Fast Retailing Co Ltd in Apparel and Footwear (World)

FAST RETAILING CO LTD IN APPAREL AND FOOTWEAR (WORLD) April 2015

SCOPE OF THE REPORT

Scope  All values expressed in this report are in US dollar terms, using a fixed exchange rate (2014).

 All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data are expressed in current terms; inflationary effects are taken into account. Womenswear US$662.1 billion Menswear US$439.9 billion Footwear US$360.9 billion

Apparel and Footwear US$1,749.5 billion

Sportswear US$269.2 billion Childrenswear US$160.0 billion Apparel Accessories US$71.3 billion Hosiery US$55.3 billion

© Euromonitor International

APPAREL AND FOOTWEAR: FAST RETAILING RETAILING CO LTD

Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies’ opinions, reader

discretion is advised.

F a s t R e t ai ai l i n g C o L t d i s a m u l t i b r a n d o p e r a t o r b a s ed ed i n J a p a n . It It h a s a m b i t i o n s t o b e t h e l e a d i n g g l o b a l a p p a r e l r e t ai ai l e r b y 2 0 2 0, 0, an an d i s r o l l i n g o u t n e w stores at pace, both in Japan, where its affordability chimes with emerging trends fo r thrift, and internationally, where the high quality, low prices and comp aratively narrow offer are p r o v i n g p o p u l a r . F RC RC i s d o i n g especially well in China, however, it needs to pick up the pace of international expansion if it aims to catch Inditex and H&M.

PASSPORT 2

SCOPE OF THE REPORT

Scope  All values expressed in this report are in US dollar terms, using a fixed exchange rate (2014).

 All forecast data are expressed in constant terms; inflationary effects are discounted. Conversely, all historical data are expressed in current terms; inflationary effects are taken into account. Womenswear US$662.1 billion Menswear US$439.9 billion Footwear US$360.9 billion

Apparel and Footwear US$1,749.5 billion

Sportswear US$269.2 billion Childrenswear US$160.0 billion Apparel Accessories US$71.3 billion Hosiery US$55.3 billion



Disclaimer Much of the information in this briefing is of a statistical nature and, while every attempt has been made to ensure accuracy and reliability, Euromonitor International cannot be held responsible for omissions or errors. Figures in tables and analyses are calculated from unrounded data and may not sum. Analyses found in the briefings may not totally reflect the companies’ opinions, reader

discretion is advised.

F a s t R e t ai ai l i n g C o L t d i s a m u l t i b r a n d o p e r a t o r b a s ed ed i n J a p a n . It It h a s a m b i t i o n s t o b e t h e l e a d i n g g l o b a l a p p a r e l r e t ai ai l e r b y 2 0 2 0, 0, an an d i s r o l l i n g o u t n e w stores at pace, both in Japan, where its affordability chimes with emerging trends fo r thrift, and internationally, where the high quality, low prices and comp aratively narrow offer are p r o v i n g p o p u l a r . F RC RC i s d o i n g especially well in China, however, it needs to pick up the pace of international expansion if it aims to catch Inditex and H&M.

PASSPORT 2

STRATEGIC EVALUATION COMPETITIVE POSITIONING MARKET ASSESSMENT GEOGRAPHIC AND CATEGORY OPPORTUNITIES BRAND STRATEGY OPERATIONS RECOMMENDATIONS

STRATEGIC EVALUATION

Key company facts  Japan-based Fast Retailing ranked eighth in the global apparel and footwear market in 2014, with a share of 0.7%, up from 0.5% in 2009.  Although the company is expanding its global retail network at speed, its focus remains comparatively narrow - 92% of 2014 sales were generated in Asia Pacific, and 83% of total sales were generated by its flagship brand Uniqlo. It also operates Japanese brand GU and international brands Theory, Comptoir des Cotonniers, Princesse tam.tam and J Brand.  Japan remains central to its operations, despite market maturity. 66% of total 2014 sales were generated in its domestic market, where its strong value position has benefited from a growing trend for price consciousness.  The company saw value sales improve by a CAGR of 14% over 2009-2014. Growth was driven by its offer, which consists of relatively low-priced fast fashion using high-quality fabrics. The success of this has underpinned rapid store expansion and expansion into new markets. According to the company, its store count (including franchises) was 2,753 in FY 2014, compared to 2,449 in FY 2013, a 12% leap in numbers, and it aims to reach 3,015 by the end of FY 2015. In 2014, it opened new stores in Germany and Australia, will launch in Belgium in 2015 and Canada in 2016 and aims to become the world's leading apparel retailer by 2020, via its flagship brand Uniqlo, as well as select acquisitions. © Euromonitor International

Fast Retailing Co Ltd Headquarters: Yamaguchi, Japan Australasia, Asia Regional Pacific, Western involvement: Europe, North America Apparel accessories, childrenswear, Category involvement: menswear, womenswear, hosiery Global apparel and footwear value share 2014:

0.7%

Global apparel and footwear value growth:

18.4% (20132014) 13.8% CAGR (2009-2014)


PASSPORT 4


Financial analysis  Fast Retailing Co Ltd (FRC) reported exponential growth in net revenues of 21% for the fiscal year (FY) ending 31 August 2014, to ¥1,383 billion. Growth was driven by strong demand for the Uniqlo brand’s core items, including HEATTECH , Ultra Light Down, AIRism, sweatshirts and sweatpants and jeans, but the addition of 187 new stores also helped fuel growth.  FRC’s development in Greater China was particularly eye-catching. Uniqlo sales hit ¥208 billion, an increase of 67%. Unsurprisingly, the region is a key investment target, and FRC aims to open 100 stores a year until it reaches 1,000 stores, with 3,000 stores the medium-term target.  Other international markets also performed well for FRC, and it expects international sales to outgrow Japan by the end of 2016. The US and Western Europe, where affordable fast fashion thrives, are targets.  Other parts of the portfolio also did well, with sales at GU up by 29%, and Theory and Comptoir des Cotonniers also adding value. J Brand, however, continued to struggle. © Euromonitor International

Fast Retailing Co Ltd: Net Revenue vs Net Profit (¥ billion) 2009-2014 1,600

100 90

1,400

80 1,200 ) n o i l l i b ¥ ( e u n e v e r t e N

70

1,000

60

800

50 40

600

) n o i l l i b ¥ ( t i f o r p t e N

30 400 20 200

10

-

0 2009

2010

2011

2012

Net Revenue

2013

2014

Net Profit

Source Fast Retailing Co Ltd 2014 Annual Report

APPAREL AND FOOTWEAR: FAST RETAILING CO LTD

PASSPORT 5


Latest financial data  FRC continued to enjoy strong growth in the first

Q1 2015: Three Months to November 2015 Net sales (¥ billion):

480

% y-o-y growth:

23.3

Store numbers:

2,866

% y-o-y growth:

12.0

Fast Retailing Co Ltd: Net Sales & Net Profit Q1 2014/2015 600 ) n o i l l i b ¥ ( ( s e l a s t e N

 However, FRC’s international business was the key 80 70

500

60 400

50

300

40 30

200

20 100

10

0

Q1 2014 Net Revenues

Q1 2015 Net Profit

quarter of FY 2015, with sales growth of 23% to reach ¥480 billion. Investment in new stores as well as remodelling existing ones helped this. In Japan, for example, Uniqlo saw a 7.5% rise in same store sales, helped by a strategy of gradually increasing the size of sales floors, by replacing smaller, less efficient stores with large-scale outlets.

