavy discounting has led retailers to rethink their business approach and to build differentiation in their offer basis product and experience. Consequentially, Indian retail industry is gradually adapting to e-commerce as an additional channel for reaching out to the customers and is starting to realize its benefits.

FDI is another powerful catalyst spurring competition in retail industry. The government has allowed 100% FDI in online retail of goods and services through automatic route thereby providing clarity on the existing business of e-commerce companies operating in India. Notwithstanding near-term issues, the organized retail opportunity in India continues to attract interest from large Indian business houses, multinational retailers and entrepreneurs.

The organized retail offers tremendous opportunity but there are also some significant challenges that need to be addressed appropriately:

Real estate: Limited availability of quality real estate coupled with high rentals and non-adherence to committed schedule by builders pose significant challenges to deployment of strategic plans related to expansion. Other challenges include:

- attractiveness of alternate developments like residential apartments

- sub-optimal performance of most malls (maintenance, tenant mix, resilience vs proximate newer malls)

- entry of international players and their clustering in high street malls leading to difficulty in obtaining properties at acceptable economics

- significant liquidity squeeze faced by the real estate sector given the RBI policy

Online competition: Aggressive discounting being done by online players in "land grab" mode has led to disintermediation for many retailers and driven the "discount seeking" behavior among customers.

Cost pressures: Significant inflation in manpower costs and common area maintenance charges in malls have led to build up of cost pressures in the last few years.

• Retail talent: With changing dynamics of the industry along with evolving customer expectations, availability and retention of relevant talent is a concern across the industry.

Supply chain management: Fast changing fashion trends with e-commerce providing a quicker access to these trends pose a challenge with respect to supply chain infrastructure and management.

Fast changing fashion trends: Retail in India is facing unprecedented challenge from the Indian consumer who is more exposed to international lifestyle trends and rapid changes therein.

These macro observations have applied, though with varying emphasis, on the retailing concepts managed by the Company.

The Company registered a growth of 19 percent with consolidated revenue from operations at Rs. 2,157 Crores. The Group has adopted Indian Accounting Standards (‘Ind As) from 1st April, 2015. The following chart represents financials as per ‘Ind AS from FY 2015-16 onwards, whereas the financials from FY 2012-13 to FY 2014-15 are as per Indian GAAP.

*Includes stores opened by Inditex Trent Retail India Private Limited and Trent Hypermarket Private Limited

Principal concepts and focus on sustainable growth

The Company is one of the key players in branded retail industry in India with a focus on pursuing robust business models in each of its retail concepts. We have consistently emphasized the importance of establishing the viability of a retail concept with a limited portfolio of stores prior to embarking on rapid expansion. The Company also follows strong inventory disciplines across the chain of its key concepts. This includes emphasis on own branded offering, ownership of product design & curation, focus on speed of "concept to market", consistency of offer across platforms and strong inventory management.

The approach has yielded encouraging results and has enabled the Company in coping with market challenges. The Company primarily operates stores across four concepts – Westside, Zudio, Star & Landmark.

Westside - Trents flagship concept- offers branded apparel, footwear and fashion accessories for men, women and children, along with a range of home furnishings and decor. Westside tenaciously adopts an exclusive brands model- involving offerings across a portfolio of own brands that address fashion needs of defined customer segments. This also enables it to compete effectively in the face of disintermediation risks posed by e-commerce players and growing competition from global brands establishing presence in the country. Westside products are known for their style quotient amongst the fashion-conscious consumers in 66 cities across 125 stores.

Zudio - Trents value fashion concept- offers young fashion at irresistible prices for men, women and children. The concept offers exclusive and striking range of fashion which is curated in-house and made available at very sharp price points. While the range of offerings has been evolved within the Star ecosystem in the recent years, during the financial year the value fashion business has been transitioned to the Company from THPL and the Company has been expanding the network of Zudio standalone stores. Currently, Zudio is being retailed through 7 standalone stores as well as 15 Star stores.

Star – hypermarket and convenience store chain – offers a wide choice of products, including staple foods, beverages, health & beauty products, apparel, home furnishings, vegetables, fruits, dairy and non-vegetarian products. The market reception for Star stores has been encouraging and the concept is in the process of establishing itself as a place offering a compelling range of quality merchandize at attractive prices. The Star brand has presence with 23 Star Market and

12 Hypermarket stores. Other concepts of varying footprints including Star Dailies have been rationalized/ consolidated over the course of financial year- with Star Market concept seen to be affording the most sustainable platform for expansion along with better returns and throughput.

