Uniqlo misses the global target?

05/10/2011
By

TOKYO (majriox news) – Fast Retailing Co., Ltd. will not reach its ultimate goal of world-apparel domination for some time, if ever. CEO Tadashi Yanai once forecasted 4,000 Fast Retailing stores worldwide and 1 trillion yen ($12.3 billion) in sales by 2015, but now these figures seem like a dream.

Fast Retailing is a Japanese retailing holding company. In addition to its primary subsidiary, Uniqlo, it owns several other brands, including Aspesi, Comptoir des Cotonniers, Foot Park, g.u., Princess Tam-Tam and National Standard.

The retailer posted a 25% drop in its first-half net income after consumer demand for its winter products dropped. For the six-months leading up to February, the company posted a net income of $488.3 million, far less than the $650.6 million it made at the same time last year.

Despite the company’s surge in international operating income and Uniqlo’s expansion in Asia, Europe and the United States, sales continued to decrease at its mainstay Uniqlo in Japan. The company’s 156 Uniqlo outlets overseas accounted for only about 15% of the company’s total sales at the end of March.

Fast Retailing experienced a 13% decline in shoppers in March 2011 at its Japan Uniqlo stores, according to the company’s Web site. However, this decline likely occurred after the company temporarily closed 160 of its Japan stores in the areas battered by the earthquake in northern Japan.

“We are targeting a turnaround in the second half of fiscal 2011, and rebounding from unfavorable business results in the first half in order, to post year-on-year growth in both sales and operating income,” Yanai announced on the company’s site.

In addition to the earthquake, Uniqlo had other reasons for its financial woes. The weather was one reason: it had been either too hot or too cold during the introduction of new seasonal apparel. Another reason was Japan’s sluggish economy compounded by the competitive landscape in Japan’s fashion sector, including Fast Retailing’s less innovative designs.

Atsuko Fujioka, a Project FTF Fashion Trend Forecaster and author of “If Buyers Change Themselves, Sellers Would Change, Too,” said, “Uniqlo introduced two new fabrics, silky dry and sarafine, for spring and summer, but their designs were boring,” she said. “While we do need a basic style, we always need change.”

Fujioka noted that Uniqlo’s Designer Invitation Project also did not succeed. The idea was good, but they lacked control over the young designers. “The clothes at the Designer Project sections at their Ginza (Tokyo) store were boring, which included styles like wraparounds that dated back to the 80s,” she said.

Uniqlo’s CEO Yanai said that the company will go back to focusing more on developing its strongest products, such as its highly functional HEATTECH and Ultra Light Down lines, because their aggressive expansion of their product lines prevented then from concentrating on their best-selling core items.

Nevertheless, there are still not enough customers to sustain Uniqlo’s large retail network. Yanai had hoped, as do so many retail fashion industry CEOs, that more stores meant more sales. That’s true, until the corporation reached one store too many. For Uniqlo, it was their 750th store.

In a position to succeed

In late 2007, after Japan’s luxury retail market bubble burst, the company was set to succeed and meet the changing tastes of Japan’s less brand-orientated consumers.

In the latter part of 2007 onward, the company enjoyed a 30% increase in sales, some of the strongest in its history, which Fast Retailing attributed to its quality, low production costs and its strong network throughout Japan.

Uniqlo produced its goods cheaply in China and thus undersold their competitors, including GAP, Zara and H&M while offering equal if not better quality.

After Uniqlo’s strong results at home, their business-savvy CEO Yanai set his sights on global expansion and domination of the retail design and apparel market.

Uniqlo opened new stores throughout Asia, South East Asia and Europe, including Paris and Moscow. Yanai wanted to open a store in New York and then expand across the United States.

To solidify this expansion Yanai made several strategic moves, including hiring Jil Sander to design her own brand under the Fast Retailing label and to serve as the creative consultant for Fast Retailing.

Then, the Japanese economy slowly began to recover. Japanese consumers were no longer shunning luxury brands or discerning their fast-fashion purchases. New comers, such Top Shop, Forever 21 and GAP Generation, were beginning to make strong inroads into Japan’s over-saturated fast-fashion economy, which meant trouble at home for Uniqlo.

Sales and customers began decreasing per store. By the end of 2010, there were almost 800 Uniqlo stores in Japan, and sales were down 10% across all same-store-sales, according to their Web site.

However, Fast Retailing claimed that things were improving. Revenue from Uniqlo casual clothing stores rose slightly 4.6% in April of this year on a same-store basis. The company attributed the rise to robust sales of summer clothes and a rise in temperatures later in that month.

And the expansion continues

“We are also planning some new and exciting development in the United Sates,” Yanai said. “This fall, we will open our second global flagship store on Fifth Avenue in New York and a megastore with retail space in excess of 3,300 square meters on New York’s 34th Street, the city’s most lucrative shopping district.”

Flagship stores are set to open in Seoul and Taipei, and a megastore is due to open in Bangkok.

Yanai admitted that the Uniqlo brand is not yet widely recognized in the U.S., but the organization is ready to transform itself into a truly global company. “In this vein, we need to confirm and refine the role of our Tokyo global headquarters.”

However, if sales continue to decrease at Uniqlo in Japan, so will their war chest to expand overseas, and with it, their chances of becoming the world’s largest apparel designer and producer.

In Tokyo since 2003 Timothy Schepis of TokyoFashionDaily is “the voice for retail fashion.” Through his constantly expanding network he is on the inside of Japan’s competitive and complex retail fashion industry looking out.

timothy@majiroxnews.com

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One Response to Uniqlo misses the global target?

  1. Sara on 05/12/2011 at 2:32 pm

    As someone who lives overseas, Uniqlo seems to be booming! Americans love that this brand is from Japan, the cheap prices, and appealing marketing campaigns. The overseas market would be sad to see Uniqlo gone if they are unable to keep business at home thriving.

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