Uniqlo spa model

Davide Lentini prepared this case under the supervision of Professor Benjamin Yen for class discussion. This case is not intended to show effective or ineffective handling of decision or business processes. © 2016 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. Ref. 15/562C

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BENJAMIN YEN

UNIQLO: A SUPPLY CHAIN GOING GLOBAL The growth and expansion of Uniqlo seemed unstoppable. With its founder and CEO Tadashi Yanai at the helm, the company grew in the span of 20 years to become the fourth largest fashion retailer in the world, with over 1,550 stores worldwide as of February 2015.1

Yanai took over the family business, Ogori Shoji Co., in 1984 and radically changed it right away. The company went from selling ready-made men’s suits to affordable basic casual wear under the “Unique Clothing Warehouse” brand. The first store was opened in urban Hiroshima, and a year later, the second followed at a roadside location. The latter format proved successful and became the template driving store expansion across Japan up until 1998. That year, the company opened a flagship urban store in the fashionable Harajuku district of Tokyo and “Unique Clothing Warehouse” was incorporated into the Uniqlo brand. The opening of the flagship store and simultaneous introduction of a new polar fleece jacket marked the beginning of a very rapid expansion for Uniqlo, which became one of the hottest clothing brands in Japan and the number-one fashion retailer in the country.2

Since day one, Uniqlo focused mainly on price and quality, adopting a counter-current approach and not relying entirely on fashion trends in developing and marketing its clothes. Direct customer feedback, based on practical every-day needs, was as important as fashion trends in shaping product R&D and research on natural and synthetic textiles. As a result of its strategy, Uniqlo clothes could be considered a fashion-basic style available in a great variety of colors and high quality materials.

UNIQLO's unique position is [as] the world's only LifeWear brand. LifeWear means everyday clothes for a better life—high-quality, fashionable, affordable and comfortable.3

Uniqlo was the pioneer of “Speciality Store Retailer of Private Label Apparel” (SPA) in Japan, a model that had been successfully used by the GAP in the US, and was common to all major “fast fashion” companies, including Inditex and H&M). Uniqlo’s implementation of the SPA model was based on an agile supply chain, where tight partnerships with a select number of

1For details, see Fast Retailing website: http://www.fastretailing.com/eng/about/business/shoplist.html (accessed 9th April 2014). 2For details, see Fast Retailing website: http://www.fastretailing.com/eng/ir/library/pdf/ar2013_en_13.pdf (accessed 9th April

2014). 3For details, see Fast Retailing website: http://www.fastretailing.com/eng/about/message/ (accessed 9th April 2014).

HK1085

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suppliers were arranged in a network-like structure inspired by top Japanese car manufacturers [see Appendix 1 for an overview of the Fast Retailing business model]. Most Uniqlo suppliers were long-term Chinese partners. Asian markets were central to driving Uniqlo’s growth, but in its quest to become the top fashion retailer in the world, the company needed to expand into the US and Europe to overtake competitors in sales. Uniqlo was a dominant force in Japan and was expanding rapidly in China, so the company remained a regional rather than a global player. Uniqlo’s supply chain proved effective in the Asia Pacific region, but could the same model be scaled worldwide? Despite Uniqlo’s excellent results and expansion rate, the company was prepared to change its supply chain to become global. Was the low growth rate Uniqlo experienced in the US and particularly Europe partly due to the limitations of its current supply chain?

At first, Uniqlo was a casual chain on the back streets of Hiroshima. Then...we became a national brand in Japan. So, the next step is to become a global brand.4 We really have to transform this company to be successful and compete. Before, we manufactured in China and sold in Japan. Now we need to manufacture in the world and sell to the world.5

Apparel retail markets worldwide, Asian focus, intense competition With an average projected annual growth rate of 9.5% in 2014-2018, Asia remained the most attractive market for apparel producers. China would account for almost one third of the entire regional market demand, which was expected to be around US$340 billion by 2018.In China, thanks to over 30 years of economic development, the middle class was growing to become the largest in the world. Along with India, the overall market size for clothing was staggering. Asian consumers appeared to be hungry for trendy fashion apparel, and thanks to rising disposable incomes, willing to spend. China was to play a central role in the region and “fast fashion” houses had aggressive expansion plans for the Mainland. Inditex, the world’s leading apparel retailer had, as of 2014, over 500 stores operating in China, The GAP was reducing its presence in the US and expanding its network of stores across China to 80, with 34 opened in 2013 alone. GAP’s retail expansion strategy focused on 50 Chinese cities with populations over five million. Its objective was to grow in a less competitive environment and double its turnover, reaching US$1 billion in revenue by 2016. H&M, the second largest retailer in the world, after Inditex, was planning to expand even faster in the Mainland, opening 80-90 new stores in 2014 and adding similar numbers in the following years. Uniqlo’s expansion plan was the most aggressive of all, with 100 new stores to be added every year in China to the 340 open as of February 2015, with a target of 1,000 stores by 2020. The top offline fast retailers were not the only ones competing for Chinese market share. Asos, the British e-commerce player, launched a Chinese website on which it was planning to sell over 2,000 of its own brand’s styles, all designed for the local market.

4Michiko Nakamoto “Japan’s King of casual smartens up” (2012) interview with Tadashi Yanai

http://www.ft.com/cms/s/2/afae506a-cb51-11e1-b896-00144feabdc0.html#axzz3mdUg3DOI Accesses on Sept 24th 2015 5The Economist online (2010), interview with Tadashi Yanai, Published on June 26th 2010

http://justinterview.blogspot.hk/2013/03/interview-with-japans-richest-person.html Accessed on June 1st 2015

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Fast-fashion retailers were focusing their expansion not only in hub cities along the Chinese coast, but also in tier two, three and four cities, where the potential for growth in expenditures was higher. Consumers in smaller cities were considered more aspirational and less influenced by the luxury brands that were dominant forces in first and second-tier cities. In the wider Asian region, South Korea, Taiwan and Japan remained hot sports. With its top designers and brands, Japan continued to be a strong influencer of consumer taste across Asia, as well as an important market. By February 2015, Uniqlo had a good presence in Korea, with over 130 stores, and Taiwan, with over 50 stores. Asian fashion retailers were also on the move. Hong Kong companies were actively engaging the Mainland market, with Hong Kong-based Giordano, Baleno, Bossini and Esprit expanding, albeit with mixed results. Despite its high rents, Hong Kong attracted top retail brands seeking to tap into mainland tourism: Topshop, J. Crew, Tommy Bahama and A&F had all established retail presences in Hong Kong.6 The local retail scene in China also had its own home-grown heavyweights, like Metersbowne, which, with over 3,000 shops covering large and small Chinese cities, was the third largest apparel brand in the country, after Nike and Anta. Anta had over 7,800 shops in China, and continued to expand, opening 100 new stores annually 7 Asia, and China in particular, were “hot” for fashion retailers focusing on expanding operations in the region to tap growth and access the world’s largest market. Competition would become intense, but with rapidly raising salaries and a resilient economy, China was to remain an attractive market for a long time. Inditex still had a dominant global-leader position and a significant presence in China. It was the first company to use a responsive supply chain with reduced time-to-market, producing “in-season designs” in tune with the latest fashion trends to argument sales. Responsive supply chains and the SPA model proved n operationally superior to offshoring at low-cost locations. All the largest fashion retailers—Inditex, H&M, GAP and Uniqlo—shared this approach. While the top three could be considered global companies, Uniqlo was still building its international presence. While a major force in Asia, its presence in the US, and Europe in particular, was marginal.