Landmark – a family entertainment concept – offers a curated range of toys, front-list books and sports merchandize. The back-end operations relating to the concept are significantly integrated with that of the Westside to realize synergies and contain overhead costs. The concept is operational through 5 independent stores in the year under review. In addition to the independent stores, Landmark merchandize is also retailed through select Westside locations.

Operations – Westside

The Westside brand accounts for over 96 percent of the Companys revenues. Aspirational "fashion forward" own brands form the mainstay of the business with active control of the value chain with respect to design, branding, sourcing, logistics, pricing, display, promotion and selling being a defining characteristic. As of March 2018, Westside has presence with 125 stores across 66 cities and online reach across India with exclusive listing through Tatacliq.

• Differentiated business model

Over 96 percent of the product range retailed both in-store and online are accounted for by own brands. This business approach has been more robust and sustainable than the department store models that predominantly retail third party brands including from a ‘return on capital employed perspective. Empirical evidence also seems to suggest that globally, retailers who control the entire value chain are relatively more successful.

In FY 2017-18, apparels & innerwear accounted for over 79 percent of Westsides sales (with womenswear & lingerie contributing over 50 percent of the total business) and the residual being contributed by a range of categories including footwear, home and cosmetics.

In the year under review, some of the key initiatives pursued include:

• Continued emphasis on aspirational fashionability

• Scale up of exciting exclusive brands in lingerie (Wunderlove) and cosmetics (Studiowest)

• Emphasis on speed of delivering latest fashion each week

• Launch of a new warehouse ecosystem in Vapi to facilitate growing scale and mitigate risk exposure

• Faster store opening to scale up reach

• Building omni-channel presence through Tatacliq

Aided by the strategies pursued and reasonably favorable market conditions, the banner registered 9 percent like-for-like growth in revenues in FY 2017-18.

• Delivering exciting fashion brands

Unique and differentiated product offering, ownership of design and control of product value chain have proved to be key levers for the business. Over time, Westside has evolved into a compelling destination offering an exciting portfolio of exclusive fashion brands. These brands target defined customer segments and their unique needs, fashion tastes and purchasing power. We continue to identify unaddressed customer segments and launch relevant brands on an ongoing basis. During the year under review, Studiofit- an athleisure offer was launched to address the requirements of fitness conscious consumers looking for casual and relaxed fashion.

We also continue to pursue the refresh/scale up of existing brand portfolio as fashion trends and market evolve. The like-for-like performance of individual brands within the portfolio varies- this in many ways affirms the differentiation between the offerings that individual brands represent. A select set of brands including Wunderlove (lingerie), Studiowest (cosmetics) and Bombay Paisley (fusionwear), for instance, registered stellar performance during the year. This performance reflected the ability of the brands to connect with the audience and also afforded a rapid exit from a residual pool of third party brands that were previously retailed from Westside.

As depicted in the chart below, the share of Wunderlove in the lingerie segment has consistently increased and has afforded exit of third party brands.

Some of our key brands are listed below:

Exciting campaigns through brand videos and social media engagement further support these brands in communicating their unique identity.

Separately, Westside continued to sharpen its fashion credentials by recalibrating its brand portfolio and some of the key related actions include:

Revisiting space allocated to various fashion brands within stores in terms of optimizing space, range and display

Exit from Gourmetwest food offer across seven stores and consolidation of space released

Exit from Lakeland- kitchenware offer (while it represented an aspirational and exclusive o er, it faced challenges in terms of standalone stores and related economics)

• Focus on quality & speed

Given the competitive environment and an audience with significant real-time exposure to global fashion trends, Westside is increasingly focusing on rapid delivery of latest fashion, strong emphasis on freshness of the range through the season and sharply reducing the "design to market" time window.

Product sourcing

The Company proactively works with its suppliers in ensuring aligned objectives in terms of speed and quality. Sourcing and quality teams have ramped up their engagement with the vendors to drive efficiencies and deliver a desired quality merchandize at the right price and right time. Significant initiatives on this front include optimization of sourcing geographies, sharper definition of fabric choices, tighter vendor pools across categories and emphasis on related social compliance.

