UNIQLO Case Study. October, 2012
“Changing clothes. Changing conventional wisdom. Change the world”.
(Fast Retailing’s Corporate statement).
Uniqlo is a casual clothing chain subsidiary of the Japanese holding Fast Retailing Co., Ltd. The group started operations in 1949 and Uniqlo was part of it until 2005 when Uniqlo Co. Ltd was incorporated as a separated holding. The company was founded by its current group president Tadashi Yanai, Japan’s richest man according to Forbes.
The 10.7 billion USD holding as three groups: Uniqlo Japan, Uniqlo International and Global brands including: Theory, Comptoir des Cotonniers, Princesse Tam Tam, g.u. (Target market per brand on Table 1). Uniqlo is the biggest brand and represents 84% of holding’s sales (Chart 1 - Participation on net sales of each group YTD 2012).
Uniqlo’s first store opened in Hiroshima on 1984. Today Uniqlo Japan with 845 stores nationwide is considered as “the nation's largest apparel retailer, commanding a 5.5% share of the $136 USD Japanese apparel market” and “one of Asia's fastest-growing retailers”. The company started its global expansion in 2001; currently the company has 181 international stores in Asia, USA and Europe.
Uniqlo’s vision is to become the leading global casual wear company within the next 8 years, targeting “$50 billion of yearly revenue by 2020”. While the goal sounds aggressive in a market of big players like Inditex and H&M, today, Uniqlo is the number three retailer in the sector and keeps growing. Uniqlo is looking beyond its industry’s competitors, with a constant pursuit of innovation, Uniqlo identifies Apple as a competitor, "We are not a fashion company…we are a technology company,” Yanai, Uniqlo’s enigmatic CEO recently quipped in a Fast Company article.
In the last 6 years the company has almost doubled its revenue. On July 2012 Uniqlo expected to have Net Sales of $ 9.9 billion USD, while in August 2006 the company reported $5.1 billion USD. For the same month the operating margin of the company ranged between 14% and 20% from 2006 to 2011 and for this year it’s expected a 15%. (Financial data on Table 2)
2. BRANDING AND POSITIONING
“We consistently provide fashionable, high quality, basic casual clothes that anyone can wear anytime anywhere – and always at the lowest possible market prices.” (Uniqlo’s Mission)
Uniqlo sells casual clothing for women, men and kids. The company is known by its simple design and basic clothing articles (Minimalist concept: chic simplicity) for male and female urban customers. The value proposition of the brand is providing high quality clothes at low prices.
Uniqlo provides variety to its customer by offering the same basic article in a large number of colors; this is fewer items in a wider range of alternatives. For example, looking at the online catalogue, the same polo shirt for men or V neck sweater for women is available in more than 20 colors on each size.
3. EXTERNAL ANALYSIS
Uniqlo competes in the highly competitive specialty apparel retail industry, a mature and well established market where the Japanese company has strongly dedicated resources and efforts to reach one of the top positions. Their main global competitors are: Inditex, H&M, Gap, Limited, American Apparel, Benetton, Esprit, Giordano (China), Li & Fung (Hong Kong). (Table 3 - Brands per Company).
Uniqlo plays in a complex market with high threats of competition and substitutes. The clothing retailing is a mature market where buyers have an extensive range of options and brands. Seasonality affects market demand with new collections launched seasonally (Chart 2 - Porter’s five forces analysis).
While Zara and Li & Fung have adopted a corporate strategy of vertically scope, Gap and H&M outsource most of its production to manufacturing contractors in Asia and Eastern Europe. The main players in the industry have in place a strategy of geographical scope.
Table 4 shows the Top 4 ranking in the Apparel Retailing market according to 2011 figures. All 4 companies have large networks with more than 2000 stores globally. Last year Fast Retailing was the 4th largest player in the market and according to company representatives Uniqlo has now reached the 3rd position beating Gap Inc.
Industry leader, Inditex is also Uniqlo’s strongest competitor. The most important competitive advantage of the Spanish company is Responsiveness to Change (Quick Response) on fashion shifts. Zara has one of the best cycle times in the industry: 5 weeks for new designs and 2 weeks for restocking new products.