) n o i l l i b ¥ ( t i f o r p t e N

growth driver. Uniqlo International reported higher than forecast gains in sales and profit, with sales of ¥168 billion (up 47.3% year on year) and operating profit of ¥24.3 billion (up 57.2%). The division also outstripped targets in local currency terms, with Uniqlo Greater China and South Korea generating especially strong growth.

 Other brands performed more erratically. The lowprice GU label saw double-digit growth in sales and profit, and the company added net new 24 stores in the first quarter, boosting the total GU network to 300 stores. However, Theory, Comptoir des Cotonniers, Princesse tam.tam and J Brand were less dynamic.

Source: Fast Retailing Co Ltd



PASSPORT 6


Uniqlo picks up pace of openings

Fast Retailing Co Ltd: Market entry by year 2000-2001 2002-2005 2006-2010 2011-2014

Japan, highlighted in gold, saw the first Uniqlo store in 1984, although an earlier iteration was opened in 1949. Following the opening of its London store in 2001, FRC has accelerated its push into new markets, with Canada set for 2016. More large markets in Western Europe are also mooted for entry. © Euromonitor International


PASSPORT 7


SWOT: Fast Retailing Co Ltd STRENGTHS

WEAKNESSES

Uniqlo Asian roots  FRC’s core brand  The company is based Uniqlo brings affordable, in Asia Pacific, which is on-trend products to set to see some of the market using good most dynamic growth quality fabrics. The over the forecast period. success of the offer is It has a solid presence underpinning the in China, the most company’s expansion important of these programme. markets.

Japan  In 2014, 66% of FRC’s total sales were generated in Japan. Although the company is prospering here, and is also reducing its dependence, growth prospects are weak for the total market.

OPPORTUNITIES

THREATS

China and the US Sportswear advantage  FRC is looking at these  Uniqlo’s use of tech -led, two markets as their key innovative fabrics could priorities. The fast offer a competitive edge fashion model is in sportswear. Peers underdeveloped in both, such as H&M are and more retail upping their offer of expansion could deliver these products, which exponential sales are forecast strong growth. growth in the US in particular.

Fast fashion reputation Competitors in Asia Pacific  Fast fashion has  China is by a distance suffered from a number the most attractive of ethics issues - FRC market for international itself was compelled to brand operators, and cut worker hours at giants such as Inditex suppliers in China in are upping their 2015 after media investment to buy share. investigation. This could FRC’s strength there hurt the brands. may be threatened by this.



Smaller brands  Of the company’s five brands, only Uniqlo and GU can be described as flourishing. The inability of FRC to succeed with US denim label J Brand in particular may harm plans for expansion in that market.

PASSPORT 8


Strategic objectives and challenges More store expansion

The other brands

 FRC’s key strategic objective is to increase store

 Uniqlo is the backbone of FRC’s business, and the

numbers. It aims to add at least 200 Uniqlo stores by the end of FY 2015. Most of these openings will be in Greater China, although South Korea and the US will also see solid expansion. Part of this expansion will be the opening of flagship stores that will boost brand visibility. GU is also set to see expansion with 50 store openings planned for Japan annually.

low-price GU brand is set to see sustained investment in Japan and launch in Western Europe and the US. However, its other brands are struggling, and could benefit from greater attention. The company is aiming to increase label synergies, but maintaining the multibrand approach may be a challenge.

Improving online offer

New product categories

 New physical stores are a priority, but e-commerce

 In 2014, key competitor H&M launched its Sports

is growing in importance for the market, especially in China where FRC is investing heavily. The company’s digital business is limited, however, and it appears reluctant to commit to the channel. Physical stores offer heightened brand control and allow the company stronger marketing opportunities, but it may need to rethink this position to remain competitive.


range. This is a category that could do well for FRC and Uniqlo, as there is high demand for activewear (ie softer, less performance-aligned sportswear), especially in the US where FRC aims to grow share. Women’s sports brands such as Lululemon enjoyed exponential growth in the US through 2014, and Uniqlo’s use of top -end fabrics could give it a competitive edge in these products.


PASSPORT 9


COMPETITIVE POSITIONING

FRC positioned well ahead of global trends  FRC’s rapid international expansion and strong consumer demand for its offering helped it outperform the global market over the review period. The company has even achieved strong growth in Japan thanks to rising consumer price sensitivity. Fast Retailing Co Ltd: Competitive Performance by Value vs Global Apparel and Footwear Market 2009-2014 20% h t w o r g y n o Y

C

B

15%

A

10% 5% 0% 2009-2010

2010-2011

2011-2012

Fast Retailing Co Ltd

2012-2013

2013-2014

Global Average

A: Overexposure to Japan, where

B: Recovery in Japan,

C: The company adds 100 new

overall weak market performance is exacerbated by the March 2011 earthquake, sees FRC’s growth dip to match the global market. However, slowdown in its lead market is offset by ongoing retail expansion for Uniqlo in Asia Pacific.

market entry into Thailand and the Philippines, as well as the acquisition of J Brand help drive sales, but the key factor driving 2012 growth is the opening of an additional 70 outlets in China.

outlets in China, roughly a third of its total openings for the year. International sales are driving strong growth, although consumer demand for the company’s offer continues to underpin growth.



PASSPORT 11

COMPETITIVE POSITIONING

International expansion will drive share for FRC Apparel and Footwear: Top 10 Global Companies by Value Share and Ranking 2010-2014 5-year trend

0 1 0 2

1 1 0 2

2 1 0 2

3 1 0 2

4 2014 1 % 0 2

Nike Inc



1

1

1

1

1

2.5

adidas Group



2

2

2

2

2

1.7

Inditex, Industria de Diseño Textil SA



3

3

3

3

3

1.2

H&M Hennes & Mauritz AB



4

4

4

4

4

1.2

Gap Inc, The



5

5

5

5

5

0.9

VF Corp



7

6

6

6

6

0.9

PVH Corp



-

10 7

7

7

0.8

Fast Retailing Co Ltd



8

8

8

8

8

0.7

C&A Mode AG



6

7

9

9

9

0.6

Hanesbrands Inc



11 12 12 11 10

0.5

Company


share

 Ranking and share in the global apparel and footwear market were static in 2014, with sportswear giants Nike and adidas maintaining leadership with strong footwear sales, product development and very solid brand support.

