Yanai's secret is selling casual duds such as slacks and socks much like McDonald's meals: His chain of 500 no-frills apparel outlets, called UNIQLO, with total sales of $3.3 billion expected this year, offers a set menu at unbeatable prices. For the full year through August, the company forecasts pretax income of $866 million, making it far more profitable than retail giants such as The Daiei Inc. and JUSCO Co.
Yanai's scorched-earth pricing strategy has earned Fast Retailing the enmity of corporate and government leaders in Japan, who blame it for stoking deflation in the apparel industry. But Yanai, 52, revels in his reputation as Public Enemy No.1 in the go-along-to-get-along world of Japanese business. "Japan has to get used to survival-of- the-fittest-style capitalism," he says. "Deflation is not a dirty word."
Strong words from a late bloomer in charge of what was until just a decade ago a backwater chain of 22 dowdy men's clothing emporiums started by his father. Now, Yanai, who debuted this year on a list of Japan's 100 biggest taxpayers, is riding high as the largest shareholder, with a stake of 26.6%, in a company with a market capitalization of $10 billion. And he intends to introduce UNIQLO (for "unique clothing") to Britain, where a total of 50 stores are planned in the next three years.
A graduate of Tokyo's prestigious Waseda University who loved traveling in his youth, Yanai hit upon his formula while on a trip to Hong Kong. There he marveled at the low price tags on Chinese-made clothes. He decided to do something about it. By sourcing clothes directly from Chinese factories, mostly in Guangzhou and Shanghai, he found a way to cut costs drastically--and pass those savings on to customers. Today, nearly 90% of all items sold by Fast Retailing are made in China under exclusive contracts subject to strict quality standards.
Some analysts doubt Fast Retailing can maintain its breakneck pace of growth. That negative buzz helped send the stock plunging in recent months; it is now a third off its November, 2000, high. But Yanai has no doubts. After Britain, his next target is the U.S. "Our goal," he says, "is to be bigger than Gap." Whether he succeeds abroad or not, Yanai has already changed Japanese retailing.