Supply Chain

Our new state of the art warehousing facility at Vapi, Gujarat has been operationalized to service increased volumes as well as mitigate risk related to the central warehouse ecosystem. It further facilitates faster replenishment and enables delivery of the latest fashion at the right time in right quantity in the right stores.

The Company continues to invest in expansion and upgradation of the supply chain network which we believe is vital to the success of a retail organization. Our warehouse operations continue to run at over 99 percent efficiency.

• Highly prominent stores & differentiated shopping experience

In an increasingly crowded marketplace, a differentiated shopping experience, both online and in-store, is of paramount importance for reinforcing brand credentials. Statement making stores, presence in marquee locations, striking window and in-store displays, exciting store ambience and convenience of shopping are some of the key parameters that Westside emphasizes. As part of the journey to deliver a ‘fashion theatre experience, we continue to take significant steps such:

• Upgrade to an international experience in the existing stores

• Experimenting with new visual and experience enhancing initiatives across the store portfolio

• Rigorous process to select the new store locations and layouts, which take customer experience and convenience into account

These initiatives continue to deliver encouraging results including growth in walk-ins.

To deliver great shopping experience for the customer, following initiative was undertaken during the year:

Accelerated store modernization

In an ongoing initiative to improve consistency of brand experience across the store portfolio, and especially given the rapidly evolving store standards, Westside has accelerated the modernization program. In the year under review, 11 Westside stores were modernized, highest in any given year and the customer response has been very encouraging.

• Karol Bagh, Delhi Magrath Road, Bangalore
• Brigade Orion, Bangalore Civic Centre, Jabalpur
• Chennai Express, Chennai Nehru Nagar, Vizag
• Powai, Mumbai Wave Mall, Ludhiana
• Korum Mall, Thane Sevoke Plaza, Siliguri
• Market City, Pune

The intent is to further accelerate this initiative in the coming years.

• Operating Standards

Westside seeks to actively refresh its offerings on an ongoing basis to synchronise with the latest fashion trends. This is made possible through an on-going emphasis on leveraging our supply chain model coupled with rigorous reviews. As we emphasise speed across the value chain, shrinkage cost is one of the bellwether measures with respect to operating efficiency at stores and distribution centres. We have witnessed an improving trend in shrinkage (as depicted in the following chart) in the recent years.

The availability of quality real estate is seen to be shrinking and rentals are estimated to grow further in future. Hence, it has become increasingly important to emphasize efficient utilization of retail space. Westside continues to take initiatives in this direction including through identifying "hot spots" in the stores in terms of revenues and revisiting space allocated to brands with differentiated performance. Sales per square feet is one of the key measures which assesses retail efficiency in terms of space utilization and the measure has shown a growing trend for Westside.

• Active customer listening & engagement

In-store activities and social media are being increasingly deployed as mechanisms for customer engagement, customer listening and learning. Digital campaigns on relevant social media channels have become an integral means to connect with our target audience. We leverage social media by using targeted tools such as Westside page on Facebook & Instagram, Studiowest page on Facebook and Studiowest tutorial videos on YouTube.

Separately, digital video campaigns promoting our power brands is an initiative which has been actively pursued and has received very encouraging traction.

We also engaged with our customers through associations with fashion bloggers, vloggers, influencers, popular fashion events and youth events. The innovative usage of targeted communication methods enables us in connecting with our customers better and enhancing customer satisfaction. Power targeting is used to run customised campaigns for ClubWest members. This has helped us in improving contribution of the active members and increasing frequency of less active members. The following chart depicts the increase in our loyalty customer base over the years.

Aided by multiple initiatives including the ones mentioned above, the average bill size registered an encouraging growth of 8.28 percent in FY 2017-18. Bill size represents the average amount spent by each customer on their purchase. The following chart depicts the trend of this measure for Westside in recent years.

• Scaling up reach

The Westside proposition continues to witness strong traction across diverse regions.

Numerous micro-markets with significant growth potential are emerging across India. Westside continues to monitor opportunities in these micro-markets and establish presence as appropriate. Simultaneously, strategic properties in Tier 1 cities which fit into our overall growth plan are also being pursued.

