Uniqlo, a Japanese FMCG apparel brand, is becoming increasingly inseparable from overseas markets.
On January 13, Uniqlo’s parent company, Fast Retailing Co., Ltd. announced its results for the first fiscal quarter of 2022 ending November 30, 2021. During the reporting period, it achieved a profit attributable to owners of the parent company of 93.5 billion yen, up 33% year-on-year; consolidated revenue totaled 627.3 billion yen, up 1.2% year-on-year; and consolidated operating profit totaled 119.4 billion yen, up 5.6% year-on-year.
Fast Retailing Co., Ltd. said the quarterly results were the highest ever for the first quarter of a calendar year, largely due to the diversification of key global revenue sources. when reporting full-year fiscal 2021 results in October 2021, Fast Retailing President and CEO Tadashi Yanai said. “Fortunately, we are expanding our business globally, and doing business must bring together the wisdom of the world.”
Perhaps influenced by the positive results, Fast Retailing shares opened higher at HK$43.05 on January 14 in Hong Kong, bucking the market by 5.52%, to close at HK$44 by the end of the day, with a total market capitalization of HK$466.724 billion (about RMB 380.7 billion).
The Chinese market for Uniqlo
Fast Retailing is divided into Uniqlo business segment in Japan, Uniqlo business segment overseas, JIYU business segment and global brand business segment. According to the earnings data, except for the overseas Uniqlo business segment, the performance of the other three business segments was not optimistic.
In the first quarter of the fiscal year 2022, the Excellent business segment reported revenue of 69.8 billion yen, down 8.7% year on year, and operating profit of 8.9 billion yen, down 34.5% year on year; the Global Brands business segment reported revenue of 30.7 billion yen, up 9.5% year on year, and operating profit of 2.5 billion yen, a small turnaround; the Uniqlo Japan business segment reported revenue of 226.4 billion yen, down 10.8% year on year, and operating profit of 48.7 billion yen. 10.8%, with an operating profit of 48.7 billion yen, down 18.8% year-on-year.
The weakness in the Japan segment is not surprising. on January 5, 2022, Uniqlo just released the latest financial data for its Japanese stores, and in December 2021, same-store sales (including online sales) declined 11.1% year-on-year and total sales fell 8.2%, although the number of customers remained the same as before.
In contrast to the slowdown in Japan, Uniqlo is doing well in overseas markets, and in the first quarter of fiscal 2022, the best performance continued to be in the overseas Uniqlo business segment, which achieved revenue of 299.7 billion yen, up 15% year-over-year, and operating profit of 59.9 billion yen, up 44.6% year-over-year.
Among the many overseas markets, China is one of Uniqlo’s most important markets. As early as the second half of 2020, Uniqlo surpassed the number of stores in its home country of Japan in China, and as of September 2021, Uniqlo has opened more than 820 stores in more than 180 cities in mainland China.
For the full year of fiscal 2021, Fast Retailing’s Greater China region (including China, Hong Kong, and Taiwan) achieved significant growth in both revenue and operating profit, with revenue more than twice that of North America and Europe and accounting for 25% of total revenue, up from 22.7% of total revenue in fiscal 2020, the best performance in years.
Perhaps it is because of the importance of overseas, especially the Chinese market, Tadashi Yanai not long ago in a media interview, the company’s Uniqlo will not “choose sides” in the tensions between the United States and China, “the U.S. approach is to force corporate allegiance, I want to make it clear that I will not play that game.”
Fast Retailing said this was due to the ongoing stringent anti-pandemic measures during the New Zealand pandemic, which have dampened overall consumer sentiment in the apparel industry, as well as the high benchmark for last year’s strong sales.
Change is not only the pandemic, some industry insiders believe that the competitive pressure brought by the rise of new domestic brands, but also the Chinese market is no longer a natural haven.
Tadashi Yanai has publicly stated that “the impact (of local brand growth) may emerge. Minoru Fukuda, a Japanese partner at Roland Berger who is familiar with the apparel markets of various countries, has also said that “local brands in China are gaining strength”.
