Japanese Clothing Retailer Lives Up to Its Name

September 26, 2009

By MIKI TANIKAWA

TOKYO — For someone whose stated aim is to dominate the global market for his product, Tadashi Yanai cuts an unassuming figure. He speaks softly about his passion for business but also about his firm belief that successful people will inevitably make mistakes, and then learn from them. His autobiography, published in 2003, is titled “One Win and Nine Losses.”

Mr. Yanai, 60, the founder and chief executive of the Japanese company Fast Retailing, has big ambitions: to be the world’s largest purveyor of cheap yet chic clothing in the next 10 years.

Fast Retailing owns Uniqlo, the so-called fast fashion chain whose square red logo with white characters now flies above 777 stores in Japan and 90 stores in China, Hong Kong, South Korea, Singapore, Britain, France and the United States.

It also owns the Theory clothing brand in the United States and two French brands, Comptoir des Cotonniers and Princesse Tam-Tam.

From its founding in 1963 as a family-run clothing shop, and despite a few setbacks along the way, Fast Retailing has generally lived up to its name. The company has forecast that sales for the year through Aug. 31 rose 16 percent, to ¥680 billion, or about $7.4 billion, while profits rose 20 percent, to ¥52 billion. Many analysts expect that the final numbers, to be announced Oct. 8, will exceed the forecast.

In a depressed market for retailers’ stocks, Fast Retailing’s shares have been buoyant, trading at a price/earnings ratio of 21.35. That performance has propelled Mr. Yanai, the company’s biggest shareholder, to the top of the current Forbes list of the richest people in Japan, with a net worth of $6.1 billion.

Yet despite its best efforts to expand globally, Fast Retailing still generates about 90 percent of its sales in Japan. Mr. Yanai wants to change that. His 10-year goal is to achieve annual sales of more than ¥5 trillion — more than the combined sales of competitors like Gap Stores, H&M and Inditex, which owns the Zara brand.

Fast Retailing’s latest overseas salvo will come Oct. 1 in Paris, with the opening of a Uniqlo flagship store on Rue Scribe — 2,000 square meters, or more than 21,000 square feet, of retail space just around the corner from the landmark department stores Galeries Lafayette and Printemps.

Even though cheap chic is thriving as consumers cut back, opening a flagship store in the world’s fashion capital could be the definition of chutzpah. Mr. Yanai sees it as a natural extension of the brand — and of his business style.

“We have grown to this from a ¥1 billion company in 1984, when we established our first Uniqlo shop,” Mr. Yanai said in a recent interview in his office in Tokyo.

“That is no less preposterous than what we aim to achieve” in the next 10 years, he added.

Most Uniqlo items go for just a few tens of dollars and rarely carry a retail price of more than $60, even for jackets and coats. In warehouselike stores, Uniqlo’s simply dressed salespeople stack up sweat shirts, turtlenecks and sweaters in vivid colors of all gradations, as if they were displaying crayons.

To keep costs low and quality high, Uniqlo manufactures in China under the watchful eye of Japanese executives who are handpicked by Mr. Yanai and have experience in textiles and design. To keep the buzz going, Uniqlo shops also offer some funkier items like “heat tech” underwear, which saves the wearer a layer or two on the top during winter’s cold.

Jon Wright, retail industry analyst at Euromonitor International in London, said Fast Retailing would have a fair shot at selling well in Europe.

“Uniqlo’s pricing structure is low enough to enable it to compete well with H&M and Zara,” Mr. Wright said. “It has a wider range of prices, which should make it better able to attract consumers who are trading down from higher-priced brands into the midmarket segment, not just people looking for bargains.”

Building its business globally will be crucial if Fast Retailing is to achieve its ambitious goals. Like every big Japanese consumer products company, it faces a deadline: Japan’s population is aging, and its youth population is shrinking. At the same time, the forces of globalization are bringing multinational competitors into the Japanese market.

“Companies that sell only in Japan will eventually not be able to sell even in Japan,” Mr. Yanai, who sprinkles the word “globalization” liberally into his conversation and public remarks, said recently in a news conference. “Corporations have to go global in order to survive.”

Like most companies that sell to the youth market, Uniqlo gets the word out about a new store or a new collection via a variety of media, including distributing leaflets in newspapers. But its strongest sell usually is word of mouth.

“We have been around for three years, and customers throughout New York know who we are and what our message is,” said Billy Lukas, manager of the Uniqlo store in New York. “Just having a flagship in the heart of SoHo really helped build the brand recognition throughout the country.”

Mr. Wright, the Euromonitor analyst, said acquisition targets should not be lacking, especially in Europe.

“The industry is comparatively fragmented, and the size of competitors means that they are not unaffordable,” he said. “The difficulty for Fast Retailing is choosing which company to take over, as the fastest-growing brands at the moment are invariably at the economy end of the market and therefore may not sit well alongside the company’s other brands.”

Fast Retailing is generally cautious about mergers and acquisitions, in part because Mr. Yanai is loath to overpay. The company lost a bidding war for the upscale retailer Barneys New York and gave up on a bid for the Hong Kong apparel company Giordano International in 2007.

Mr. Yanai is also mindful of past expansions that were undertaken too quickly and had to be rolled back. In 2001, Fast Retailing announced plans to open 50 Uniqlo stores throughout England in three years. The company set up 21 stores in one year, then realized that profitability was nowhere in sight for most of them. It folded all but five and, after a period of regrouping and reorientation, it is now back to 13 stores.

The opening of the Uniqlo flagship store in Paris follows several trial runs, including a store that opened in La Défense shopping mall near Paris in December 2007 and a pop-up store this summer in the city’s Marais district.

“One thing that stands out about Yanai-san is that he has experienced many, many mistakes in the past and learned from them,” said Hirotaka Takeuchi, dean of the graduate school of international corporate strategy at Hitotsubashi University, in Tokyo.

Fast Retailing also “promotes young talent to executive posts and lets them take up serious responsibility,” said Masayuki Kubota, senior fund manager at Daiwa SB Investments. “The company is not just about Yanai.”

Jun Yamashiro, 29, a Uniqlo store manager who supervises 80 employees in Shibuya, a trendy shopping district in Tokyo, concurs. “It’s a company that will give you an opportunity if you can prove yourself,” she said.

Copyright 2009