In the year under review, 20 stores were opened across metros & non-metros. Also, 2 stores which were seen to be present in declining/ unviable locations and lacking a sustainable growth outlook were closed. Westside operates through 67 malls/shopping centres and 58 standalone stores across India.

The in-house property team is supported by a well-defined set of processes for analysing the potential market & catchment to pursue expansion opportunities. Westside is planning to accelerate expansion in the coming years by focusing broadly on two concepts - flagship stores, the prominent full offer stores and the curated smaller stores in non-metros/ emerging micro-markets.

The average size of Westside stores is around 17,600 sq. ft. with the investment in fit-outs of around Rs. 2,000 per sq. ft. for newer stores.

• Fully integrated store and online

Online fashion retailing is increasingly gaining traction in India. With an aim to address this fast-emerging market, and especially to enable the convenience for our customers seeking to shop with us online, we have strengthened the exclusive online offer on TataCLiQ - a Tata Group market place initiative. We have also pursued to increase the brand visibility online and adopt an omni-channel approach to servicing our audience.

Several of the key choices made regarding the model adopted are seen yielding results including:

• A central inventory position

• Merchandise range synchronised with the in-store o er

• Exclusivity of the arrangement with Tatacliq and

• Emphasis on leveraging the Westside store network in various omni-channel respects

The platform gained traction in FY 2017-18 and notwithstanding the small revenue base, it is encouraging that Westside online revenues were up over three-fold vis--vis the previous financial year and the channel is now profitable. Omni-channel initiatives account for over 75 percent of the total sales through this channel. Revenues in the region of Rs. 100 Crores is targeted through this channel in FY 2018-19.

The growth online is facilitated by Westside leveraging its strong digitally enabled product delivery engine across the value chain.

Overall, Westside continues to be a profitable concept and has registered encouraging results in the recent years.

In terms of way forward, Westside adopts a multi-pronged approach aimed at leveraging the opportunity afforded by the Indian fashion retailing space with the following guideposts:

Operations – Zudio

During the year under review, the value fashion offering from the Star ecosystem was acquired by the Company from THPL. The value fashion business is expected to present significant growth opportunities and also afford striking synergies with the existing fashion concepts of the Company.

Zudio addresses the fast and edgy fashion needs of the customers at sharper price points, with infrastructure and backend processes closely aligned with Westside, which enables it to drive better efficiencies. It has presence through 7 standalone stores as well as 15 Star locations. The Company sees value fashion as one of the growth drivers in the medium to long term and intends to scale up the brand significantly in the coming years.

• Striking fashion- sharper prices

Zudio focuses on young and edgy fashion through a 100 percent own branded offering. The product range is curated in-house in line with the latest fashion trends and at affordable prices. Apart from ensuring differentiated fashion and experience for customers, active control of value chain is integral to evolving a sustainable business model for the concept. The concept is gaining traction and has delivered encouraging results.

• Vibrant stores

Zudio stores present in striking locations offer compelling shopping experience for the targeted audience. The concept is now profitable at the store level, notwithstanding the relatively young store portfolio. Sales per square feet in the year under review crossed INR 10,000.

Operations – Star Bazaar

Trent Hypermarket Private Limited (THPL) operates its retail business under Star banner and primarily competes in the multi-brand food and grocery segment. THPL is positioned to provide a convenient modern shopping environment for customers to shop multiple product categories, with a focus on service and quality.

Food & grocery accounts for over 50 percent of the retail market in India and is characterized by low organized retail penetration. However, viable retailing in the space has been a challenge given relatively high occupancy costs, energy charges, minimum wages and other operating expenses. Nevertheless, over time the opportunity is seen to be substantial. In the foregoing context, THPL has adopted a calibrated approach to expansion in the recent years and emphasized the evolution of a sustainable business model.

During the year under review, the like-for-like sales growth of Star concept stores was 8.1 percent as against 2.1 percent witnessed in the preceding year. In 2017-18, THPL recorded total revenues of Rs.962 Crores (Rs. 891 Crores in FY 2016-17), EBITDA was negative Rs. 71.48 Crores (negative Rs. 16.65 Crores in FY 2016-17) and a PAT of negative Rs.90.50 Crores (negative Rs. 52.49 Crores in FY 2016-17).

For FY 2015-16 and FY 2016-17, the financials are as per ‘Ind AS. The financials from FY 2012-13 to FY 2014-15 are as per Indian GAAP.

