Uniqlo aims for bigger gains in China
Many business leaders worry about the clouds gathering over China. Not Tadashi Yanai of Japanese apparel chain Uniqlo, which is counting on the country for growth.
While sales of luxury goods are slumping in China, hurt by a crackdown on corruption and an economic slowdown, the market for $5 T-shirts, USD 10 polos and USD 30 jeans like those sold at Uniqlo remains robust, says Yanai, CEO of Uniqlo parent Fast Retailing Co.
“We often say that rather than the economy, the weather has a stronger effect on our business,” Yanai said in an interview. “Our Chinese business is trending very smoothly.”
Yanai hopes sales in China will get a further boost from a partnership with Walt Disney Co. , set to be announced Monday, under which the two companies will jointly design a range of Disney-themed clothing and other products for sale at Uniqlo stores.
The CEO leads the top Japan-based clothing retailer, having built Uniqlo from a single store in Hiroshima three decades ago into a global company with a market capitalization of more than USD 50 billion. Yanai is usually counted as Japan’s richest person.
If he wants to get even richer, he needs China to outperform because Fast Retailing has run into headwinds elsewhere, including the U.S., where losses have widened this year after customers gave a thumbs-down to its latest seasonal collections. Uniqlo has shown strong growth in sales and profit in its home market of Japan, but long-term prospects are limited by a shrinking, aging population.
In the Greater China region, which includes Taiwan and Hong Kong, Uniqlo is aiming for Yen 300 billion (USD 2.4 billion) in sales for the year ending Aug. 31, up from Yen 208 billion a year earlier, when operating income in the region totalled Yen 25 billion.
With nearly 370 stores in mainland China, Uniqlo says it plans to open 100 more annually for the foreseeable future. Yanai said the total could eventually rise to 3000—more than three times the company’s current total in its domestic market.
Analysts say Uniqlo benefits from strong demand for affordable mix-and-match clothing that young Chinese workers can wear to the office and beyond.
On a recent Sunday, Chen Duofu, 25 years old, from China’s Inner Mongolia region, picked up a pair of black cargo shorts for 149 yuan, or USD 24. Mr. Chen said he prefers to buy Nike or Adidas clothing when he wants to be stylish, but when he can’t splurge on those brands, he turns to Uniqlo. “The price is right for younger people,” he said.
Fast Retailing’s bullishness on China has been undented by labour strife at Chinese contractors and a sex video purportedly recorded in a Uniqlo fitting room in Beijing. The video spread on the Internet in July.
“This is the last thing we would have anticipated happening in our store,” he said. “Just hearing it makes me sick. It’s disgusting.”
In its deal with Disney, Uniqlo is seeking to bolster its sales in China. The retailer already sells T-shirts depicting Disney animated figures, but the new partnership runs deeper. The two companies will jointly design products, including clothing and plush toys, featuring characters and themes from Disney movies and Disney-owned properties such as “Star Wars” and Pixar Animation Studios.
“Young adults are a fast-growing audience for Disney in the fashion space and beyond, and Uniqlo has a strong connection with this demographic,” said Paul Candland, Disney’s Asia president.
Yanai said he became a Disney fan when he visited Disneyland in Anaheim, Calif., in 1967 at age 18. To persuade Disney to broaden its collaboration, he enlisted the support of a Uniqlo store manager, who wrote a letter to Disney CEO Robert Iger and joined Mr. Yanai and other Fast Retailing executives to visit Iger’s offices in Burbank, Calif.
The partnership is global, but an initial focus is China, where Disney’s first theme park is set to open next year in Shanghai. Uniqlo’s largest store world-wide is in Shanghai, and an entire floor is being revamped to feature the Disney items.
“It allows Disney to project their brand as a fashion brand rather than primarily as a kids’ brand,” said Ben Cavender, a principal at Shanghai-based consultancy China Market Research.
Research firm Euromonitor International says Uniqlo leads Western rivals such as Industria de Diseño Textil SA’s Zara chain, Hennes & Mauritz AB’s H&M and Gap Inc., and in the apparel and footwear market share in China, though it trails Danish retailer Bestseller A/S and sportswear companies Nike Inc. and Adidas AG .
Competition is heating up, especially in China’s fast-growing digital marketplaces, such as Alibaba Group Holding Ltd. ’s Tmall and rival JD.com Inc. Uniqlo has sold its clothes via Tmall since 2009 but closed an outlet on JD.com in July, after only three months.
Yanai declined to comment on that move, but he said Fast Retailing had begun an overhaul of its digital strategy.
On July 31. 2015, Fast Retailing said it had struck an agreement with Japan’s Seven & I Co. , which operates 7-Eleven convenience stores, under which the two companies will create an apparel brand and seek to increase online clothing sales to Japanese consumers. In the U.S., where Uniqlo’s 42 stores are concentrated on the coasts, digital practices will play a significant role, Yanai said.
“Until now, we weren’t putting our hearts into it at all,” he said of the digital push. “From now on, we’re 100% serious.”