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Japan’s Uniqlo Revamps Image

With average wholesale prices in the $10 to $30 range, sourcing continues to be the challenge for moderate sportswear firms.

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TOKYO — Fast Retailing Co., which is best known for its low-price casual brand Uniqlo, is shifting its brand concept and image to “fashionable basics” in response to falling sales and is trying to seek new growth in casual sportswear.

The new idea at Uniqlo, a household name in Japan, is to inject more fashion in casualwear in tune with changing fashion trends, while retaining its fundamental character of basics, said Shinya Matsuyama, corporate communications executive at Uniqlo.

Yet, that’s easier said than done for a giant apparel manufacturer and retailer like Uniqlo. The company’s performance has been on the downside for two years and it is faced with growing deflation in the Japanese economy, as more consumers are looking for inexpensive, simple, but good-quality casual clothing. Fast Retailing’s revenues, helped by explosive sales of fleece jackets, doubled to a peak of $3.5 billion in fiscal year 2001, based on currency rate conversions with the yen. But then came the plunge, with sales in fiscal 2002 sliding 18 percent to $2.87 billion. Some analysts have forecasted a further decline of 13 percent to $2.5 billion for fiscal 2003.

The question apparel and retail analysts are asking is: Will Uniqlo be able to turn around and put itself back on a path of growth or was the Uniqlo boom just a passing phenomenon?

Market watchers point out that despite all the criticisms about Uniqlo, the company has production and marketing infrastructure unrivaled by other suppliers, with links to six partnership apparel factories in China and other Asian countries, and nearly 600 directly operated shops, including five in London and two in Shanghai.

This infastructure prompted Tadashi Yanai, founder and president, to decide last year to restructure Uniqlo’s corporate management and policy. He picked Genichi Tamatsuka, a 40-year-old managing director who had been with Uniqlo for only four years, to take over the reins as president and chief operations officer, while Yanai moved himself to the position of chairman and chief executive officer to oversee policy making.

The company has begun implementing several important changes to bring itself back on a growth track. First, it has established the Uniqlo Design Studio in Tokyo and brought in Yutaka Tada, former president of Issey Miyake Inc., to head up the team of about 50 designers and pattern makers.

Previously, the design staff was part of the merchandising department. The spinoff of the designers group into an independent unit reflects Uniqlo’s new emphasis on incorporation of fashion into its products. But the success of Uniqlo in past years stemmed from its focus on mass merchandising to minimize the unit cost. “I believe that a strong lineup of women’s apparel is essential for Uniqlo to become an international brand,” Tamatsuka said last year in announcing the business results, noting that the goal is to achieve net sales of $3.75 billion in fiscal 2005 when the share of women’s merchandise will have risen to 40 percent from 28 percent at present.

Tada said fashion will be injected into basics without changing Uniqlo’s fundamental business model. For instance, fashion twists like low-rise, cutting, post-treatment and other design work can be added onto jeans to make them stand out from boring basics. These fashion items will target primarily the younger set because older people, after all, like to wear what the young are wearing, Tada said.

Uniqlo’s first “prototype” pilot shop, which features fashionable casual items for women, has recently opened in Tokyo and more stores are expected.

Another key component is strengthening the firm’s information technology and broadening its computer network linking all sales and manufacturing points in Japan, China and other markets where Uniqlo operates, Matsuyama explained. Some 90 percent of Uniqlo’s production is made in China where the company maintains a staff of about 40 production, design and other specialists in Shanghai.

This will enable the company, through expanded quick response and supply chain management, to shorten lead times from product planning to sales, enhance the accuracy of demand forecasts and better manage inventory risk, and bring about closer coordination between operating units in Japan and overseas, he said.

As production can be brought closer to actual sales, the level of scheduled production has been reduced to 50 percent of forecast sales compared with 60 percent in previous years, while production planning cycles were increased to six times a year from three previously in order to respond to fashion changes more rapidly and flexibly.

Although its stumbled with its U.K. plan, Uniqlo is still seeking new growth and expansion into the global market. The company moved into Britain two years ago by establishing a subsidiary, Fast Retailing (U.K.) Ltd., with the opening of its first shop in London. Uniqlo’s first overseas shop was opened in September 2001, and 20 more were added by November last year. But the company said earlier this month that it decided to close 16 of them, leaving only five shops at Knightsbridge, Regent Street, Wimbledon, Richmond and Uxbridge because same-store sales ran below plan. It chalked up a loss of about $25 million.

The company still sees growth potential in the U.K., however, and will concentrate its resources on the five stores in and outside London, aiming to turn its business into a profitable operation in the coming year.

China is another market where Uniqlo has set its sights. The company opened two stores in Shanghai in September, and, according to Yanai, the goal is to open stores in the U.S. and other major markets in the next 10 years.

Uniqlo is Japan’s first model of a specialty retailer of private label apparel and is able to produce and sell casual wear at stunningly low prices for two reasons. One is mass production for economy of scale. Uniqlo limits the number of kinds of its merchandise to 500 a year and that of types of material to 20 a year. This means that just one type or kind of material may involve a massive lot of 10 million to 20 million pieces.

“One of our contract apparel factories in China employs as many as 20,000 workers,” Matsuyama said.

Other high point of Uniqlo’s business model is that the company controls all phases of operation, including production planning, material development, design, procurement of raw materials, production, distribution and sales. Production is consigned to contract factories.

On a recent trip to a Uniqlo shop in Tokyo, retail prices ranged from $8.33 for cotton crew neck shirts, $12.50 for printed T-shirts, $15.83 for women’s vests, $15.83 for cotton Oxford shirts, $16.67 for vintage boot-cut jeans and $24.17 for jackets.

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