 The scale of the market means that rapid share gain is typically driven by acquisition. In 2010, PVH Corp acquired Tommy Hilfiger, and saw rapid market gains, and again in 2012, after the acquisition of Warnaco.

 FRC maintained its eighth ranking across the period, although it actually grew share marginally. This underlines the growing concentration of the global market by high visibility brand operators.

 The company was able to do this, despite generating most of its sales in a single region, Asia Pacific. It therefore has significant room to grow internationally, and is pushing into North America and Western Europe. In the long term, it may be better positioned for growth than its peers. FRC aims to become the leading global apparel and footwear retailer by 2020.


PASSPORT 12


MARKET ASSESSMENT

Womenswear main growth engine for FRC going forward  55% of FRC’s 2014 sales were generated by womenswear, up from 50% in 2009. It is the largest part of the global market, and is therefore a key development target - it is set to generate 30% of total absolute value growth through 2019, and the scale alone offers opportunity. Growing levels of disposable income will support growth over the forecast period, especially in FRC’s key target market, China.

 Womenswear is led by fast fashion specialists Inditex and H&M, who track fashion trends more actively than FRC - Uniqlo's focus is on basics. However, it has been improving the fashion credibility of its womenswear offer, for example collaborating with fashion designer Ines de la Fressange in 2014, and introducing premium fabrics such as cashmere and silk into its mix.

 Other smaller categories also hold potential. Sportswear, in which it held a negligible share in 2014, is set to be a dynamic area of the market through 2019. Peers including H&M are pushing into sports-inspired apparel, and Fast Retailing’s advanced fabric innovation could give it a strong competitive advantage here. Fast Retailing Co Ltd: Apparel and Footwear Presence 2014 and Growth Prospects 2014-2019 by Category 4% 9 1 3% 0 2 4 1 0 2% 2 R G 1% A C

Childrenswear

Apparel accessories

Menswear

Womenswear

Hosiery

0% -

100

200

300 400 Market size 2014 (US$ billion)

500

600

700

Note: Bubble size shows company share of category in 2014, range displayed: 0.2-1.1%



PASSPORT 14

MARKET ASSESSMENT

FRC should look at new markets if serious about ambition  FRC holds visible share in just one of the 10 apparel and footwear markets forecast to see strongest growth in absolute terms through 2019, although it is investing heavily in the US, will enter Canada in 2016 and is “looking at” India. However, it holds greater market share than either H&M or Inditex in China, the market that matters most. China is forecast a CAGR of 7% through 2019 compared to 1% for the US; nonetheless, both are primary development targets for the company.  This is a very solid position to be in; however, if FRC is serious about its plan to be the leading apparel and footwear retailer by 2020, it needs to broaden its global footprint. H&M and Inditex, with whom FRC is in direct competition, have wider global footprints and are meeting demand for fast fashion while it lasts.  The company has already indicated that it is looking at key markets in Western Europe, where consumption levels are high, the economy is showing good signs of recovery and the retail/regulatory environment is straightforward. Saudi Arabia and the United Arab Emirates are becoming retail hubs for many travellers, and would be obvious and easy targets for FRC. Fast Retailing Co Ltd in Global Apparel and Footwear: Share in 10 Largest Forecast Absolute Value Growth Markets and Forecast CAGR 2014-2019 100 n o i l l i b $ S U

7% 6% 5% 4% 3% 2% 1% 0%

80 60 40 20 0 China

India

US

Mexico

Absolute Value Growth (US$ billion) 2014/2019


UAE

Saudi Arabia Argentina

% CAGR 2014-2019

Spain

Canada

4 & 1 9 0 1 2 0 e r 2 - a 4 h 1 s 0 y 2 n R a p G m A o C c

Turkey

Fast Retailing Co Ltd % Company Share 2014


PASSPORT 15

MARKET ASSESSMENT

FRC has solid base to push into new regions  Despite FRC’s aggressive store expansion strategy, its visible global presence in 2014 was limited to Asia Pacific and Western Europe. The latter is forecast zero growth through 2019, although FRC perceives solid opportunity within the region, opening in Germany in 2014, and planning for Belgium in 2015.

 The company also opened in Australia in 2014, and with the rate of store expansion planned for North America (including Canadian market entry in 2016), it should begin to see wider share visibility. However, this is still a narrow footprint for an ambitious company. Fortunately, it is secure in Asia Pacific.

 This region offers most opportunity, and FRC is set to open more stores in established markets in FY 2015, including 100 in Greater China, 30 in South Korea and 45 in Southeast Asia and Oceania. China alone is set to generate 48% of absolute value growth in apparel and footwear through 2019. Although the market is becoming more crowded, it is evolving rapidly and still offers massive opportunity. Fast Retailing Co Ltd: Apparel and Footwear Presence 2014 and Growth Prospects 2014-2019 by Region 6% 9 1 0 2 4 1 0 2 R G A C

5%

Asia Pacific

4% 3% 2% 1%

Western Europe

0% -1% 0

100

200

300

400

500

600

700

Market size 2014 (US$ billion) Note: Bubble size shows company share of region of 2014, range displayed: 0.1-2.0%



PASSPORT 16

MARKET ASSESSMENT

Weak global presence needs addressing



PASSPORT 17


GEOGRAPHIC AND CATEGORY OPPORTUNITIES

Japan not so weak, but international development still key  Japan remains FRC’s principal market, generating 66% of 2014 values. In theory, this is a problem the Japanese apparel and footwear market is forecast zero growth through 2019. However, FRC’s value offer, strengthened by its commitment to the low-price GU label, is proving resilient with same-store sales growth at Uniqlo Japan of 2% in FY 2014, and the company continues to open new stores. Per capita spend on apparel and footwear in 2014 was US$651, compared to US$239 in China, its main development market.  Despite this solid domestic performance, there are far more dynamic markets elsewhere. International expansion is logical, and is a plank of geographic strategy. Between 2009 and 2014, FRC added 568 international stores to its network compared to 223 in Japan.  Asia Pacific is the primary goal, but other international markets are also targets. The company is looking to expand its lower-priced fashion brand GU to Europe and the US, where it already has Uniqlo stores, following openings in Hong Kong and South Korea in 2014, and opened Uniqlo in Australia and Germany in 2014.