4. INTERNAL ANALYSIS
Corporate Strategy: Geographical Diversification. By developing a nationwide network of stores, Uniqlo reached the leading position in Japan. In the early 2000s the firm started to expand its international store network rapidly. Their expansion strategy focused initially in creating a strong presence in Asia especially in China, South Korea, Taiwan and Hong Kong; and at the same time entered the British market. Currently, Uniqlo is present in 13 countries of Asia, Europe and America (Table 5 - stores per country).
Stores: In store profitability per square meter is one of Uniqlo’s capabilities. “In the apparel industry, sales and profitability per square meter in a given store typically decrease as sales floor area increases. However, Uniqlo has established a business model that achieves levels of sales and operating profit per square meter in a large-scale store that are comparable to those of a standard store” by controlling inventories and large volume sales. Although they initially started with modest sized shops, since 2005 they have strictly expanded with large-scale stores; with an expansion strategy that consists of premium flagship store locations in some of the worlds major cities (Soho and the 5th Av. in New York, Oxford Street in London, Shanghai West Nanjing Road, Osaka Shinsaibashi, etc).
Value-Chain Analysis (Chart 3 - Porter’s Value Chain). Uniqlo’s company process is named “SPA (Specialty store retailer of Private label Apparel) business model encompassing all stages of the business: from design and production to final sale”
Product Design: Instead of focusing in a very precise segment of the market, Uniqlo is focused on utilitarian clothing, which is less vulnerable to fashion trends and targets masses (“Made for all”). This approach separates them from competitors who have a “quick to market” strategy. Product design is a core function for Uniqlo and is made internally, although renowned fashion designers like Jill Sander have collaborated to create special collections (+J, UT).
Procurement: To deliver the value promise of high quality at low price, purchasing fabrics is a key process at Uniqlo, whose personnel is highly specialized on textile procurement and supplier negotiations. The efficiency of Uniqlo’s purchasing process is based on consolidation of volumes and simplification of materials. The company makes bulk purchases of materials from global suppliers; often the company buys all the production of its suppliers, in other cases they buy supplier’s production for 5 years. Since Uniqlo offers fewer clothing items (in a wide range of colors) than its competitors, the company is able to purchase a reduced number of fabric types. The size and attractiveness of deals make Uniqlo a customer with strong bargaining power to ensure low costs and fulfillment of Uniqlo’s demands in terms of quality. Uniqlo establishes long-term relationships with contractors such us Kaihara: supplier of high quality denim fabric. Uniqlo has also developed new products (fabrics) with some of their partners. With Toray, who also provides carbon-fiber to Boeing, Uniqlo developed an innovative fabric for winter underwear: Heattech, a heat generating fabric that uses milk proteins. (Another example is Airism, a cooling and light fabric designed for summer wear).
Outsourced Production: Manufacturing is not a core business for Uniqlo, the company outsources a great deal (around 90%) of its production to approximately 70 Asian contractors, and “roughly 75% of Uniqlo’s products are made in China.” The company works with clothing manufacturers on OEM basis like Shenzhou International Group Ltd, which is “the largest manufacturer of knitwear in China” that produces for Nike and Adidas as well. Uniqlo’s production contractors are located in China, Bangladesh, Vietnam and Indonesia. While other retailers also outsource production in Asia, Uniqlo has the advantage of being much closer physically and culturally to China, which has helped in controlling production and reducing transportation costs. Quality and production control is managed by Uniqlo’s staff, which works closely with its partner factories with weekly visits to check quality, production progress, and provide technical instructions.
Uniqlo’s utilitarian design (Basics) allows producing (through its contractors) fewer and bigger batches of products giving the company an advantage of efficiency in volume manufacturing represented in lower production costs.
Inventories. With the exception of necessary seasonal wear like winter items, basic products demand less frequent design updates. And Although Uniqlo’s inventories are higher at the subcontracted warehouse, inventories at stores are closely monitored by Uniqlo staff that track sales and weekly stocks.
Takumi Team: Skilled resources are vital to integrate the links of the Uniqlo’s value chain. “The Takumi Team is a group of engineers with over 30 years of experience in the Japanese textile industry”. Those resources are responsible for designing new products, control of production, technical support to partners.
