First, the similarities. Both started operations in 1997. They were the earliest homegrown retail companies to list on Indian bourses. And both opted for the large format retail outlet route.

Now the differences. At present, Kishore Biyani's Pantaloons is four times the size of the Tata Group-owned Trent (sales turnover 2003-04). It occupies eight times more retail space than Trent's Westside. And for every Westside outlet in the country, there are nearly four owned by Pantaloons.

"Retailing is like riding a bicycle, you can't stop pedalling," Biyani, who is the managing director of Pantaloons Retail, had told The Strategist.

And even as the first-generation businessman pedals at Olympic speeds, the Tatas have stuck to their soft strategy, be it setting up new stores or entering new locations.

The organised retail industry in India is worth Rs 900 crore (Rs 9 billion) and counting. Who will win the race to be No 1? Will Pantaloons' size breast the tape or can Trent's cautious optimism survive the distance?

Margin for error?

Do the numbers indicated in "Bare facts" mean that Pantaloons wins the war even before battlelines are drawn? Not quite. According to industry experts, as players keep adding floorspace, expansion has little meaning if the revenue per square foot added falls with every foot added.

Echoes Irena Vittal, partner at management consultancy McKinsey, "Growth in terms of locations is easy in the Indian market. What will determine success will be profitable growth."

In 2003, with a floor space of 210,000 sq ft, Westside earned a revenue of Rs 50 a sq ft. Currently with a marginal increase in floor space to 220,000 sq ft, it earns Rs 70 a sq ft.

On the other hand, Pantaloons' revenue per sq ft has declined from roughly Rs 76.7 to Rs 59 in 2004, while floor space has increased from 580,000 sq ft to 11 lakh (1.1 million) sq ft.

That's where the margin game comes into play. Westside was the first to recognise the advantage of in-house labels.  What's the advantage? Better margins, for starters. Private labels earn gross margins of 25 to 30 per cent, compared with 5 to 15 per cent for branded apparel.

Besides, the store has better control on the brands and design and can develop unique positioning for in-house brands.

Westside's leveraged its private labels well, appealing to more sophisticated, urban customers, compared to Pantaloons, which was bogged down for several years by its middle-class, budget store image (that's changed now, though).

Realising the importance of in-house labels, even Pantaloons has scaled up the number of in-house labels from 20 to 40-odd private labels currently. In contrast, almost all the brands sold at Westside are in-house, private labels.

Which means the chain has better margins, and therefore better revenues, per label.

The impact on operating profit margins is visible. Trent's OPMs have improved to 15.18 per cent in FY2004 from 13.27 per cent the previous year.

In comparison, Pantaloons' OPMs have remained sticky at 8.41 per cent in FY2004 from 8.17 per cent in FY2003. The implication is clear: higher OPMs mean the chain is managing costs well and is better placed to build reserves, which will help future expansion.

But, says Arvind Singhal, managing director of retail consultancy KSA Technopak, margins may vary because of the nature of business. He adds that it is the stock turnover that should be the benchmark of superiority.

If that's the parameter, Pantaloons leads marginally: it has a stock turnover of five compared to four for Trent.

Gain an extra inch

According to K K Iyer, partner at management consultancy Accenture, being the first mover in new markets has its own advantages. The biggest plus is in grabbing the hot seat as far as property is concerned.

Once a store enters a good catchment area, its competition loses that advantage.

Trent would agree: When Westside first entered Mumbai in 2000, it opened shop in elite south Mumbai. At the time, the suburbs were ruled out because Shoppers' Stop cast a long shadow over the western suburbs.

And even when Westside finally moved northwards into Andheri (where the first Shoppers' Stop outlet is located), in end-2004, it chose Link Road, which is away from Stop's line of vision.

Being a quick mover and expanding fast brings in another advantage � of size. And size brings bargaining muscle and, hence, economies in sourcing.

"You end up picking up better terms with dealers and reach economies of scale much faster," says Singhal. Confirms Biyani, "We can optimise our supply chain expenses and marketing costs by spreading them over an increasing number of retail outlets."

Numbers back up this claim. In 2001, Pantaloons' marketing and promotion costs were 3.34 per cent of sales. As the number of outlets went up from around 20 in 2002 to 44 in 2003, the chain's spends on advertising and promotions were down to 2.84 per cent of total income in 2004.

In comparison, Trent advertising and promotion spends were 11.4 per cent of total income in 2004, compared to 12.3 per cent in 2003, for a relatively smaller scale of operations.

Too much, too soon?

Are Trent and Pantaloons growing too fast? Cautions Iyer, "When you grow rapidly, there is a small risk of over-extension." For instance, it becomes difficult to manage manpower to ensure that quality employees are present in all stores.

And it's not just about good front-end staff: expansion, especially in the multiple format model preferred by Pantaloons, has to be accompanied by adequate depth and width of a core management team.

"Pantaloons, as it rolled out, has visibly beefed up a senior management team. Trent, however, has more or less stuck to a core team," says a competitor.

From a completely top-driven approach, Biyani has delegated the management of categories and formats to professionals.

Also, of the two, it is Trent that is tightening its belt on employee costs. Which is important, considering even mammoth departmental store chains like the �8 billion Marks & Spencer has stabilised its employee costs at 7 per cent of its total revenues.

In FY 2004, Trent spent 6 per cent of its turnover on employee costs (the figure hasn't changed for two years, even though the number of stores has increased from eight to 17). On the other hand, Pantaloons' employee costs as a percentage of total income have gone up from roughly 3 per cent in 2001 to 4.17 per cent in 2004.

That's not too much, especially if you consider that the number of employees has doubled in FY 2004 to 3,500, from 1,700 in 2003. (By April 2005, Pantaloons had close to 6,000 employees, mostly at the front end.)

Multiple formats

Do multiple formats have a clear advantage for Pantaloons? If margins from apparel sales in Pantaloons (the lifestyle store) suffer, the company does have the option of moving stock to the discount store, Big Bazaar.

Moreover, losses in margins in one category can be absorbed by profits in another.

Trent, too, has recognised the advantage of multiple formats. In end 2004, it launched Star India Bazaar, a 50,000 sq ft hypermarket in Ahmedabad.

How does the stock market rate the strategies of the two players? Since 2002, Pantaloons' share price has moved from Rs 30 to Rs 882 (April 25, 2005) currently.

Over the same period, Trent has climbed from Rs 71 to Rs 580.95. "Pantaloons' high reliance on debt to finance its growth remains a cause of concern," says the 2004 Fitch report on the retail industry.

Pantaloons' debt-equity ratio was 1.86 as of 2003-04, compared to 2.17 in 2002-03. Trent's debt-equity ratio has remained fairly stable at 0.001 per cent in the same period.