Star brand is anchored primarily by Star Market concept. It is a supermarket concept that operates in 5,000 to 10,000 sq. ft. and is positioned as a one-stop shop for fulfilling customers monthly & top-up needs for groceries, fresh produce, FMCG products, personal grooming and general merchandise. The performance of the Star Market stores is broadly in line with expectations and the progress of this portfolio of stores towards viable store economics is encouraging.

During the year under review, Star Daily & Star Hyper concepts were consolidated on the lines of Star Market as we increasingly believe that the Star Market concept affords the most sustainable platform for expansion and the rollout could be further accelerated as we continue to see encouraging results.

Currently, THPL operates 23 Star Market and 10 Star Hypers in the cities of Bengaluru, Hyderabad, Kolhapur, Mumbai and Pune. Separately, FHL- a wholly owned subsidiary of the Company also operates 2 Star Hypers in Ahmedabad & Surat.

• Fresh food & own branded offerings

Star focuses on providing its customers quality & reasonably priced fresh produce. Over the time, it has positioned itself as a distinct retailer famous for ‘Fresh Food, which has proved to be the key footfall driver for the concept. We now directly engage with over 250 farmers and a significant proportion of vegetables & fruits are now directly sourced and serviced through a network of collection and distribution centers.

We believe in own branded private label offerings as key to evolving a sustainable business model. In this context, we have continued to focus on expanding our exclusive range. In 2017-18, following three own brands with around 51 products variants & 82 SKUs were introduced across Star stores :

Klia: Range of premium home care products

This includes detergents, household cleaning, freshener and disposable ware

Fabsta: Range of flavourful food and beverages

This includes savouries, biscuits, noodles, breakfast cereals, tea & coff ee etc.

SKYE: Range of scientifically formulated health and beauty products

This includes skin care, hair care, oral care, body sprays & perfumes

The plan is to continue expanding own branded offerings by emphasizing the proposition of great quality at reasonable prices.

• Geographical presence

In terms of geographies, we have continued to pursue a clustered approach with stores in the states of Maharashtra, Karnataka and Telangana with an aim of creating local scale and being closer to customers.

• Omni channel presence

During the year under review, Starquik - the online grocery portal- was launched by FHL with THPL as wholesale supply partner. This has allowed the Company to leverage the capabilities and infrastructure across channels.

Overall, THPL is adopting a multi-pronged approach with the following principal guideposts:

Operations – Fiora Hypermarket Limited (FHL)

As discussed in earlier reports, FHL (a wholly owned subsidiary of the Company), operates a few of the Star Bazaar stores in the context of the applicable regulations with respect to FDI in Multi Brand Retail Trading. During the year under review, FHL incubated the Starquik online platform and envisages expansion of Star banner stores only in the state of Gujarat. The intent would be to grow the operations of FHL in a calibrated manner that leverages the existing presence & operations.

Operations – Landmark

Landmark has evolved into an entertainment concept offering a range of curated products including toys, front-list books and sports merchandize. The back-end operations relating to the concept are significantly aligned with that of the Westside concept which facilitates to drive synergies and contain overhead costs. During the year under review, the like-for-like sales growth of Landmark stores was 15 percent.

The principal measures pursued in the period under review include:

• Focus on trendy & newer growth segments

We continue to refresh and calibrate our product portfolio at Landmark to offer entertainment options aligned with the latest lifestyle trends. Over the years, Landmark has been able to offer products & experience most relevant to our customers with a sharp focus on "freshness" and "exclusivity". The concept pursues a defined vendor strategy which enables it to offer latest toys, front-list books, trending gadgets and sports & fitness related range, a significant part of which is launched only &/or first in Landmark stores.

• Customer engagement

Landmarks positioning of "For the Child in All of us" has been backed by its endeavor to create exclusive customer engagement experiences. These events attract large number of customers including kids, youth & adults and provide an exciting platform for the customers to interact with the brand. In FY 2017-18, events like Author meet and greet, Landmark quiz and various other in-store competitions, events and activities were conducted to ensure that customers have a truly exciting experience in the stores.

• Store portfolio

Landmark business has 5 independent stores. In addition to the independent stores, Landmark merchandize is also retailed through 10 SIS inside Westside. The intent is to focus efforts on select stores with potential for growth.