Fast Retailing Co Limited: New Store Openings, Japan vs Rest of World 2009-2014 300 250

s r e b m u n e r o t s w e n t e N

200

150 100 50 0 -50 -100 -150

2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 Japan


Rest of World

PASSPORT 19


Asia Pacific dynamism key opportunity  Asia Pacific generated 90% of FRC’s total absolute value growth between 2009 and 2014, and remains it primary development focus. This is because of the scale and dynamism of the region - it is the world’s largest regional market and is set to generate 69% of total global value sales through 2019.

 Per capita disposable incomes are set to see a CAGR of 7% in Asia Pacific, compared to less than 1% in Western Europe. This will help drive growth for FRC in the region. At the same time, regional markets remain price sensitive, and Uniqlo’s comparative value for money will also help - in Japan, for example, where market development over the review period was almost flat, the company achieved a CAGR of 8% between 2009 and 2014 thanks to growing value demand from consumers.

 China, however, holds the greatest opportunity, thanks to its scale and forecast absolute value growth, which dwarf the rest of the region. It was FRC’s second largest market in terms of outlet numbers in 2014,

and will see ongoing investment over the forecast period. Asia Pacific: Forecast 10 Strongest Absolute Value Growth Markets 2014/2019, % CAGR 2014-2018 and Fast Retailing Co Ltd Company Share 2014 ( 9 100,000 h t 1 0 w / 2 o 4 80,000 r g 1 e 0 60,000 u 2 l ) a n v o l 40,000 e i l t i u m l o $ s 20,000 b S A U

8% 7% 6% 5% 4% 3% 2% 1% 0%

0 China

India

Hong Kong, Indonesia China

Absolute Value Growth (US$ million) 2014/2019


Thailand

Malaysia

% CAGR 2014-2019

Philippines South K orea Vietnam

& 4 1 9 0 1 2 0 e 2 - r a 4 h 1 s 0 y 2 n R a G p A m C o c

Taiwan

Fast Retailing Co Ltd % Company Share 2014


PASSPORT 20


Japan sales model change to drive growth  FRC led the Japanese apparel and footwear market in 2014 with a 10% share, up from 7% in 2009. Longterm economic stagnation in Japan and lower disposable incomes among the young have led to structural (as opposed to cyclical) demand for thrift among consumers. Uniqlo, and its lower-priced sister brand GU, have profited from this.  Despite this apparent obstacle to value development, the market retains potential, with a sophisticated consumer base that responds well to retail innovation. A major part of its strategy has been to revamp its distribution and launch innovative retail formats.  Uniqlo still remains relatively underpenetrated in major cities, as its roots are in smaller suburban stores. This is in contrast to its large international stores, which are in prime locations, and it is now emulating this strategy in Japan. In 2014, it opened “global hotspot” stores in Ikebukuro and Okachimachi, two thriving Tokyo commercial districts on a par with Shinjuku. Fast Retailing Co Ltd: Average Store Size  These very large stores are on a par with the and Outlet Numbers in Japan 2009-2014 company’s “scrap and build” strategy for Japan 750 1,800 ) of replacing standard 800 sq m stores with 1,600 m 700 q s large-scale stores of 1,600 sq m or more. In 1,400 s r ( e 650 e b 1,200 m z part, this allows a fuller range of product, i s u 600 e 1,000 n r although Uniqlo stores typically offer a limited t o e t l 800 t s 550 range of products in a massive selection of u e O g 600 a 500 colours. More important is the heightened r e 400 v A visibility of the brand via these urban flagship 450 200 stores and the enhanced consumer experience. 400 0 2009 2010 2011 2012 2013 2014 FRC believes this has driven growth, and will Average Store Selling Space (sq m) Outlets seek opportunities to develop more sites. © Euromonitor International


PASSPORT 21


Identifying opportunity difficult in slow Japanese market  FRC has very strong positions in Japan, leading the key menswear and womenswear markets with 15% shares in 2014. These categories, however, are forecast zero growth through 2019, as consumer confidence remains weak.  This has driven the company’s focus on shaking up its retail offer with store enlargement, as well as finding ways to improve its value proposition. The latter is underpinning its proposed expansion of the low-price GU label by 50 stores a year in Japan.  The company also has a surprisingly narrow range of product on offer. In 2014, 56% of values were generated by womenswear and 38% by menswear, with childrenswear, accessories and hosiery making up the rest of the offer. It exited footwear in 2011, and has no sportswear offer.  Both of these categories use comparatively high levels of technological innovation, and would appear to be a solid fit for FRC, with its reputation for tech-led fabric use. In the global market they are set to see strong growth, especially in FRC’s target US market. Widening its range could help with market-specific strategies as it grows. © Euromonitor International

Fast Retailing Co Ltd: Japan, Apparel and Footwear Presence 2014 and Growth Prospects 2014-2019 by Category 2%

9 1 0 2 4 1 0 2 R G A C

Hosiery

1%

Menswear Womenswear 0%

Childrenswear

-1%

Apparel accessories -2% -

10,000 20,000 30,000 Market size 2014 (US$ million)

40,000

Note: Bubble size shows company share of category in 2014, range displayed: 1.4-15.2%

 However, the company remains focused on what it does best. It aims to build sales in Japan in 2015 with the development of more women’s, children’s and baby wear.


PASSPORT 22


Two-pronged defence of womenswear hegemony in Japan  FRC increased its share of the Japanese

Japan: Uniqlo, GU, Zara, Gap and H&M Brand Value Shares in Women’s Clothing 2009-2014

womenswear market from 8% to 15% between 2009 and 2014. However, international fast fashion brands including H&M and Zara are beginning to make inroads into the market, and their affordable, on-trend fashion, which is regularly updated and typically offers a far broader product choice, is emerging as a threat.

12% 11% 10% 9%

 FRC is investing in improving its range of womenswear for both Uniqlo and GU, focusing on high-quality, affordable basics as opposed to pursuing short-lived runway trends.

 However, it may need to take these competitors on more directly. Its GU label is already more trendorientated, with a kawaii (cute) Japanese style that sets it apart from its competitors. Its low prices also give a competitive edge. There were 277 GU outlets in Japan by the end of 2014, and the company wants to take this to 500. This twin-brand strategy allows the company to compete at both ends of the market, and react effectively to the encroachment of international competitors. In the long term, this model could suit its global markets. © Euromonitor International

8% e r a h s e u l a V

7% 6%

5% 4% 3% 2% 1% 0%

2009

2010

Uniqlo


GU

2011

Zara

2012

Gap

2013

2014

H&M

PASSPORT 23


China development target, but offer may need shake up  China is FRC’s second largest market after Japan, generating 15% of 2014 values, up from 5% in 2009. China, which is set to generate 48% of absolute value growth in apparel and footwear through 2018, is its main development target and it will open more stores there in 2015 than in any other global market. It also launched the GU label there in 2013 (and in Taiwan in 2014).