In both men’s and women’s apparel, the Chinese market is still unable to find anyone who can compete with Uniqlo, and the position of Uniqlo at the top of the Chinese apparel market is still solid from the previous Double 11 list.
According to the data of Jiuqian Zhongtai, Uniqlo has been the champion of the annual sales ranking of Tmall women’s wear for five consecutive years from 2017-2021; the men’s wear segment is slightly inferior, with Uniqlo ranking as the runner-up of the annual sales ranking of Tmall men’s wear from 2017-2019 and 2021, and ranking third in 2020.
However, in the single product segment track such as underwear, Uniqlo has been hit by the new national brands in recent years not a small impact.
Around 2020, the “triumvirate” of new national underwear, Ubras, Banana and Inside Out, began to explode. In the 2021 Tmall Double 11 brand ranking (in terms of sales amount), Ubras and Bananae took the first and third place in the lingerie industry, Uniqlo was in the second place, and inside and outside ranked sixth.
Offline, Inside and Out has now opened nearly 100 stores in 23 first- and second-tier provincial capitals across China; Ubras’ current store count is around 10; Bananae opened its first store in Shenzhen at the end of 2020, and its first store in Shanghai officially opened on September 26, 2021.
Why is Uniqlo surviving?
Uniqlo is not the only one affected by the pandemic, many overseas fast fashion brands are caught in a wave of store closures and there has been a clear trend of offline retreat.
Spanish fast-fashion giant Zara’s parent company Inditex Group announced in early 2021 that it would close all physical stores in China for its three brands Bershka, Pull&Bear and Stradivarius, keeping only its official website and Tmall store to continue operations. Currently, Bershka, Pull&Bear and Stradivarius only have about 12 stores left in China, while a year ago these three brands had more than 180 stores in China.
U.S. apparel brands are also having a tough time in China. American fast fashion brands Urban Outfitters and Everlane, in 2021, have withdrawn from the Chinese market; Gap Group’s brand Old Navy, in 2020, announced the official closure of all sales channels in the Chinese market; American teenage clothing brand Forever 21 filed for bankruptcy in 2019, and closed stores in China, Japan and other markets one after another Withdrawal.
Why will the above withdrawal tide? Industry insiders believe that the most direct reason is the impact of the pandemic. Under the influence of the pandemic, offline store traffic decreased, online consumer habits developed, forcing apparel fast fashion brands to accelerate the layout of online channels, improve digital capabilities, those brands that fell behind in the rapid transformation of the general environment is naturally diminishing.
Uniqlo has been able to survive the wave of store withdrawals, perhaps due to its early deployment in e-commerce and digitalization, and its commitment to catch up with and even lead the consumption trend of young people.
Uniqlo launched its flagship store in 2008 and started to implement a new retail development model, in which Uniqlo’s flagship store will choose the nearest warehouse for delivery according to consumers’ delivery address, and consumers can also place orders online when it is inconvenient to shop and choose store pick-up service, such as placing orders in A and picking up the goods in B. Later, Uniqlo has successively launched a series of new stores, including the first one in the city of New York and the second one in the city of New York.
Later, Uniqlo has launched a small program, promoted the digitization of offline stores, and in 2021 launched the digital service StyleHint “clothing point inspiration”. In its latest earnings report, Fast Retailing also said that it would “expand global e-commerce” and “accelerate the construction of systems that integrate online stores and stores as the core of its business.
In terms of products, Tadashi Yanai has also always focused on data-oriented, he requires the company to monitor the order and inventory in real-time every week through the electronic label of goods, and to produce accordingly. This allowed Uniqlo’s e-commerce business to rise significantly during the pandemic, although the effectiveness of its offline stores was affected. in the fiscal year 2020, Uniqlo’s Japanese e-commerce revenue jumped 29.3%, Uniqlo’s international e-commerce revenue rose 20%, and extremely good e-commerce sales increased 60%.