Consequent to the various strategies pursued and measures taken, the concept continues to be profitable at store level. The intent is to build on the positive momentum seen in recent periods and evolve a compelling business case.

Other Joint Ventures, Key Operating Subsidiaries and Treasury

Zara and Massimo Dutti: The Company has two separate Joint Ventures with the Inditex group of Spain with a shareholding of 51 percent (Inditex) : 49 percent (Trent) – one for Zara and the other for Massimo Dutti stores in India. The JV for Zara operates 20 stores in Delhi, Mumbai, Bangalore, Pune, Surat, Jaipur, Chandigarh, Chennai, Mohali, Hyderabad & Gurgaon. In the year under review, the JV also opened the flagship Zara store in South Bombay, the reception to which has been positive and overall brand enhancing. This JV entity (Inditex Trent Retail India Private Limited) recorded revenues of Rs. 1221.67 Crores and PAT of Rs. 82.59 Crores in FY 2017-18. Plans are to steadily expand the presence of Zara stores in India over the next three to four years in the major cities – the primary challenge to faster expansion is the availability of high quality retail spaces which can be expected to generate reasonable sales throughput. Including in the context of brand ownership and the arrangements for merchandise supply (with the majority partner entirely controlling the core customer proposition with respect to the fashion offer), the Company views its commitment to this JV primarily as a financial investment and consequently, it may be appropriate not to consider this as a long term strategic investment integral to other retail operations. The JV for Massimo Dutti operates 3 stores in Mumbai and Delhi. This JV entity (Massimo Dutti Private Limited) recorded total revenues of Rs. 45.75 Crore.

• Fiora Services Limited (FSL), a subsidiary of the Company, continues to render various services in terms of sourcing activities, warehousing, distribution, clearing and forwarding. We believe this structure of a separate service providing entity has yielded encouraging results with respect to attracting relevant functional talent and at the same time keeping related costs under control. FSL charges the service receiving entities primarily on a cost plus reasonable markup basis. In FY 2017-18, it reported total revenues of Rs. 32.13 Crores (Rs. 45.22 Crores in FY 2016-17) and total comprehensive income of Rs. 2.93 Crores (total comprehensive loss of Rs. 0.56 Crores in FY 2016-17).

• Fiora Business Support Services Limited (FBSSL) (formerly known as "Westland Limited"): is now a wholly owned subsidiary of the Company. It reported total revenues of Rs. 13 Crores and total comprehensive income of Rs. 0.93 Crores for FY 2017-18. It is now engaged in the business of providing business support and consultancy services relating to accounting, merchandising, human resources, payroll etc. During the previous year, the Company had transferred its publishing business to Amazon on a slump sale basis. Hence, the current year performance is not comparable with this performance.

• Treasury: The Companys treasury income (other than from subsidiaries) represented a reasonable yield on the funds deployed notwithstanding the headwinds on account of the evolving interest rate cycle. In the context of the Ind AS Accounting Standards adopted from 1st April 2015, mark-to-market gains and losses relating to treasury investments are required to be accounted for in the respective periods through the profit & loss account- this also explains the variability of related income registered in each of the quarters.

Overall financial results

Overall, for 2017-18, on a standalone basis the Company has reported total revenues of Rs. 2108.84 Crores (Rs. 1,775.57 Crores in FY 2016-17), PAT of Rs. 116.73 Crores (Rs. 106.87 Crores in FY 2016-17) and total comprehensive income of Rs. 116.32 Crores (Rs. 107.60 Crores in FY 2016-17).

On a consolidated basis, the Company has reported total revenues of Rs. 2201.67 Crores (Rs. 1,872.96 Crores in FY 2016-17), PAT of Rs. 87.04 Crores (Rs. 84.95 Crores in FY 2016-17) and total comprehensive income of Rs. 87.77 Crores (Rs. 82.42 Crores in FY 2016-17).

Internal Controls and Adequacy

The Company has a defined system of internal controls for financial reporting of transactions and compliance with relevant laws and regulations commensurate with its size and nature of business. The Company also has a well-defined process for ongoing management reporting, and periodic review of businesses using the Balanced Score Card process to ensure alignment with strategic objectives.