 The Uniqlo brand ranked fifth in apparel and footwear in China in 2014, higher than Zara and H&M. Of the international brands in the market, only sportswear giants Nike and adidas were higher. Seven of the top 10 brands in China in 2014 were local, but there is growing demand for international brands, driven by consumer aspiration.

 This trend is an opportunity for international brands such as Uniqlo. FRC also enjoys significant geographical advantages in logistical terms; much of Zara’s offer, for example, has to be shipped from Spain. The competitive environment is intensifying - Gap added 30 new stores to its Chinese network in 2014, and H&M added 76 in FY 2014 - but FRC is committed to accelerated store openings to respond to this. © Euromonitor International

) n o i l 7 l i m 6 $ S 5 U ( 4 t e l t 3 u o r 2 e p s 1 e l a 0 S

Uniqlo vs Selected International Brands: Sales per Outlet in China 2014 400 350 300 250 200 150 100 50 0 Zara

Gap

H&M

Sales per Outlet 2014 (US$ million)

s t e l t u o f o r e b m u N

Uniqlo Number of Outlets 2014

 However, in terms of sales per outlet, Uniqlo is the weakest of the four key fast fashion brands. This is partly because of its outlets - unlike Japan, there has been little emphasis on large outlets - buy may also be connected to its offer. Uniqlo’s more functional alignment is less attractive to Chinese female consumers, who prefer more traditionally feminine design. Inditex and H&M's catwalk tracking expertise is likely to gain more traction in womenswear, and FRC needs to develop alternative positions to keep up.


PASSPORT 24


China online a quandary for FRC  China offers potentially explosive online apparel and

China: Apparel and Footwear Sales Store-Based vs Online 2014-2019

footwear sales. Apparel and footwear internet retailing sales are set to outperform store-based specialists through 2019, driven by booming digital access, and the many consumers unable to reach physical stores.

90 80

25%

 FRC has always been cautious about online sales, however, with its CEO stating that “ Many people expect…online retailing to expand, and physical store networks to shrink, but I don’t agree.” In Japan, less than 4% of Uniqlo’s 2014 sales were generated

online, compared to an average 11% for the total apparel and footwear market.

 Fast Retailing sells via Tmall, the Chinese B2C market site. This is not necessarily unambitious, as Tmall is the go-to site for most Chinese online consumers. Most brand operators have found online development costs in China are far higher than expected, and FRC’s caution may be justified. Nonetheless, it is imperative that the company does not lose the initiative in this market, given that competitors such as Inditex are investing heavily in the channel. Development will be a challenge, but perhaps better sooner rather than later. © Euromonitor International

30%

70 60 n o i l l i b $ S U

20%

50 15% 40 30

9 1 0 2 4 1 0 2 R G A C

10%

20 5% 10 0

0% Apparel and Footwear Apparel and Footwear Specialist Retailers Internet Retailing Absolute Value Growth (US$ billion) 2014/2019 % CAGR 2014-2019


PASSPORT 25


Rumours of massive Indian investment  India’s booming middle class, rapid urbanisation and appetite for Western brands offer solid opportunity to Fast Retailing. The Indian retail market is liberalising, following the relaxation of Indian foreign direct investment (FDI) regulations. Significantly, the company operates nine Uniqlo outlets in Bangladesh via franchise, a similar market to India.  The company has indicated plans to open up to 1,000 stores in India in the long term, with the largest-single measure of FDI in the retail sector into the country’s history. FRC’s biggest challenge will be making the brand chime with local consumer preferences. Although international brands are valued in India, Japanese design is not as popular as American or European styles, and Uniqlo’s emphasis on function may be less attractive. Nonetheless, FRC appears committed, and is likely to follow its international development strategy of larger stores in key Indian cities with higher levels of disposable income.  This, incidentally, may lead to a hiccup for the company. Largeformat stores are not only relatively uncommon in India, but also in strong demand from competitors including Zara and H&M.  The potential of the market can be seen by Inditex’s success with Zara in India. Average store sales in 2014 were US$3.7 million, the second highest in the total apparel and footwear market after super premium label Burberry. This underlines demand for stylish, new international brands from urban Indian consumers. © Euromonitor International

Forecast per Capita Disposable Income (US$) 2014-19, China, India, Delhi and Mumbai 7,000 ) $ S 6,000 U ( e m 5,000 o c n i e l b 4,000 a s o p s i d 3,000 a t i p a c 2,000 r e P

1,000 0 2014

2015

China Delhi

2016

2017

2018

2019

India Mumbai

Above - although forecast growth in disposable income in India overall lags behind China, in the large cities that Uniqlo will initially be looking at, income size and forecast growth are comparable.


PASSPORT 26


Uniqlo ramps up US activity  FRC aims to grow meaningful share in the US, a market set to generate 8% of total absolute value growth through 2019. Although the company has yet to establish a visible market share, it had 39 Uniqlo stores there at the end of FY 2014, and aims to add 20 to 30 new stores annually over the short term, eventually accelerating to 100 stores per year. FRC has installed a predominantly American management team with extensive market knowledge to establish the Uniqlo brand. It aims to become the leading apparel brand in the US and to generate US$10 billion annual sales in this market within 20 years.  This seems wildly ambitious, but of all the international markets the company is looking at, the US may be the best fit. Fast fashion is underdeveloped, and peers such as Inditex and H&M are making significant gains. Uniqlo’s simplicity, emphasis on functionality as well as femininity and use of cutting -edge, goodquality fabrics make it a good fit with young US consumers, and its affordability is important in a market where price consciousness lingers.  Success in the US is important to FRC’s plans to become the world's top apparel and footwear retailer, not only because of its size and wealth, but also because of the market’s status as a global trendsetter. High brand visibility in the US will translate into high global brand visibility among aspirational young consumers.  Uniqlo will appeal to teenagers and young adults, although there is no shortage of domestic competitors including Gap, Abercrombie & Fitch and Forever 21 as well as H&M and Inditex. However, FRC is looking at a multibrand strategy to address a wider section of the consumer base where possible. It acquired New York-based Theory in 2010 and a majority stake in super premium denim label J Brand in November 2012. In March 2014, it pulled out of an attempt to buy the “preppy” J.Crew brand. J Brand has yet to perform, and the company is struggling to gain momentum with a multibrand strategy. However, in summer 2014, it indicated that it aims to bring GU to the US. This is potentially a far better fit for the US, as the low price and “kawaii ” (cute) position of the brand should play very well with young American consumers. Rather than buying share, the company may do better to use what it has already. © Euromonitor International


PASSPORT 27


Fast fashion gap opens opportunity for FRC in the US  For a trend-defining market, the US has been relatively slow on the uptake of fast fashion. Fast fashion brands H&M and Zara are doing exceptionally well as a result, and have shaken up the teen/young adult apparel segment, with established players such as Aéropostale and Abercrombie & Fitch feeling the pressure. The Gap Inc, with its Old Navy and Gap brands, has responded to this by announcing a 5-year plan to build a more responsive supply chain, but still lags behind these new players.