The reason why Uniqlo can respond quickly in the channel side, behind the reliance on strong supply chain capabilities.
The supply chain is one of the core competencies of fast fashion brands. In fact, the four global fast fashion giants, ZARA, H&M, Uniqlo and GAP, practice the SPA (Specialty retailer of Private label Apparel) business model, that is, from commodity planning, production to retail integrated control, maximum control of warehouse, logistics and management costs, so as to accelerate the supply chain operation Fast Retailing’s business model is to provide a rapid response to the market.
In 2019, Fast Retailing e-commerce and store inventory information has been integrated, the physical store is a supplement to the e-commerce warehouse function, customers order goods online and then the stores deliver, you can also pick up the goods in store. It is reported that from fabric planning, merchandise planning, sales planning, production planning to sales process, this set of re-cycling system of Uniqlo products cycle is only 18 weeks.
According to media reports, Fast Retailing is also building state-of-the-art warehouses that automate merchandise picking and inbound and outbound in key markets around the world, and expects to open such warehouses in China in the fiscal year 2022 (as of August 2022), and the automated warehouses will significantly increase the speed of delivery.
In addition to its fast, accurate and ruthless digital capabilities, another key factor for Uniqlo to buck the trend in China may lie in capturing the minds of the new generation of young consumers in China.
On the one hand, Uniqlo has collaborated with designers of luxury brands to launch a number of popular co-branded models, such as the co-branded UT with artist KAWS and the collaborative series of items with designer Jill Sand. Although these co-branded items are still based on Uniqlo’s style, they give consumers access to the design of big brands and the “taste” of luxury. It can be said that the co-branded clothes indirectly satisfy the youth group’s desire for luxury.
On the other hand, Uniqlo’s UT series is still being updated, and the co-branded items have been expanded to include Marvel, Cherry Peeps, Little Yellow Men, Linefriends and other cultural IPs with a clear collective consciousness of contemporary youth. Uniqlo is favored by more and more young people of “Generation Z”.
New middle class or sinking market
While digital capabilities and co-branding innovations are powerful tools to develop the market, Uniqlo’s more crucial vitality lies in advocating and even influencing global lifestyle and aesthetic concepts.
In 2003, Uniqlo just entered China Shanghai and Beijing. Due to the success of its previous low-price image in Japan, Uniqlo initially wanted to copy the Japanese low-price model, but to their surprise, Chinese consumers did not buy it, believing that low-price means cheap, which means poor quality. Therefore, Tadashi Yanai decided to reverse Uniqlo’s long-held low-price image by raising the prices of its clothes and positioning them in the middle-class market.
This is also a very important transformation case in the history of Uniqlo’s development, and later, Tadashi Yanai also wrote about this experience in his book “One Win, Nine Losses”.
In 2013, founder Tadashi Yanai repositioned the Uniqlo brand, changing the brand slogan to “LifeWear”, which means “clothes designed to make everyone’s life better”, emphasizing simple, high-quality products with aesthetic qualities. Tadashi Yanai once said, “We don’t sell fashion, we sell style, especially lifestyle. We make clothes to let people express their attitude towards life.”
Since 2018, under the leadership of Takahiro Kinoshita, the former editor-in-chief of POPEYE and the “male devil” of the fashion industry, Uniqlo has launched a free magazine LifeWear twice a year, featuring interviews with celebrities who are household names even in China, such as Jil Sander, the designer of the +J collection, Haruki Murakami, Ryuji Sakamoto, and the designer of the +J collection. Haruki Murakami, Ryuichi Sakamoto and architect Tadao Ando, among others.
From product pricing, style design, store decoration, spokespersons and many other aspects, Uniqlo has completed its positioning upgrade with almost perfect self-packaging, and is committed to becoming part of the “new middle class” good life.
In the “New Middle Class Product Quality Life Report” released by Uniqlo and First Financial Weekly in 2017, the “new middle class” is described as follows: “Quality first, artisanship and individuality; passionate about culture and creativity, poetry and faraway places; health first, life is a sports field; no intelligence, no life; new retail era, everyone is a part of the new middle class. In the new retail era, everyone is an experience expert.”