There is an active internal audit function carried out partly by the internal resources and the balance activity outsourced to CA firms. As part of the efforts to evaluate the effectiveness of the internal control systems, the internal audit department reviews the control measures on a periodic basis and recommends improvements, wherever appropriate. The internal audit department is manned by qualified and experienced personnel and reports directly to the Audit Committee of the Board. The Audit Committee regularly reviews the audit findings as well as the adequacy and effectiveness of the internal control measures. Based on their recommendations, the Company has implemented a number of control measures both in operational and accounting related areas, apart from security related measures.


The Company adopts a triple bottom-line philosophy (People-Planet-Profit) to create a sustainable organization.

• People

Being part of the Tata Group, we have always been guided by the philosophy of improving the quality of lives of the communities we serve. The Company continues to safeguard interests of consumers, employees, shareholders and the communities.

Community initiatives

The Companys approach to societal responsibilities and supporting communities is linked to its business and core competencies. We approach all such initiatives with the philosophy of being beneficial to both communities and the business. The Company continues to focus on following:

Creating more jobs for the society by following a growth agenda, and recruiting freshers from local communities

Increasing employability of colleagues at the entry level through cross-functional training

Encouraging colleagues to pursue enriching interests within and outside

Today, close to 24 percent of Companys workforce comes from the underprivileged classes of the society. The Company also encourages its employees to volunteer for social causes and projects conducted by Tata Strive. The Company has won multiple awards at the Tata Group level for its efforts in making youngsters from the underprivileged classes employable and employing them.

Strong teams- shared values

The Company believes that strong teams are key to business growth and organizational excellence. The intent is to maintain a balance of different skills, experience and personalities in all the teams. With the aim of strengthening our alignment with customer promise and enhance customer centricity, the concepts follow a matrix structure. In the newly evolved structure, colleagues work together as category teams consisting of buying, merchandising, sourcing, garment technology and sales management, each contributing towards respective category goals and meeting customer needs as one team.

In line with our aggressive growth strategy, the focus is to build functional and leadership skills across the teams. In the year under review, an intensive "Personal Development Laboratory" was conducted to sharpen the skills of high potential store managers and colleagues from across the value chain.

"Talent Acceleration Program- T.A.P" Development Centers were held for high potential department managers to develop their leadership capability. These efforts coupled with identification of internal talent and robust hiring processes involving behavioral interviewing process & psychometric profiling yielded encouraging results for selection of quality teams across the functions. Additionally, Executive Coaching was provided to colleagues in critical positions to support them in delivering business success.

Overall, the Company engaged colleagues in various development initiatives averaging 4 learning man-days per person.

As the Company continues to grow, its shared values bring teams together and guide them in their daily "code of conduct". The Company launched "Values Gestures Code" to instill and reinforce our values among all the colleagues across corporate and store teams. We also celebrated several exemplary "Value Stories" proudly shared by our colleagues which emphasize our commitment in living core values in our day-to-day work interactions. Engaging refresher sessions on ‘Tata Code of Conduct were conducted to emphasize ethical conduct and guide on business dilemmas faced while dealing with multiple stakeholders. Regular POSH (Prevention of Sexual Harassment) awareness sessions sensitize colleagues on acceptable ethical behaviors and promote healthy work environment based on mutual respect.

As of 31st March18 the staff strength (including corporate staff ) was 5,475 at Westside, 195 at Zudio, 183 at Landmark, 2,265 at Star and 646 at subsidiaries including Fiora Services Limited, Fiora Business Support Services Limited, Nahar Retail Trading Services Limited, Fiora Hypermarket Limited with an overall total of 8,764 employees across key concepts / entities within the Company. 43 percent of our colleagues in stores are women.

As discussed earlier, availability of the right kind of talent in the organized retail space continues to be an issue considering the nascent nature of the industry. Although attrition continues to remain high with the front-end store level staff, it is marginal amongst corporate staff. However, given the expansion plans of retailers, the emergence of new entrants coupled with pronounced hiring appetite we continue to grapple with compensation pressures.


The Company continues to emphasize social and environmental sustainability across the value chain. With the aim of achieving secure working conditions and positive footprints across the supply chain, the Company subscribes to robust social compliance platforms such as SEDEX for evaluating vendors on key aspects including labor standards, health & safety, management systems, business ethics and environmental safety. Regular audits and training workshops by certified institutions provide further support in taking corrective actions as warranted. 70% of our vendors are certified to be compliant on all the key social and environment related parameters.

