Bloomberg News

Japan’s Richest Man Remakes Once-Drab Uniqlo in Manhattan’s Image: Retail

March 09, 2012

Fast Retailing Drops After Profit Forecast Cut

Fast Retailing Co.'s "Heattech" garments are displayed at a news conference in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Uniqlo, the Japanese T-shirt maker, wanted to change its image, which was seen as drab in its homeland. Part of the solution: recreating the sheen of its New York Fifth Avenue store in Tokyo’s most expensive fashion district -- rebranding from the outside in.

Uniqlo next week will open its world’s largest store in Tokyo’s Ginza area. Combined with a shift to use English as its official language and plans to hire more international workers, the strategy is designed to shed Uniqlo’s roots as a budget label selling cheap clothing 30 years ago.

“We came from the boonies, a roadside store,” Tadashi Yanai, the 63-year-old president of Uniqlo’s parent, Fast Retailing Co. (9983) and Japan’s richest man, said last month. “Overseas, our image is that of a global company, but in Japan, we have this legacy issue which we take with us. This roadside image, old image is still in the minds of people and we want to show people the new Uniqlo.”

Uniqlo’s efforts to revive its brand at home, where sales fell 2.4 percent last year, are a study in how some Japanese firms are adapting to an aging population and stagnant domestic economy to find new ways of growing. Success may give Fast Retailing a boost in a market that provides more than 80 percent of its 820.3 billion yen ($10 billion) in annual revenue and competes with global brands including Inditex SA’s (ITX) Zara and Hennes & Mauritz AB. (HMB)

“The reimporting of their brand image may actually work,” said Mikihiko Yamato, deputy head of research for JI Asia in Tokyo.

Soho, Fifth Avenue

In Manhattan, after the success of a Soho outlet, the company set up a glass-fronted corner store on Fifth Avenue, the priciest retail street globally in 2011, according to Cushman & Wakefield, the commercial real estate services company. It was followed by another store on New York’s 34th Street.

After gaining customers around the world, the company decided the quickest way to revamp its image at home was to import the glitz of Fifth Avenue and let Japanese customers “experience the difference,” Uniqlo said in its annual report.

The outlet in Ginza, where rents cost about $1,044 per square foot in 2011, according to Cushman & Wakefield, will be a gleaming white rectangular glass-front building of 12 stories and open to customers on March 16.

With floor space of 52,500 square feet, or almost the same size as an American football field, the new outlet replaces a smaller store and will be manned by a staff of 520. Included in the workforce will be about 100 foreigners from around the world speaking English, Chinese Mandarin, Korean, French and Spanish.

McDonald’s, Starbucks

“Ginza is the first place foreign brands set up shop when they enter Japan,” said Masamichi Nakamura, executive director at Interbrand Japan, a marketing consultant. “McDonald’s and Starbucks had their very first stores in Ginza.”

In addition to the company’s traditional products such as T-shirts and casual clothes, the new store will sell trendy fashions from its collaborative lineup with the Undercover brand and an exclusive line of outfits created for Kei Nishikori, Japan’s top-ranked tennis player and the world’s No. 17.

Fast Retailing gained 1.5 percent to 17,660 yen at the 3 p.m. close in Tokyo. The stock has gained 38 percent in the past 12 months, compared with a 6.2 percent drop in the benchmark Nikkei 225 Stock Average.

During the same period Inditex has risen 29 percent and Hennes & Mauritz gained 15 percent.

Stalling Growth

For a chain that built its reputation on cheap clothing that anyone could afford, Uniqlo is going to face hurdles convincing Japanese shoppers it’s hip, according to analyst James Moon.

“They have 800-plus stores and they mainly sell basic stuff like underwear” in Japan, said Moon, an analyst for BNP Paribas Equity Research in Tokyo. “They want to sell more to women and to sell more outer wear, and to do that you have to be a little bit more fashionable.”

While Japan provides the bulk of Fast Retailing’s revenue, growth has stalled as hit products like Heattech thermal wear are losing out to similar products sold at cheaper prices by supermarket chains Ito-Yokado and Aeon Co. (8267)

As Uniqlo improves its brand, it may take market share from H&M and Zara around Tokyo and from the supermarkets, said Akihiro Chiba, an analyst for Tachibana Securities.

While Uniqlo’s Japan sales fell to 600 billion yen in the year ended August 2011, international revenue jumped 29 percent to 93.7 billion yen in the same period.

The Boonies

“They have hit a ceiling domestically and can’t grow like before,” said Chiba. “They have to do something to get out of this situation, which is to set up shop in Ginza and show people they are back cooler than before.”

Of the brand’s 843 domestic stores, about 60 percent are located by roadsides, mainly in suburban areas, according to the latest annual report. Part of its new strategy at home is to recreate the large, sleek stores that have won it customers abroad with success in Ginza before expanding to other parts of Tokyo and cities such as Osaka and Fukuoka.

The retailer plans to shut some of its smaller stores and build bigger ones that average over 35,000 square feet. It will also introduce English as its official language of communication to do business around the world.

“If we are to do business globally, we have to do it in English,” said Yanai. “This is the new reality Japan faces.”

English Tests

Managers have to score above 700 points for their TOEIC, Test of English for International Communication test, and all meetings involving foreigners will be conducted in English. Yanai aims to have foreigners make up half of the 1,000 staff at its main office in Tokyo by 2015.

Bringing the glamor of its New York stores to Japan may help turn around the company’s image, according to Yoshida Kan, a copy writer from Oita prefecture and former customer who shunned Uniqlo’s casual clothes for cheaper alternatives sold by supermarket chains.

“The real meaning of taking the New York Fifth Avenue concept and putting it in Ginza is to assure people that they made the right choice in buying Uniqlo,” said Kan. “Telling people in the boonies that we have a store in New York’s Fifth Avenue and Ginza, so we’re all right.”

Another benefit of bringing a global image back home and setting up in fashionable Ginza: drawing international tourists, particularly those from mainland China.

“I think it will strengthen their image at home and globally, especially Asia,” said Interbrand’s Nakamura.

Uniqlo already has some converts at home.

“If you have fashion sense, you can utilize their products well,” said Yuki Morino, a 22-year-old university student in Tokyo, wearing an orange corduroy shirt and checkered jacket from Uniqlo. “People who say you can’t look fashionable with Uniqlo probably have no sense.”

To contact the reporters on this story: Cheng Herng Shinn in Tokyo at hcheng52@bloomberg.net; Shunichi Ozasa in Tokyo at sozasa@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net


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