Innovation and Technology: Considering Yanki’s statement about being a technology company, what purpose would a technology company have in fashion? The relevancy of the statement can be seen through Uniqlo’s efforts to incorporate innovation and technology in all aspects of the business; from consistent development and improvement of textiles like HeatTech and Airism, to helping employees scattered through out sales floors across the world connect back to headquarters.
In 2006 Uniqlo adopted a blog management system built on the MovableType platform. What many companies use as a means to distribute content, Uniqlo operated as a means to connect sales staff in over 700 stores to headquarters in real time, providing immediate customer feedback. Prior to the blog, stores reported back to headquarters only twice a year. So what’s innovative about a blog? For Uniqlo, it was the manner in which they understood usability and collective intelligence. "Because Movable Type blogs are easy to grasp and allow posting via mobile phones, we are able, for the first-time, to collect timely and critical feedback from our in-store employees, including part-time workers." - Mr. Mori, Fast Retailing. Lean in nature, the system did not require heavy training, implementation, or massive infrastructure costs.
Another aspect of Uniqlo’s emphasis on technology is noticeable in how they reach consumers where they play, live and of course, shop. One example is their foray into the mobile app world. Among the high rated apps (Uniqlock, Calendar, UniqLooks) they’ve developed is “Wake Up,” an alarm clock for Android and iOS devices. Wake Up has customized music by renowmed artists Keigo Oyamada and Roko Kanno, whose wake up music changes depending on the weather and location of the user. Utilitarian in nature, it’s easy to associate its use to the clothing Uniqlo creates. It serves a daily purpose, one that’s “made for all”, while being associated with the NOW of techonlogy (apps, Apple) and culture (music, art, design). Where most other retailers (H&M, GAP, ZARA) have created apps aimed at showing catalogue in app form, Uniqlo is creating useful technology that to some holds great value is aimed at a wider audience.
In stores, emphasis on technology is overhemingly apparent. The New York store on 5th Ave and West 34th st, boasts 300 LCD video displays,175 audio speakers, led installations throughout the store, and hand held inventory check out systems provided by Casio for employees. “Audio and visual systems are an essential element of our store environment and the innovations featured in our new flagship store illustrate our commitment to quality and the customer experience,” said Kensuke Suwa, Director of Global Marketing for UNIQLO. While this may appear like a marketing or brand move to some, it is deeply tied to Uniqlo’s overall comittment to technology and it’s varied uses to reach consumers and socialize their identity as a technology company focused heavily on customer satisfaction.
The question remains, have they reached competitive advantage by any one of these technology focused moves? What is evident is Uniqlo hasn’t always relied on being the first mover in adopting technologies, but they have, as in their customer feedback system, opted for leaner and smarter approaches to solving common retail problems. Also clear, is their use of technology to build different experiences for those that otherwise would shop at GAP, ZARA or H&M.
Retailing: Investing in people seems to be as important as their focus on technology. Uniqlo on average can have as large a sales force in retail floor as shoppers. With regard to the 5th ave store, “Last fall, it hired six hundred and fifty people, and pledged to have four hundred people working there at any one time.” This is a considerably different approach to retailing which finds itself cutting staff and lowering wages to control costs more often than it rewards with high pay and larger numbers. Which Uniqlo seems to be doing consistently well. 
Uniqlo’s Takaho Kuwahara recently said, “We need a lot of staff because we have so much volume, and it takes a lot of people to give good customer service and, frankly, to keep the store neat and clean.” While this may be true, there are other advantages to having such a large presence of sales people in store. In a study by The Wharton School, Marshall Fisher and Jayanth Krishnan, and Serguei Netessine, it was found that on average, for every extra dollar spent on staff, any one company could make between 24 and 28 dollars in new sales. There are also the real scores that matter in retail: what the consumer thinks, and in a world that compares success to baselines set by companies like Apple, Uniqlo, the self proclaimed “technology company,” has surpassed it in several consumer satisfaction surveys, and is currently 3rd in Japan behind Apple and Google.
The current success of Uniqlo’s appears to be associated with cost efficiencies and with an insatiable desire to incorporate technology and innovation into all aspects of the business and their clear leverage in securing high quality materials at low costs. Innovation can be seen in the succesful materials formed with Toray, the innovative cost saving employee communications structure, and the way in which they carry a conversation with consumers at various touchpoints using mobile technology. 50 Billion by 2020 is a lofty goal, but with ambitions to cover North America with hundreds of retail locations like they have in Japan, it may be an attainable one. (Chart 4 – Triangle of Corporate Strategy).