 Fast fashion could have been designed for the US, where consumer expectations are often far higher in terms of product availability, consumer gratification and pricing. FRC’s core Uniqlo brand (and GU, if/when

the company decides to bring it to market) should do well, although the competitive environment is intensifying. The presence of more premium brands such as Marc Jacobs in the top 10 also suggests recovery in consumer confidence, which could help FRC turn around the fortunes of the J Brand label. US: 10 Most Dynamic Apparel Brands in % CAGR and Absolute Value Growth Terms 2009-2014 2,500

50%

4 h 1 t 2,000 w 0 2 o r / g 9 0 e 0 1,500 u 2 l a ) v n o 1,000 l e i l t i u m l 500 o s $ b S A U ( 0

4

40% 1 0 30% 20% 10%

2 9 0 0 2 R G A C

0% Lululemon AG Adriano Athletica Goldschmied

Michael Kors

Under Armour

Soma Intimates

H&M

Absolute Value Growth (US$ million) 2009/2014


The North Face

White House/ Black Market

Forever 21

Marc Jacobs

% CAGR 2009-2014


PASSPORT 28


FRC sees hope in Western Europe  Western Europe, where the company generated 5% of 2014 apparel and footwear revenues, is set to shrink through 2019, with total absolute value decline of US$7 billion. Clearly, market conditions are not ideal, but the company believes its affordable fast fashion model holds potential. FRC, which is present in the region with Uniqlo and Comptoir des Cotonniers, achieved a CAGR of 13% over 2009-2014 (albeit from a low base), when the total market saw zero growth. The forecast decline in market value suggests ongoing consumer price sensitivity, and Uniqlo’s value offer means it is well positioned to enjoy sustained sales in what remains a wealthy and acquisitive consumer base, despite the effects of the sovereign debt crisis.

 The company still has a relatively narrow regional footprint, fully present in only the UK and France in 2014, although it launched in Germany in 2014 and is set to enter Belgium in 2015. It is focusing on large stores in key cities, and targeting what it calls “major” markets. Spain, set to be the best -performing market in absolute value terms, and Turkey, with its large, young population, are the obvious development targets. Key Western Europe Apparel and Footwear Markets, Forecast Growth 2014-2019 and % Company Share 2014 h 9 1 t w 0 2 o r / g 4 1 e 0 u 2 l a ) v n o e i l t l u i l b o $ s b S A U (

4

3%

2

2%

0

1%

-2

0%

-4

-1%

-6

-2%

-8

-3%

-10

-4%

Absolute Value Growth (US$ billion) 2014/2019


R G A C %

% CAGR 2014-2019


PASSPORT 29


J Brand acquisition adds dimension to FRC’s denim portfolio  Fast Retailing’s acquisition of an 80% stake in US super premium denim brand J Brand in December 2012 has been problematic. The brand, sold via more than 2,000 outlets in the US, combines a fashion-forward approach with a tailored line.  The deal strengthened FRC’s position in the US where Uniqlo is still weak, but the super premium brand has proved problematic and made losses in 2014. In the US, where 69% of J Brand sales were generated, these products are forecast a CAGR of less than 2%, and the market is crowded.  However, the acquisition should generate crossbrand synergies. While Uniqlo will use J Brand’s denim expertise to enhance its position in the economy and standard jeans segments, J Brand will be able to capitalise on FRC’s retail know-how.  More importantly, FRC is looking to push the brand globally. Other regions hold much stronger prospects for super premium, notably Africa and the Middle East, where Gulf State consumers will drive a CAGR of 6% through 2019. Carefully selecting markets should turn the acquisition into a valuable asset in the long term. © Euromonitor International

) n o i l l i b $ S U ( s e l a s e u l a V

Global Jeans Market by Price Platform 2014-2019 40

3%

30

2%

20 1%

10 0

0% Economy Jeans

Standard Jeans

Premium Jeans

Market Size 2014 (US$ billion)

) n o i l l i m $ S U ( s e l a s e u l a V

9 1 0 2 4 1 0 2 R G A C

Super Premium Jeans

% CAGR 2014-2019

Fast Retailing Co Ltd: Jeans Presence by Brand 2014 600 500 400 300 200 100 0 Economy Jeans


Standard Jeans Uniqlo

GU

Premium Jeans

Super Premium Jeans

J Brand

PASSPORT 30


Sportswear trend could help FRC grow US share  Sportswear trends in developed markets, notably the company’s target US, offer FRC promise. Globally, sportswear is set to generate a CAGR of 3% through 2019 compared to less than 2% for the total apparel and footwear market, with 26% of total absolute value growth to come from the US.

 Part of this growth will be from high-ticket performance products, notably footwear, produced by traditional sportswear players such as Nike. However, there has been a spike in women’s activewear over the review

period, and Lululemon Athletica Inc, a yoga-inspired sportswear company aimed mainly at women, was the best-performing US apparel and footwear brand between 2009 and 2014.  Uniqlo is well positioned to develop sportswear US Sports Apparel by Type: Absolute with a combination of functionality and design. It Value Growth and % CAGR 2014-2019 has a long history of advanced fabric development, 12,000 5% notably its sweat-absorbent and quick-drying DRY10,000 EX material. Its brand ambassador Novak Djokovic 4% offers further strengthening of this trend. Uniqlo’s 9 8,000 1 n 0 main product development strategy aims to sell o 3% 2 i l l i 4 into the growing convergence between sportswear 1 m 6,000 0 $ 2 S and casualwear and is called LifeWear. These 2% R U G 4,000 products cannot really be defined as sportswear, A C 1% and are used more for everyday wear. However, 2,000 the high level of function that FRC uses in its fabric 0 0% choices and design expertise could give it a solid Performance Outdoor Sports-Inspired base from which to roll out an explicitly sportaligned range, separate from LifeWear. There is Absolute Value Growth (US$ million) 2014/2019 % CAGR 2014-2019 massive potential in this area. © Euromonitor International


