Uniqlo Makes Global Push

DECEMBER 18, 2010 By MARIKO SANCHANTA WALL STREET JOURNAL

TOKYO—Looking to become the world's leading clothing retailer, Japan's Fast Retailing Co. plans to introduce its Uniqlo stores in the fast-growing Indian and Brazilian markets and to vastly expand its presence in China, where the number of stores are intended to leapfrog those in Japan by 2020.

So-called fast-fashion retailers such as Spain's Inditex SA, which is the world's largest clothing retailer and operates the Zara chain, and Sweden's Hennes & Mauritz AB are quickly expanding their respective empires around the globe as consumers move away from higher-priced clothing in favor of less-expensive options. Fast Retailing, Asia's leading clothing retailer by sales, said it aims to move ahead of Zara and H&M within a decade, as it ramps up store openings—particularly in Asia.

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Fast Retailing CEO, President and Chairman Tadashi Yanai.

Fast Retailing's fashion focus, however, is different from its competitors: It sells casual, affordable basics, such as fleece jackets, jeans and its Heat Tech line of thermal underwear. "We don't make clothes that you throw away after one season," said Naoki Otoma, Fast Retailing's chief operating officer.

In its home market, where Fast Retailing derives the bulk of its revenue, the company has caused a buzz by breaking with many of the conventions of Japanese businesses. Fast has said English must be spoken at all business meetings where foreigners are present, that all email correspondence must be written in English by 2012 and that the number of its foreign employees will overtake Japanese workers by 2015.

The retailer is quickly becoming a template for the rest of corporate Japan, faced with the twin obstacles of shrinking domestic demand and a dearth of Japanese leaders with the know-how and language skills needed to lead a push into global markets.

"Our advantage is that we are a Japanese brand, which is known for good quality and design, and we are closer in proximity to the Asian countries," Mr. Otoma said in an interview. "In China, we will grow organically without alliances or collaborations. There are no Chinese companies that can do a better job there than us.…We won't be striving to increase our store count in Japan by that much going forward."

Uniqlo is forecast to have 844 stores in Japan and 76 in China by the end of August. By 2020, Uniqlo aims to have 1,000 stores in China through organic growth alone. Zara had 60 stores in China as of Oct. 31.

Mr. Otoma, 50 years old, said Uniqlo also aims to crack the Indian and Brazilian markets within five years. Although a foreign retailer currently can enter India only as a minority stakeholder with a local partner, this restriction is likely to change soon. "Based on our research, these regulations will likely be dissolved within one year," Mr. Otoma said.

In the crucial U.S. market, Uniqlo is rebuilding its brand following some earlier missteps. It has retreated from suburban shopping malls and now has only one store, in Manhattan's SoHo neighborhood. The company aims to open an online shopping site soon to reach more American consumers and plans to open a flagship store on New York's Fifth Avenue next year.

The company has made no secret of the fact that it is scouring the market for acquisitions in the U.S., following a botched bid for Barneys New York in 2007.

"We have received many proposals," Mr. Otoma said. "There are not that many good options in the market right now. And for the companies that are doing well, the amount of money required to acquire them is tremendous. We have to advance with e-commerce quickly. Our priority has been branding and raising our brand awareness in the U.S."

Although Fast has been vocal about its plans for global domination, the past year has been choppy after a period of buoyant profitability.

November same-store sales in Japan tumbled 15% from a year earlier, marking the fourth consecutive month of decline. The number of customers fell 7% and sales per customer dropped 8.1%.

Fast in October forecast that full-year net profit for the year through August would fall for the first time in four years, by 17% to 51 billion yen ($608.1 million). The company projected that net sales will rise by 5% to 856 billion yen, however. The company's stock is off 27% so far this year.

Tadashi Yanai, Fast Retailing's founder and chief executive, has blamed the poor performance on shortages in basic core items, poor marketing of the spring and summer lines and oversights in product and production planning.

"I think that our strong performance in the first half of the year led us to be careless in the second half," he said in a presentation earlier this year.

Analysts said that with more than 800 stores in Japan, the market is saturated and consumers are reining in their spending. "Overall purchase sizes [in Japan] have been going down, but Japanese consumers have been increasing the frequency of their visits to stores in some categories. People want to spend less on each visit," said Brian Salsberg, head of McKinsey & Co.'s retail-and-consumer group in Japan.

Mr. Otoma said the company still has a lot to learn, particularly from its foreign rivals. "We can learn from H&M and Zara by looking at the speed with which they launch new stores. They are very courageous to open new stores, whether they succeed or not. We, in contrast, are very cautious with what we do," he said.

When asked whether he has ambitions to lead Fast Retailing one day—a subject of speculation, as Mr. Yanai is 61 and has no obvious successors—Mr. Otoma laughed and shook his head. "I don't want to be the CEO. I want to have a good, balanced life."

Write to Mariko Sanchanta at mariko.sanchanta@wsj.com

Corrections & Amplifications
Fast Retailing's same-store sales in Japan were down 15% in November. In earlier versions of this article, it was incorrectly reported that the company's same-store sales were down 155% in November.