Sunday, June 21, 2009

BTO: The emperor's quality clothes

Business Times - 20 Jun 2009

The emperor's quality clothes

Tadashi Yanai, the chairman, president and CEO of Fast Retailing, transformed a modest family business into one of the biggest clothing retailers in the world. His next target - to be number one. By Arthur Sim

TADASHI Yanai exudes a self-effacing bonhomie and jokes that growing up in the hippie era in Japan, he had hoped that he would not have to work for a living. But work he did and as the chairman, president and CEO of Fast Retailing, he transformed a family business into one of the biggest clothing retailers in the world. In the process he has become Japan's richest man with a fortune estimated at US$6.1 billion. His hugely successful chain, Uniqlo, is now a household name.

It is affordable clothing, but Mr Yanai bristles at the suggestion that it is anything but 'quality' apparel.

Quality is the brand positioning that is clearly important to the 60-year-old businessman. And understandably so, given the investment Fast Retailing has pumped into the business over the years.

The company began as a small family business started by Mr Yanai's father in the 1960s. At the time, the company, which comprised a couple of stores in Yamaguchi, did a respectable business with a turnover of about US$1 million a year selling staid menswear. Tadashi Yanai had no particular interest in fashion in his younger days but joined the family business anyway after graduating from the prestigious Waseda University in Tokyo.

He worked on the shop floor for a few years and found he liked working with people; more importantly, he realised he had a knack for merchandising. Subsequently, he changed the formal menswear clothing line to a more casual one.

Not long after that, the first Uniqlo store was opened in 1984.

At about this time, China was becoming the factory of the world so it was no surprise that Uniqlo's stock was increasingly sourced from the mainland.

However, the Japanese shopper is very demanding when it comes to quality and instead of simply outsourcing production to Chinese factories, Fast Retailing also exported Japanese expertise in textiles and manufacturing by sending its specialists, called takumis, to oversee production.

These takumis remain a vital cog in the engine of Fast Retailing still because they help Uniqlo not only compete in terms of price points but quality as well.

Uniqlo now counts on about 70 such 'partner' factories located mostly in China, producing about 500 million clothing items a year. Today, about 90 per cent of Uniqlo products are manufactured in China.

The productivity level of these factories is something Mr Yanai is also particularly proud off, saying that most other clothing producers would need 1,000 factories to produce at this rate.

It comes down to manpower, he says, explaining through an interpreter that each factory has about 20,000 staff on board.

Uniqlo has also about 170 staff responsible solely for quality and production control alone. They visit the factories up to four days each week to conduct checks.

How Fast Retailing manages to run the factories at optimum efficiency and maintain costs, however, remains a bit of a trade secret, with Mr Yanai saying only that they have built up 'good relationships' over the years.

By controlling all processes of production, from design to procurement to manufacturing, Fast Retailing can manage the costs more efficiently.

But if some are still intrigued by how Uniqlo can produce quality clothes at such affordable prices - popular skinny jeans costs S$69.90 while signature T-shirts go for S$24.90 - they will be completely confounded by Fast Retailing's g.u. brand with jeans at about S$20.

How g.u. does it is a question that inevitably has to be asked, but this time Mr Yanai is more forthcoming. He says that if one looks around the region, especially at developing Asian countries, a S$20 pair of jeans is really not so hard to fathom.

In recent years, Fast Retailing has also started to produce clothes in lower-cost countries with g.u. -- which Mr Yanai does actually consider cheap - produced in Cambodia.

Mr Yanai expects to triple the number of g.u. stores by 2013 and the timing could not be better. 'When salaries don't rise, it's human inclination to want to buy things as cheaply as possible,' he said in an interview in Tokyo recently.

The success of Fast Retailing has been said to be counter-cyclical, with sales rising even as the economy sinks. Indeed, Japan's 'lost decade' of the 1990s was very much the period in which Uniqlo established itself as a major player by supplying millions with 'quality basics'.

Now, with a global recession upon us again, it is very likely that Fast Retailing and Uniqlo will become even more indispensable. And Mr Yanai may have to keep working hard.


Chairman, president and CEO Fast Retailing

·       Born in Yamaguchi, Japan on Feb 7, 1949

·       Studied political science and economics at Waseda University, Tokyo

·       Started working in the family business, Ogori Shoji Co, in 1972 and became president and CEO in 1984

·       First Uniqlo store opens in Hiroshima, Japan in 1984

·       Changed Ogori Shoji Co to Fast Retailing Co in 1991 and became chairman and CEO in 2002

·       First downtown Uniqlo store opens in Harajuku, Tokyo in 1998

·       Shanghai office set up to further enhance production management in 1999

·       Overseas expansion begins with London stores opening in 2001

·       Takes equity stake in Link International/Theory in 2004

·       Petit Vehicule/Princesse tam.tam becomes subsidiary in 2006. Takes stakes in Cabin Co and Viewcompany Co in 2006

·       First Uniqlo store opens in Singapore in 2009

·       Named Japan's richest man by Forbes

Fashion with bite

IN THE chihuahua-eat-chihuahua world of fashion, staking your claim on world dominance, even if you have not quite achieved it yet, is quite acceptable. And Tadashi Yanai is not shy about his ambitions for Fast Retailing, one of the top 10 specialty apparel retailers in the world.