However, in the perception of many consumers, Uniqlo is still synonymous with value for money. at the end of 2020, the topic of #Uniqlo quietly increased its price had been on Weibo hot search, with 280 million attention and 11,000 discussions. In response, Uniqlo’s official response said, “The goods did not increase in price, but only increased the proportion of mid- to high-end products.”
In order to gain a longer-term foothold in the Chinese market, Uniqlo has also set its eyes on the sinking market in China’s third and fourth-tier cities, which will perhaps be the “fertile ground” for Uniqlo’s future cultivation.
In March 2021, Uniqlo Greater China Chief Marketing Officer Wu Pinhui said that in the future, Uniqlo will not only increase the speed of opening stores in the Chinese market to ensure the opening of 80-100 stores per year, but also sink stores to the third and fourth tier cities.
Store opening has always been the most important marketing strategy for Uniqlo, and Tadashi Yanai mentioned in “One Win, Nine Losses” that Uniqlo’s store opening experience is to concentrate stores in a certain area, and when the number of stores reaches a certain number, sales will rise at once. He summed up this experience as the “dominance phenomenon”, which has led Uniqlo’s store opening plan in China to some extent. In Tadashi Yanai’s understanding, China’s population is expected to support 3,000 Uniqlo stores, with annual sales of around RMB 118 billion.
According to Polar Sea brand monitoring data, from the beginning of 2021 to December, Uniqlo added 96 new stores, including 17 in Tier 1 cities, 39 in New Tier 1, 20 in Tier 2, 9 in Tier 3, 6 in Tier 4 and 5 in Tier 5. The new stores are still mainly concentrated in the new first-tier and second-tier cities, which shows that Uniqlo’s desire to sink is not satisfactory.
In China’s third and fourth-tier cities, it is worth exploring whether Uniqlo’s simple and basic models are in line with consumers’ favorite dressing style, and whether the pricing of “new middle-class” products is too high for the local consumption level.
A number of interviewees from third and fourth-tier cities also expressed their pessimism about Uniqlo’s “sinking” attitude almost unanimously: “In small cities, post-80s, post-70s or older people will feel that Uniqlo’s clothes are monotonous in color and ordinary in style, no different from ordinary clothes that are not branded ……”
Cao Yue, an analyst of EqualOcean’s New Consumer Division, predicts, “Uniqlo may sink to third-tier cities at most, because its style is not quite in line with the shopping habits of small counties.” Yang Liang, an analyst of EqualOcean’s New Consumption Business Unit, thinks: “The competition for clothing in third and fourth-tier cities is too fierce, and the story Uniqlo wants to tell about upgrading consumption in the sinking market may not go through so well.”
Epilogue
In February 2021, Uniqlo had surpassed Inditex, the parent company of Zara, with a market value of 10 trillion yen, and once became the world’s top apparel company in terms of market value.
But that does not mean it has succeeded in becoming the world’s No. 1 apparel brand. Under the impact of the pandemic and political pressure, Uniqlo’s business in the Japanese market is in a bitter battle, the performance of the Chinese market has declined, and the presence of the European and American markets is still weak, compared to the goal of “making money in the global market” there is still a certain distance.
In the global fast fashion industry, Uniqlo, which has survived the fierce competition and the impact of the pandemic, is undoubtedly the winner of the last era. But some new forces have emerged in the market, which may become the “strong enemy” of Uniqlo.
For example, SheIn, a Chinese fast-fashion cross-border e-commerce company established in 2008, has rapidly swept the European and American markets within a few years, thanks to its label of good quality and low price, fast update, rich style, and superior “small order and quick return” flexible supply chain response capability. SheIn has become the world’s largest pure online retail fashion company, measured by sales of its own branded products.
In the next 10, 20 or even 50 years, it is still unknown whether Uniqlo can continue to “smile proudly”. Source