V-Mart🛒: The answer to Can you make good money selling Rs. 220 T-shirts in Tier 2 India?🛍️
We Cover:
Business Model
Growth & Margin levers
Moats & More
Trying to grow my business via Twitter. Please RT if this thread adds value ♻️
We Cover:
Business Model
Growth & Margin levers
Moats & More
Trying to grow my business via Twitter. Please RT if this thread adds value ♻️
VMart is a value-fashion chain selling primarily in Tier 2 towns and beyond. But how does a business selling items with an average selling price of Rs. 220 generate a 25%+ ROCE.
We'll try to understand in this thread.
We'll try to understand in this thread.
Before we begin, let's set the context with understanding the business and some key operating numbers.
V-Mart was traditionally a North-India Tier 2+ focussed value retailer. Of the 282 stores they had, 218 (77%) are in Tier 2 towns and beyond.
They acquired 74 stores from Arvind Fashion, under the brand 'Unlimited' which are predominantly located in South India.
They were able to acquire the Unlimited stores at a reasonably good rate - all fixed assets and <1yr inventory- at book value, acquiring the 74 stores at ~150cr, almost the amount they would have to spend to open and stock these stores by themselves (2cr/store)
With the store spread and target end market broadly understood, let's understand what they sell & for how much!
The business revenue mix is broadly 80-10-10
80% of the revenue comes from apparel
(~35% men, 20% women, 25% kids & infants)
10% from non-apparel fashion
(5% home, 5% lifestyle, footwear & toys)
and 10% from kirana
(5% food, 5% non-food)
80% of the revenue comes from apparel
(~35% men, 20% women, 25% kids & infants)
10% from non-apparel fashion
(5% home, 5% lifestyle, footwear & toys)
and 10% from kirana
(5% food, 5% non-food)
With the mix understood, let's understand the business on the store level!
An average store requires around 2cr of capital - 1cr for the capex - fitting & furniture, and another 1cr to stock inventory.
An average store requires around 2cr of capital - 1cr for the capex - fitting & furniture, and another 1cr to stock inventory.
In a regular non-COVID year, an average store sees a foot-fall of ~1.5 lakh people. Of these, roughly 60% convert and buy something at the store.
This gives us 2 critical insights on the business-
1. It has non-intent pull: People visit just to browse the collection and spend some time.
2. This means they'll probably spend more time browsing through the store which gives you a lever to increase the # of items sold to them.
1. It has non-intent pull: People visit just to browse the collection and spend some time.
2. This means they'll probably spend more time browsing through the store which gives you a lever to increase the # of items sold to them.
The average person who does buy, buys ~4.1 items, a number which has gone up from ~3.6 3 years ago.
The items are relatively cheap, with an average bill value of Rs.900.
The average item they sell costs ~Rs. 220, with the average item of apparel costing ~Rs. 340.
The items are relatively cheap, with an average bill value of Rs.900.
The average item they sell costs ~Rs. 220, with the average item of apparel costing ~Rs. 340.
Despite the low selling price, the nature of the business mix (90% fashion) ensures that the business consistently clocks in a 30%+ Gross Margin.
While these might not look like much compared to the likes of a Westside, ABFRL or Shopperstop that clock GMs in the 40-55% range, VMart still clocks the highest EBITDA margins.
How does it manage this?
For one the business spends a miserly amount on marketing - ~2% of sales in a regular year. It still manages to pull in 150K people through the door every year driven by their cost & quality.
71% of their sales is from repeat customers.
For one the business spends a miserly amount on marketing - ~2% of sales in a regular year. It still manages to pull in 150K people through the door every year driven by their cost & quality.
71% of their sales is from repeat customers.
For a lot of folks in Tier 2 & Tier 3 India, VMart was their first brush with a lot a formal fashion shopping experience. As long as the value proposition is maintained and improved this creates a very sticky & loyal customer base.
It's rental expenditure is also extremely low at <5% of sales, a combination of location mix, prudent location selection, and generating faster turns in revenue.
Rental costs are ~5% of sales for VMart vs 11-14% for most fashion competitors.
Rental costs are ~5% of sales for VMart vs 11-14% for most fashion competitors.
Learning from the best
Cluster based growth: The firm has also taken notes from the best in the retail business, using a disciplined cluster based approach to grow their stores, growing stores at a healthy 18%+ CAGR
Cluster based growth: The firm has also taken notes from the best in the retail business, using a disciplined cluster based approach to grow their stores, growing stores at a healthy 18%+ CAGR
Payables as a lever: They are also using a similar playbook on working capital, crunching payable days by paying suppliers faster, and using that to get better costs for their products. Payable days came dwn from 49 to 38 from 18-20
Private label as a lever: Another lever to aid margins and increase clout v counter parties is having their private label brands. The firm has increased the contribution of its own brands from 39% to 59%
Moats: Sourcing
A key moat for the business is their sourcing relationships. The firm sources from an extensive network of 650+ vendors, with 96%+ of their products sourced locally.
The faster turns and cash conversion from supplier pov builds a strong moat.
A key moat for the business is their sourcing relationships. The firm sources from an extensive network of 650+ vendors, with 96%+ of their products sourced locally.
The faster turns and cash conversion from supplier pov builds a strong moat.
Moats: The firm's relationship with the customer is also extremely sticky, with 70%+ sales coming from repeat customers, and shopping in VMart becoming an enjoyable activity even when there isn't puchase intent.
The regularly churning fashion inventory gives the customer something new to check out in every visit, and the consistently improving flywheel due to scale makes it harder for competitors to beat
Even large brands like Reliance trends aren't able to compete with the firm on price
Even large brands like Reliance trends aren't able to compete with the firm on price
On the whole, VMart does seem to have a good thing going for it. However both online and offline giants looking for new avenues for growth, and Tier 2 market is prime target, VMart's moats and brand power will go through a trial by fire!
We've gone through 1000+ pages of filings on VMart and created a rigorously detailed yet easy to understand analysis for our members. You can read that and 200+ other analysis under GSN Invest Edge⚡️
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Disc: This is a purely educational thread and not intended as invested advice.
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