By Kelly Wetherille
with contributions from Kellie Ell
 on March 3, 2014

TOKYO Fast Retailing’s shares advanced Monday on reports it’s in talks to buy J.Crew for as much as $5 billion.

As WWD reported Monday, a source said Fast Retailing is in the early stages of negotiations to acquire the American fashion company from TPG and Leonard Green & Partners and a deal could be finalized within the next two months. Fast Retailing, the corporate parent of Uniqlo, has declined to comment.

Investors in Tokyo reacted postively to news of a potential J.Crew deal. Shares Fast Retailing, Asia’s largest clothing retailer, gained 1.23 percent to end the day Monday at 35,480 yen, or $348.46 at current exchange, as the Nikkei 225 shed 1.27 percent.

Macquarie Equities Research analysts Toby Williams and Takako Wenisch expressed a very favorable view of a potential Fast Retailing and J. Crew deal.

“We believe this would be a powerful combination of possibly the two most successful — and still active — apparel merchandisers in the world, Mr. Tadashi Yanai and Mr. Millard “Mickey” Drexler. In our opinion, this transaction would have the potential to dramatically transform Fast Retailing,” the two analysts said a report published Monday.
Williams and Wenisch highlighted a number of potential synergies that could come of the deal, were it to go through. These include sourcing, organic growth, the expansion of J. Crew in Asia, and faster growth of Fast Retailing’s online business worldwide. But the two analysts said the biggest upside to a potential deal would be if Drexler could spearhead Uniqlo’s U.S. expansion drive.
“We believe there are few — if any — people who understand the U.S. consumer, U.S. logistics and U.S. retail space as well as Mr. Drexler. If anyone could push Uniqlo out across the U.S., it is him, but it is unclear whether he could do this whilst maintaining J. Crew’s success,” the report said. “If Mr. Drexler and Mr. Yanai were able together to achieve a rapid rollout of Uniqlo in the U.S., it could put substantial pressure on other major apparel retailers in that country.”

Over the weekend, Reuters reported that South Korean fashion company E-Land Group was also interested in buying J.Crew but a spokesman for E-Land has since issued a denial. He said Monday that the report was untrue and the company has “no plans” to buy J.Crew. E-Land’s assets include K-Swiss, Coccinelle and Mandarina Duck.

Meanwhile, Uniqlo and other Japanese retailers saw stronger sales in February despite two major snowstorms that blocked roads and disrupted public transportation for two consecutive weekends.

Fast Retailing said same-store sales at its Uniqlo stores in Japan increased 0.8 percent in February, with cold weather boosting sales of winter apparel. There are currently 831 Uniqlo stores in Japan.

Isetan Mitsukoshi Holdings, the country’s largest department store operator, said February sales at its nine main stores in Japan increased four percent over last year. The company continued to see particularly strong performance at its Isetan Shinjuku and Ginza Mitsukoshi stores in Tokyo. Both of these stores underwent renovations in recent years, and both posted yearly sales gains of over 10 percent last month.
Takashimaya said that sales at its 18 department stores in Japan increased 4 percent in February. In addition to continued strong sales of imported brand goods, jewelry and watches, the company said that interior products and fashion items such as men’s clothing and women’s accessories also performed well. February marks the fourth straight month of year-on-year sales increases for the retailer.

H2O Retailing, which operates the Hankyu and Hanshin chains of department stores, saw its February sales increase by 3.5 percent. The company has seen its sales grow each month for over a year, due largely to a recent large-scale renovation and expansion project at its flagship store in the western city of Osaka.
J. Front Retailing said that sales at its Daimaru and Matsuzakaya department stores were up 6.9 percent year-on-year in February. The company currently has 18 stores across Japan.
“Although the number of customers decreased, particularly in the Tokyo area, due to heavy snowfalls and stormy weather, [sales of] luxury brand goods, watches and jewelry increased greatly,” J. Front Retailing said. “We also saw favorable results of Valentine’s Day items, as well as movement of cold weather goods and spring coats.”