Paramount to becoming the worlds largest retailer is Uniqlo’s cost leadership strategy and the following:
Geographical and online expansion: succesful global expansion, especially in the U.S. and high adoption and usage of their Ecommerce platform launching this year in the US.
Intangible Assets: 1) Powerful and consistent brand proposition. High quality basic casual clothing at low price targeting several segments of the apareal market. 2) Relationships with suppliers: In addition to the cultural and geographical proximity with clothing contractors, bulky orders allow Uniqlo to have greater purchasing power and closer relationships with them.
Capabilities: 1) Efficiency in the purchasing process: orders including all production volumes of suppliers. 2) Efficiency in volume manufacturing: outsourced production to specialized contractors. Bulky batch production. 3) Innovation: development of new products in partnership with suppliers. Aplication of technological and communication tools in the marketing strategy. 4) Stocking: utilitarian design allows an inventory of finished goods minimizing the risk of stock-out. 5) eCommerce: Unlike fast fashion competitors, Uniqlo’s utilitarian products can be bought easily online.
Tangible Assets: 1) The Takumi Team is made of skilled industry experts who contribute to mantaining the links of the supply chain. 2) Store Network: Uniqlo has a large global network which gives them an advantage over smaller players from Asia willing to enter the western markets.
Uniqlo’s strategy is rooted in cost efficiency, while its most powerful rivals (such us Zara and H&M) are focused on a Quick Response (QR) policy. The identified weaknesses of Uniqlo’s strategy are: Low flexibility: While Uniqlo is able to offer lower prices; it has limited flexibility to respond to market shifts. Cost of inventories: The Company is better protected against forecast errors involving stock-out, but faces more risk by managing massive production and inventory levels.
Maintain competitive advantage in terms of cost efficiency. Global expansion will increase volumes. To sustain and enlarge the competitive advantage of Cost-Efficiency, this growth will demand consistent development of supplier capacity.
Stick to Strategy. Frequent special collections with renowned designers may distract Uniqlo from following its differentiation strategy of massive utilitarian clothing and enter in the fast fashion field as main competitors.
Value proposition challenge: Although utilitarian design involves less complexity, international expansion to the US market demands clear understanding of customer needs in the local market. Multicultural and multilingual challenges should be carefully managed. Adaptation to local markets may cause decrease on scales.
3. Fast Retailing: Business by Group http://www.fastretailing.com/eng/about/business/group.html
4. The Wall Street Journal April 19, 2012: http://online.wsj.com/article/SB10001424052702304444604577341394217275310.html
6. The Wall Street Journal April 19, 2012: http://online.wsj.com/article/SB10001424052702304444604577341394217275310.html
7. Cheap, Chic, And Made For All: How Uniqlo Plans To Take Over Casual Fashion, Fast Company, June 18, 2012.
8. Uniqlo’s website: http://www.uniqlo.com
9. Zara: Fast Fashion. Harvard Business School. December 2006.
11. The Economist: Uniquely Positioned. June 24, 2010. http://www.economist.com/node/16436304
12. Fast Retailing web site: http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html
14. Shenzhou website: http://www.shenzhouintl.com
16. “Movable Type Connects UNIQLO Headquarters with over 700 Local Stores Worldwide,” Movable Type. http://www.movabletype.com/showcase/case-studies/uniqlo-case-study.html
18. Uniqlo Case Study by Casio, http://www.casio-b2b.com/mis/uk/downloads/CASESTUDY_Fashion_retailer_UNIQLO.pdf
19. “The More The Merrier,” The New Yorker, March 12th, 2012.
20. “The More The Merrier,” The New Yorker, March 12th, 2012.
21. Takao Kuwahara, chief executive of Uniqlo U.K.
22. “Retail Store Execution, An Empirical Study,” The Wharton School, December 01, 2006.
23. What Apple Could Learn From The Way Uniqlo Treats It’s Staff, Business Insider, June 12, 2012.
24. “The Brand Japan Survey,” Nikkei, 2012. Via VentureBeat.
*assistance on this case study was provided by Beatriz Chavez.