• Planet

The Company follows the Tata group climate change policy which emphasizes the need to play a leading role in making the planet a better place to live. We focus on four areas for championing the cause of a green operation:

• Energy conservation

• Logistics efficiency

• e-Waste management

• Product manufacturing & packaging

Targets are set for energy consumption at stores & offices and adherence is monitored on monthly basis. Logistics efficiency with a focus towards reducing carbon footprint helps the organization reap business benefits as well. e-Waste is managed through certified suppliers. Reduction in usage of plastic in product packaging also helps the Company in making its operations green.

• Profit

Since its inception, the Company has had a focus on delivering value for all its stakeholders. It has operated on the principles of effective cost management without compromising the quality of products retailed from the stores.


In FY 2018-19, Indian economy is expected to grow around 7-7.5 percent and inflation rate is expected to grow around 4.9%. The governments focus on strengthening the investment environment and maintaining economic stability should further boost the economic outlook and translate into positive consumption triggers over time. India has been attracting growing FDI given its large attractive market and positive government initiatives. Over time, this is also expected to increase the purchasing power of the average Indian consumer.

On the other hand, escalating costs (especially wages, electricity and common area maintenance) imply continued challenges. Further, securing properties at acceptable rentals and valuations in the real estate space (with most participants in the organized retail pursuing their growth plans) continue to be challenging. However, across concepts, the preference for standalone properties vis--vis mall developments has mitigated this risk to a significant degree. The property pipeline already contracted should still allow opening accelerated number of new stores in FY 2018-19.

The impact of the GST regime rolled out from 1st July is expected to be positive over the medium term as indirect tax compliances should get more streamlined and formalization of the economy is accelerated. Overall, we continue to be very positive on the underlying case for growth of branded retailing in India over the coming years. The intent going forward is to continue scaling up our presence and in doing so focus on following aspects across the concepts:


Strong emphasis on being a portfolio of aspirational brands (anchored by differentiated products, lifestyle experience and wide retail reach)

Continued e orts to refresh & strengthen own-branded/ exclusive offering that are compelling to the target audience with an emphasis on ownership/control of the value chain

Supply Chain

Continued emphasis on strong inventory related disciplines across concepts and the value chain- aimed at world class retail availability levels, freshness of offer and effective controls.


Focus on faster expansion including in virgin micro-markets across regions (with at least 25 new stores in each of our concepts in FY 2018-19)

Emphasis on highly differentiated and brand enhancing stores led by prominent "standalone" properties/locations;

Build on encouraging experience of online business through Tatacliq to expand reach


Concentrate resources on substantially growing our anchor concepts (especially Westside,

Zudio and Star Market)

Emphasis on sustainable store level profitability

Focus on strengthening omni-channel capabilities to facilitate seamless integration between customer, store and online operations.

Risks and Concerns

Retail real estate availability and costs: Significant number of global retailers already having presence in India & other global brands (especially under the single-brand umbrella) plan to roll out stores and consequently, the shortage of quality malls/ standalone real estate in high street locations is seen as an impediment to the expansion plans of the organized retail in the near term. We see the emphasis on standalone properties being critical to mitigating this risk to an extent.

Talent availability: As observed in earlier years, the availability of relevant talent at acceptable compensation levels continues to be an issue. And employing expatriates, with the attendant higher costs, becomes inevitable in certain areas due to paucity of talent as we attempt to scale up significantly.

Electricity availability & costs: Electricity is one of the largest components of our costs and has increased significantly in recent years, especially in states like Maharashtra. Separately, higher power deficits in select cities has led to increased load shedding and has meant more reliance on generators, which has added to costs.

Discounting by online retailers: Several online players have sought to disrupt the retail market in the last few years with discounting funded by overseas shareholders. The sustainability of such discounting is debatable but we need to nevertheless handle the onslaught and continue to be relevant to our target audiences. The recent clarification from the Department of Industrial Policy and Promotion (DIPP) on 100 percent FDI in e-commerce marketplaces is likely to facilitate formalization of presence and hopefully adoption of more sustainable business models.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectations may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include economic conditions affecting demand/supply and price conditions in the markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and other incidental factors.