Uniqlo: A Company That Inspires The World To Dress Casual
Headquartered in Yamaguchi, Japan, Fast Retailing Co. is a holding company for a number of retail brands, but its biggest asset is Uniqlo. Aiming to become the largest SPA (Specialty-store retailer of Private-label Apparel) in the world by 2020, with an annual profit of ¥5t or $61b, this fast-fashion behemoth designs, manufactures and sells casual wear from over 2,000 stores across 18 countries.
The advantage of tough times
In the aftermath of the global financial crisis, Uniqlo of Fast Retailing had been reporting double-digit growth figures but CEO Tadashi Yanai made light of it, “It’s not that we’re selling well, others are just doing badly.” He added, “We have always operated as if we are in a recession — making sure our costs are low, even when the economy was in a better shape.”
Interestingly, Uniqlo had experienced its first runaway success during another recession, the Asian financial crisis about a decade ago, when cash-strapped Japanese flocked to Uniqlo stores for quality clothes selling at affordable prices. A brand that originally grew around suburbs with roadside stores then began expansion into urban centres, and in 2001, Uniqlo reached a milestone of 500 stores across Japan. The following year saw the beginning of overseas growth, first in Shanghai, then in London.
“Even if the economy recovers next year, it’s hard to believe Japanese consumers will abandon Uniqlo for their previous pantheon of higher calibre brands. There is a sense that, for the last thirty years, everyone in Japan has paid too much for their clothing. Uniqlo’s ubiquity is a sign that Japanese consumers are gravitating towards more rational price points like those seen in North America. It’s clear that retailers can no longer force people to buy premium everything.”
David Marx for The Business of Fashion, December 2009
But not everything went as planned abroad for the ambitious Japanese company. They had done a poor job of establishing a brand identity before opening stores, many of which, as a result, had to be closed. Fast Retailing reacted by executing a new strategy which involved collaborations with designers and celebrity ambassadors. What also helped in trying times was the acquisition of other fashion brands. In 2005, Uniqlo branched off in new locations — Hong Kong, South Korea and the US.
Growth in numbers
Fast Retailing was worth $59.83 (¥6,630) a share on September 28, 2007; $1,000 invested in it at the time would grow to $9,240 by 31 July 2015 when shares went up highest in price to $552.86 (¥61,370) a piece.
During the period of analysis, the company’s revenue increased by 263%, from ¥586.5b in 2008 to ¥2.1t in 2018. Net income exhibited an equally steep upward trajectory, rising 256% from ¥43.5b to ¥154.8b. Cost of sales followed closely, up 269% between 2008 and 2018. Gross margins averaged strong 50.16%, while net margin numbers came to just 7.27%.
Available capital expanded by 363% between 2008 and 2018. Retained earnings and long-term debt made up respectively 35% and 22% of the capital as of end-2018. Meanwhile, capital conversion into revenue — or revenue generated for every dollar invested in business — maintained a range of ¥1-¥1.2 during the period of analysis.
The company’s operating expenses increased from ¥206b in 2008 to ¥797b in 2018. During the same period, the effectiveness of sales remained consistent, as operating expenses spent to generate a dollar of revenue stood between ¥0.35 and ¥0.40. However, employee productivity decreased by a substantial 45% (which may be attributed to management-initiated changes to the employment status of contract workers).
To compare company performance metrics to industry averages, the US apparel industry could be taken as a reference point. Its five-year average revenue grew 33.26%, based on CSIMarket estimates, while Fast Retailing’s revenue expanded by 63%. The company’s five-year net margin averaged 7%, above the industry’s 3.16%. Employee productivity wise too, Fast Retailing made considerably higher sales per employee than the industry, around $361,000 versus $115,000 on average as of 3Q’18.
Market spotlight: Japan
Currently, Uniqlo accounts for 6.5% of the Japanese apparel industry, with the number of stores standing at 827. In 2017, Japanese consumers spent $89.6b on clothing; by 2030, this number is expected to fall by 8% due to the fast ageing and declining population — in sharp contrast to other major markets where robust growth is anticipated.
Nonetheless, Japanese consumers have been steadily gaining in confidence, optimism over personal financial prospects rising from 13% in 2010 to 36% in 2018 (although the Japanese average still lags behind the global average of 56%). 54% of respondents in the Global Lifestyle Monitor Survey said they were ready to pay more for quality, compared to 44% in 2010.
“While still price-conscious, consumers look for comfort, colour, and fit when shopping for clothing and are intrigued by clothing with performance features to help monitor and address physical processes such as perspiration and hydration.”
Global Lifestyle Monitor Survey by Cotton Incorporated
Global operations: Highlights
In most overseas markets, Uniqlo has been able to adapt successfully by elevating specific success factors that local cultures find most appealing. Uniqlo International is now the company’s key growth driver. In 2018, it constituted 51% of total sales, which came from 1,241 stores. Over the next four years, overseas markets are expected to make up two-thirds of the Group revenue. Expansion has been especially rapid in Greater China and Southeast Asia, which will see the opening of 100 new stores a year in each region. South Asia will be tapped for the first time in 2019, with an inaugural store in India.