PASSPORT 31


BRAND STRATEGY

Multibrand strategy led by Uniqlo  FRC’s brand portfolio is dominated by Uniqlo, which generated 83% of its total apparel and footwear sales in 2014, and is its best known brand globally. In addition, it operates five other brands. GU, its second brand, worth 12% of 2014 values, is a low-priced label focused on Japan, but one that the company is setting up for international expansion.  J Brand, acquired by the company in 2012, is a US-based super premium denim label. FRC opened its first directly-run J Brand store in Japan, in Osaka’s prominent Hankyu Umeda department store, in October 2013. The brand has a cult following (as well as a limited retail presence) in Western Europe, and is also set for a stronger international presence.  Comptoir des Cotonniers, acquired in 2005, is a France-based women's fashion brand known for its quality fabrics and sharp silhouettes. It offers French-style and high-quality fashion at affordable prices. The company has expanded across France, other European markets, Japan and other Asian markets and the US. Princesse tam.tam, acquired in 2006, is another French brand and offers corsetry, homewear, swimwear and sportswear. It is also mainly based in France via a mix of directly-operated and franchise stores, although products are also offered in over 1,000 other stores in 48 countries. Finally, Link Theory Japan, which owns luxury labels Theory, Helmut Lang and PLST, was acquired in 2009.  This multi-branding allows FRC to enter new markets with a specific tailored approach, reflecting demographics and incomes and lets it reach a much wider consumer base. © Euromonitor International


PASSPORT 33

BRAND STRATEGY

Uniqlo success dwarfs other brands  FRC reports its business in three divisions:

Share of Fast Retailing Co Ltd’s Sales

Uniqlo Japan; Uniqlo International; and Global Brands, which consists of the rest of the portfolio, even those parts that trade in Japan.

from Uniqlo vs Other Brands 2009-2014 100% 90%

 The surge in store numbers for Uniqlo, especially the drive into China, has meant that the company has generated even more of its sales from this brand over the review period; however, this is not an indication of weakness, as sales from its combined other brands grew by a total absolute value of US$466 million between 2009 and 2014.

 In its bid to become a dominant force in the global apparel market, Fast Retailing has opted for an acquisition-led strategy to increase market share. It made Link Theory Japan, which owns luxury labels Theory, Helmut Lang and PLST, a fully-owned subsidiary in March 2009. CDC was bought in 2005 and PTT was acquired in 2006. Most recently, the company acquired an 80% stake in J Brand in November 2012 and it is still looking to add to the portfolio.

80% 70% e r a h s e u l a V

60% 50% 40% 30% 20%

10% 0% 2009 Uniqlo



2010

2011

2012

2013

2014

Other Brands

PASSPORT 34

BRAND STRATEGY

Other brands offer opportunity, but Uniqlo is king  Fast Retailing's presence is entirely focused on Asia Pacific, North America and Western Europe. Uniqlo is its only brand that has significant global presence and brand recognition, with most of the other chains operating predominantly in their country of origin. Fast Retailing has a long way to go to catch up with Inditex, whose other fasciae such as Pull&Bear and Bershka have hundreds of stores worldwide.

Fast Retailing Co Ltd: Net Sales by Division (¥ billion) FY 2013/FY 2014

2014

 The company’s past acquisitions have been focused 2013

on niche, premium brands. In terms of increasing penetration in mass segments, the company has expressed its intent to grow GU. In 2013, it opened its first GU store outside Japan, in Shanghai, and has indicated that it aims to push the brand into Europe and possibly North America. GU would pose a credible threat to fast fashion brands such as H&M and Forever 21, especially at the younger end of the consumer base.

 Fast Retailing could also consider a European or American mass-market brand as its next acquisition target, following its decision to step away from the J.Crew purchase in 2014.


Uniqlo Japan

Uniqlo International

Global Brands

Source: Fast Retailing Co Ltd


PASSPORT 35

BRAND STRATEGY

Uniqlo’s narrow focus benefits consumer  Despite the growing scale of Uniqlo’s stores, a figure that will rise as it carries on with its “scrap and build” store development strategy and rolls out

more flagships, the actual offer in-store is typically fairly limited and reflects the brand’s higher quality position.

 Uniqlo has 16 takumi , or textile masters, on its staff who specialise in areas such as dyeing or sewing. A typical order will be around a million units of denim, fleece or cashmere, and FRC strengthens its buying power for the brand by offering a smaller selection of fabrics across a limited selection of styles than other retailers.

 However, it offers them in a massive range of colours; for example, there are up to 80 colours of its signature polo shirt available. Not all of these sell, but the wide spectrum fills the space in-store.

 Uniqlo has markedly fewer styles than brands such as Topshop or Zara. This underpins the better quality of the fabrics, as it can consolidate the fabric buys as much as possible.


Above - t-shirt display in Uniqlo store.

 This narrow focus not only improves buying power and allow the company to pass on savings to consumers, but also means that product development benefits from a heightened focus that few other brands enjoy. The brand risks monotony, but the quality and value of the offer means that consumers are happy to return again and again.


PASSPORT 36

BRAND STRATEGY

Uniqlo LifeWear looks to straddle two horses  FRC’s Uniqlo brand has a strong technical position. This, rather than focusing purely on shortlived fashion trends, gives it a strong point of differentiation in a very competitive market, which has allowed it to expand international sales rapidly.

 Uniqlo aims to bring high-quality, functional products to the mass market and in 2013 remodelled its Made For All Line into LifeWear. This is a group of products that the company describes as high-quality, fashionable basic wear, including the Uniqlo fleece, functional HEATTECH and AIRism innerwear, Ultra Light Down, and cashmere sweaters.

 LifeWear is positioned in the emerging convergence between casualwear and sportswear, although inclining much more to the former. Nonetheless, this is why FRC has signed tennis and golf champions Novak Djokovic and Adam Scott as global brand ambassadors for the Uniqlo brand. This creates a certain amount of development pressure, but places the brand ahead of peers who are all developing softer, less performance-aligned sportswear lines. © Euromonitor International

Above - Novak Djokovic for Uniqlo

 The company offers a limited amount of performance wear - notably Djokovic’s own line of tennis gear - but the style and development position of LifeWear is far more fluid.

 This fluidity will be used by the company to tailor its offer to individual markets; for example, it is arranging its LifeWear range in Western Europe to suit local customer needs, and the company claims this has helped to boost the brand’s popularity.


PASSPORT 37

BRAND STRATEGY

GU set for expansion  GU generated sales of ¥108 billion in FY2014, a y-o-y increase of 28%. FRC is positioning the brand for international expansion, and as a more direct competitor to fast fashion brands such as H&M.  The brand's low-priced positioning (typically, items sell for around half the cost of Uniqlo) helped it generate a CAGR of 33% through 2014. Even so, the company claims that an over-emphasis on fashion for younger customers dampened sales in FY 2014.  As with Uniqlo, new outlets and a flagship strategy have helped drive growth - sales leapt following the opening of two flagship stores in 2011, and a third in 2012 in the upmarket Ginza shopping district. It aims to roll out 50 stores in Japan a year until it hits 500; in 2014, the total stood at 277.  Its core demographic is younger consumers with lower levels of disposable income. Although pricing is significantly different from Uniqlo's, there is still room for further differentiation by focusing on low- priced, trend-led clothing, making it a credible contender in the fast fashion segment. © Euromonitor International

 This makes it a strong contender for international development. It opened stores in Shanghai and Taiwan in 2014, aims to open more stores in Hong Kong, South Korea and other Southeast Asian markets in 2015, and ultimately expand into Europe and the US. FRC believes that its Japanese design aesthetic gives it strong competitive differentiation in the global market, and its low prices will also sharpen its competitive edge.