'We want to be number one,' he says.

To do this, Fast Retailing will have to top the sales of Gap Inc, the world's largest clothing retailer. But hearing Mr Yanai explain how he will do it, it actually sounds easy.

Fast Retailing, which includes the flagship brand Uniqlo as well as Comptoir des Cotonniers, Princesse tam.tam, and g.u., is already the sixth largest specialty apparel retailer in the world with sales expected to reach US$7 billion for the whole of 2008. Gap Inc is number one followed by Inditex (Zara), H&M, Limited Brands and Next. Gap Inc, which includes brands like The Gap, Old Navy and Banana Republic, did total sales of about US$16 billion. And this in a year that will not be remembered as one of its best.

Still, it is the possible decline in popularity of Gap Inc brands that could see Fast Retailing muscle in on the global market share. Sales at Uniqlo are still growing, after all. Uniqlo stores account for about 80 per cent of the company's income. And for the six months which ended in February, Fast Retailing reported a 28.7 per cent growth in operating profit. Same-store sales at Uniqlo stores in Japan grew almost 13 per cent for the first half of its financial year. At Gap Inc, net sales for the 52 weeks ended Jan 31, 2009 fell about 8 per cent compared to the previous year.

Already, Mr Yanai has set his company the target of achieving US$10 billion in sales by 2011. He believes the company is well on its way with expected sales of US$8 billion by 2010. 'From here, we will just have to buy over a business worth US$2 billion to meet our target,' he said, speaking through an interpreter.

While buying Gap Inc might be out of the question (for now), Mr Yanai has set his sights high. In 2007 for instance, Fast Retailing made an almost US$1 billion bid in a close fight for the luxury department store chain Barney's New York, only to lose out to Dubai-based Istithmar.

Mr Yanai is still intent on expanding through acquisitions although he is keeping mum on the options. What has been announced recently with some fanfare though, is the appointment of the doyenne of minimalist fashion Jill Sander as a design consultant at Uniqlo - a coup considering the stature of the designer.

Landing the 'best designer in the world', as Mr Yanai refers to Ms Sander, underscores his determination to up the stakes in the business. Other brands like Sweden's H&M and the UK's Topshop have already earned huge cachet in recent years by tying up with the likes of Stella McCartney and Kate Moss.

Both H&M and Topshop, and to some extent Zara, The Gap and Uniqlo, dominate a relatively new segment of the market called 'fast fashion' - fashion that has been quickly adapted from high fashion brands for the mass market. And all are equally intent on becoming the world's number one.

Still, Ms Sander's role at Uniqlo is expected to be more holistic compared to the seasonal collaborations with McCartney and Moss, as she will oversee the design of all menswear and womenswear.

Of course, what will probably have people lining up for hours (as they did at H&M and Topshop) will be a line of clothes created by Ms Sander exclusively for Uniqlo. This is expected later this year.

Interestingly, while some questioned the wisdom of buying Barneys, the stock market rewarded Fast Retailing for signing on Ms Sander with its share price going up almost 9 per cent after the announcement was made in March.

Shares of the company have risen about 20 per cent in the past 12 months, outperforming a 33 per cent decline in the benchmark Nikkei average, reported Reuters. That Fast Retailing has announced aggressive expansion plans is not hurting its share price either.

There are a total of over 800 Uniqlo stores currently but Fast Retailing plans to open 100 stores in both China and South Korea and has recently announced that it is planning eight stores within three years in Singapore.

So far, the response from shoppers here has been encouraging. The first Uniqlo store in Singapore at Tampines 1 opened in April with more than 400 customers walking through its doors as soon as it opened. Ninety minutes after the store opened, crowd control measures had to be put in place.

It is true that Uniqlo's initial entry into the US and UK was not met with much enthusiasm. Uniqlo's first overseas venture was in the UK in 2001, where buyers apparently did not get the concept of 'quality basics'.

But this is changing. Uniqlo now has over 50 stores outside Japan. Last year, Fast Retailing reported that Uniqlo International reported its first profits. Overseas net sales increased by 33 per cent compared to the previous year.

World domination cannot be too far away now.

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