Comparatively, growth has been slower in Europe and North America. Uniqlo, however, is keen on conquering the US market, having set an ambitious goal of reaching $10b in revenue by 2020. This is to be achieved by active expansion and collaborations, as well as continuous brand identity exercises. By August 2018, there were a total of 48 Uniqlo stores in the US.
Growth targets in Asia
“We want to make sales from overseas operations four times as large as those from domestic operations in 10 years. Asia has the number one potential for growth, and our operations there will become a leading revenue source.”
Tadashi Yanai, Chairman, President and CEO, Fast Retailing, Interview for International ARC Awards 2010
Unrivalled competitive spirit
Currently, Fast Retailing is the third highest ranking SPA in the world behind Spain’s Inditex (the parent company of Zara) and Swedish Hennes & Mauritz (H&M). It is, however, experiencing a greater growth momentum — driven mainly by Asian hub spots — than the rivals, which may help Tadashi Yanai soon fulfil his ambition of becoming the world’s top apparel retailer.
“Q: What differentiates you from the fast-fashion of H&M or Zara?
A: Our strength is our finely crafted, high-quality basic clothing. I realize that we must proceed in a completely different way to H&M or Zara, which both tend to pursue fashion trends. At Uniqlo, we stress producing well-finished clothes that can function as components of an overall outfit. Our clothes are made to fulfil customer needs and to even change lifestyles.”Tadashi Yanai, Chairman, President and CEO, Fast Retailing, Interview for Annual Report 2018
Top global apparel manufacturers and retailers: Sales in $b by end-FY2018 and y-o-y % change
Strategy Pillars
- Philosophy
Uniqlo is known for its ‘yasui’, or ‘cheap’, clothing in Japan. But no longer is this considered a slight, as consumers have also come to associate the brand with comfort, high-function and innovation. In fact, it is what sets Uniqlo — a maker of affordable everyday wear — apart from the competition. The company claims to be democratising clothes by making casual basics made for all. Although formally categorised as a fast-fashion brand, Uniqlo emphasises that it does not chase fashion trends, focusing rather on producing sustainable lifewear.
“We sell products that are rooted in people’s day-to-day lives, and we do so based on what we hear from customers. The ability to provide anybody, anywhere, anytime with the ultimate, high-quality day-to-day clothing sets us apart.”
Tadashi Yanai, Chairman, President and CEO, Fast Retailing, Interview in March 2017
Much of what Uniqlo stands for and known for today has been inspired by its charismatic founder Tadashi Yanai. He has also influenced how Fast Retailing functions as an organisation, creating a completely non-Japanese flat structure which centres around teamwork, creativity, and transparency. Wishing to be a truly global company, Yanai has decided to conduct all business in English.
Uniqlo’s unique philosophy is also seen in the way it trains its employees which has a direct impact on in-store customer experience. The resulting high level of service is readily appreciated by customers all over the world. The company is now building Uniqlo University in Tokyo where 1,500 new store managers will be trained every year.
- Technology
Sticking to basics in clothing is a clear advantage that Uniqlo has been making full use of in production. Its product lines are usually planned up to a year in advance, which has drastically reduced speed to market over the years. Instead of a typical 6–9 month planning cycle, the stock gets upgraded within weeks. Uniqlo now aims for a design to delivery time of just 13 days, to match the time made by Zara.
One strategy that Uniqlo intends to fully capitalise on in order to increase speed to market is continuous innovation in technology. Most recently, Fast Retailing has set aside an investment of ¥100b to replicate a newly opened robot-operated Tokyo warehouse in other locations at home and abroad.
In keeping with the latest technologies, Uniqlo has initiated an aggressive digital transformation plan aimed at improving its supply chain and customer service. The plan was set in motion in 2015 when the company hired Accenture to create a cloud-based management platform. Fast Retailing is considering to enhance the latter through the application of artificial intelligence that will provide advanced customer insights that, in turn, will contribute to lean inventory and superior product customisation.
Another critical component to the digitisation plan is boosting Uniqlo’s online presence, with a goal of doubling the proportion of sales made online by year 2023, from 9% at present. To improve customer experience in-store, the retailer announced in 2017 the introduction of integrated circuits (IC) across all outlets for optimising checkout and delivery times. In a related cost-efficiency move, Uniqlo has decided to adopt the use of radio frequency identification tags (RFID) to allow for real-time updates of inventory.
Still, even more prominent is the company’s concentration on product innovation, with a number of its novel material technologies becoming instant hits with customers all over the world. To a large extent, Uniqlo’s success in material innovation can be credited to its strategic partnership with Toray Industries, a Japanese textile company specialising in synthetic chemistry. The partners launched their first jointly developed product — heat-trapping, sweat-wicking, innerwear HeatTech — in 2003. While HeatTech has become a Uniqlo staple in colder months, customers have also welcomed a series of quick-drying, anti-odour underwear called AIRism.
Today, Uniqlo continues to look for new groundbreaking materials to create new products based on a renown Japanese fibre technology. It runs product research and design centres in Tokyo, Shanghai, Paris, New York, and Los Angeles, gathering information on local fashion trends, lifestyles, and novel materials.
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