PASSPORT 38

BRAND STRATEGY

Online strategy still lacks drive  Fast Retailing began selling its products online in 2000 in Japan. The online store started out with significantly fewer products than its physical outlets, and its online business struggled to attract consumers. It has improved its offer, but according to company data, only 3.6% of Uniqlo’s sales in Japan (its principal online market) came from the online channel in FY 2013.

 This is well below the market pattern - 11% of apparel and footwear sales were sold online in 2014 in Japan, and this market is FRC’s best. The company is reluctant to expand online as it believes its physical stores cement consumer relationships, but improving online sales may be key to growing share in international markets, especially the US.

 Online sales of apparel and footwear generated 10% of total global retail in 2014, and this share will accelerate. Absolute value sales growth was led by China and the US, and Uniqlo is present online in both (as well as Taiwan and South Korea), but its online offer in both markets is under-resourced, and really requires more investment. © Euromonitor International

 With Uniqlo’s launch in Germany, and growing presence in the UK and France, FRC should consider launching e-commerce platforms in these markets as well.

4 1 0 2 / 9 0 0 2 ) n o i l l i m $ S U ( h t w o r g e u l a v e t u l o s b A

Most Dynamic Apparel and Footwear Markets 2014/2019 and % Sales via Internet 2014 90,000

25%

80,000 20%

70,000 60,000

15%

50,000 40,000

10%

30,000 20,000

5%

10,000 0

0%

4 1 0 2 g n i l i a t e r t e n r e t n i h g u o r h t s e l a s e u l a v l e r a p p A

Absolute Value Growth (US$ million) 2014/2019 % Total Market Generated by Internet Retailing 2014 Note: Columns highlighted yellow show markets where Fast


PASSPORT 39


OPERATIONS

China still key, but FRC looks to shift production SPA business model keeps costs low

Fast Retailing seeks cheaper manufacturing base in Asia Pacific

 FRC manages the entire supply chain process

 Fast Retailing has 70 partner factories globally,

from design through to sale through the SPA (Specialty store retailer of Private label Apparel) business model. This enables the company to react swiftly to changes in product demand, minimising inventory costs and maintaining strong margins despite low retail prices.

 Products are conceived a year prior to launch in R&D centres in Tokyo and New York. As Uniqlo is not reliant on prevailing fashion trends, the company is able to strike low-cost, high-volume deals with material manufacturers.

 In 2010, FRC extended its strategic partnership with Toray Industries through to 2015. Toray is Japan's biggest fibre producer and has developed Uniqlo's innovative fabrics such as HEATTECH and Silky Dry.


although most products are manufactured in China. The company aims to reduce its reliance on China as manufacturing costs rise there, and in 2014 indicated that it was looking to scale up its sourcing from India.

 In 2008, FRC created a joint venture company, CPAT Private, in Bangladesh, to manufacture clothing for Uniqlo. The company aims to source one third of its products from outside China and has outlined plans to increase its manufacturing base in Thailand, Vietnam and Bangladesh in particular.

 However, Fast Retailing may struggle to make the cost savings that it expects from cheaper Asian manufacturing countries as several countries in the region such as Bangladesh and Vietnam have experienced recent increases in garment worker wages in response to strikes that have caused severe supply chain disruptions.


PASSPORT 41


RECOMMENDATIONS

Rapid international growth, supported by functionality and price (1) Looking to new international markets  Although the North American apparel and footwear market is not especially dynamic, the scale and influence of the market still hold considerable opportunity. FRC’s launch of online sales should be backed by faster retail expansion to consolidate brand awareness. At the same time, the company needs to push into dynamic growth markets in Eastern Europe and Latin America, where its international rivals already have a healthy lead.

Enlarging GU  Despite owning a multibrand portfolio, Fast Retailing’s other brands remain niche. The company must actively pursue retail expansion of these brands, through the launch of stand-alone stores, for them to become stronger sales generators. GU in particular offers significant potential to be grown in Asian markets, as well as Western Europe and the US where price sensitivity, especially among younger consumers, remains acute.

Sportswear offers window  While Uniqlo's technologically-advanced fabrics already give the brand a competitive edge, it should seek to further this by strengthening its position in categories where such functional innovation is particularly valued. There is a strong opportunity for Uniqlo to produce high-quality functional sportswear at affordable prices, especially the US, where soft sports brands such as Lululemon and Gap’s Athleta have seen explosive growth.

Bring online up to speed  Uniqlo needs to up its online game in international markets to match the rapid pace of its store expansion, especially if it aims to be the world’s leading apparel and footwear player. Uniqlo should also consider innovative ways to engage consumers online, reflective of its approach to clothing.



PASSPORT 43

RECOMMENDATIONS

Rapid international growth, supported by functionality and price (2) Accelerating international growth  FRC has stated that it aims to be the largest apparel and footwear retailer in the world by 2020. It has some way to go, and in 2014 generated 92% of total sales in Asia Pacific. If it is serious in its ambition, it needs to pick up the pace of global expansion and broaden its global footprint. Western Europe, India, China and North America are all development targets, but Mexico and the Gulf States are just two potential markets that could serve FRC’s ambition.

GU a genuine contender  Uniqlo is the company’s core business; however, its sister brand GU offers strong potential in Japan and internationally. It is lower priced, positioned for younger consumers and its product development model is closer to conventional fast fashion than Uniqlo, which typically takes a year to bring products to market and claims to eschew catwalk trends. GU could do well in all the markets Uniqlo is in, and offers direct competition to the likes of H&M.

Sportswear-specific products  Uniqlo's LifeWear line straddles casualwear and sportswear, but the company could do well with a more explicitly sports-aligned offer. It is well known for its use of technologically-advanced fabrics, which give the brand a competitive edge. If Uniqlo can produce high-quality functional sportswear at affordable prices, its push into the US, where soft sports brands such as Lululemon and Gap’s Athleta have seen explosive growth, could be made easier.

Digital strategy needs clarity  FRC’s focus on the physical store as a way of cementing consumer relationships is a solid strategy. However, its reluctance to push online sales seems perverse; in the UK, for example, online sales generated 19% of total apparel and footwear sales in 2014, and pure play internet retailers such as Asos are making huge gains. FRC needs to find a way of combining its ecommerce and physical stores to remain competitive.



PASSPORT 44

Fast Retailing Co Ltd in Apparel and Footwear (World)

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