Tadashi Yanai, chairman and chief executive of the company that owns the Uniqlo chain, used to liken his casual clothing stores to “vending machines” that continuously spit out products to thirsty consumers.

In just two years up until August 2001, Fast Retailing Co.’s revenues grew nearly four-fold to more than 400 billion yen. During the spree, shoppers bought 36.5 million inexpensive fleece jackets — roughly one for every three people in Japan.

During this time, the company aggressively opened new stores, growing from 368 to 519.

But as the chain grew, the fad it had set in motion slowed and in the past two years monthly same-store sales have languished below year-earlier levels.

Uniqlo products, once lauded for their low price and relative quality, suddenly began saying something else to Japanese shoppers.

“My 24-year-old daughter wears a Uniqlo turtleneck under another layer of clothes,” said Akemi Hirose, a 49-year-old Tokyo housewife. “She gets embarrassed if others realize she is wearing a Uniqlo item.”

The bust-to-boom cycle, however, didn’t seem to bother Yanai, who simply went to work on a new growth strategy.

“It was great that our brand and business became known to all kinds of people during the boom,” he said in a recent interview, adding that those high-flying days blinded the company to a basic tenet of business — retailing is hard.

After seeing sales and profits nosedive in the business year that ended last August, Fast Retailing introduced what it considered bold measures to revamp the Uniqlo image while maintaining the low cost and quality of its products.

The firm downplayed the unisex product approach and introduced more women’s clothing, including camisoles and blouses.

Since the beginning, Uniqlo has targeted women, though at first it was mothers being enticed with low prices.

Fast Retailing now hopes to boost sales of women’s items to 40 percent of total sales over the next two years from 27.6 percent logged in the business year through August 2002.

Uniqlo’s mainstay simple casual ware has also given way to more elements of fashion design to keep up with today’s consumer trends.

Last spring, Uniqlo debuted Beautiful Leg Stretch Pants, a line it touts as being able to enhance a woman’s silhouette and which has since proven a hit with young female shoppers.

“I think the designs (of Uniqlo products) have become more fashionable,” a 17-year-old girl said as she and her mother exited a Uniqlo store in Tokyo’s Koto Ward.

The chain also introduced baby clothes a year ago, drawing in young mothers.

“We came here just to buy the baby’s clothes, but ended up also buying items for my husband and me,” said Keiko Saito, 28, after shopping at the Koto store with her 1-year-old daughter.

Analysts, it seems, have noticed that shoppers are returning to Uniqlo.

Credit Suisse First Boston Securities (Japan) Ltd. upgraded its investment grading of Fast Retailing from neutral to outperform in July, saying the chain’s efforts to strengthen its product line and marketing campaigns have so far been successful.

Takashi Yanahira, retail analyst at ING Securities (Japan) Ltd., said Uniqlo’s sales per square meter of floor space is now at an “appropriate level” to product demand.

“During Uniqlo’s peak, annual sales per square meter amounted to 1.7 million yen,” he said. “That’s the level of department stores,” which cater to 10 times more customers.

Hiroshi Koba, an analyst at Mitsubishi Securities Co., noted, however, that the chain has yet to hone its inventory control. Uniqlo has been unable to predict which color or style will prove popular at a given time, and thus some products often sell out while others languish, he said.

The situation is getting trickier as the chain focuses on fashion to cater to more diverse tastes.

“There are some hit items, but they don’t necessarily lead to an increase in sales,” Koba said.

Yanai’s challenges are not limited to stores in Japan, especially if he hopes to realize his goal of 1 trillion yen in sales by 2010.

ING’s Yanahira said that domestically, Uniqlo, with roughly 600 outlets now, will reach its limit at 750 outlets in a year or two.

“So overseas expansion is very important,” he said. “There is no growth (for Fast Retailing) without growth overseas.”

But overseas expansion has already proven tricky.

In March, Fast Retailing decided to close 16 outlets in Britain, leaving only five stores in the London area. Company officials again blamed the chain’s rapid expansion, which stretched its resources.

“We were initially hoping to open 50 stores in three years,” Yanai said. “But we have to establish a chain in which each store is profitable.”

Despite the U.K. setback, Yanai hopes to enter the U.S. market and remains confident that Uniqlo will soon join the league of Gap and Marks and Spencer.

But Yanai thinks Uniqlo stores alone cannot achieve the 1 trillion yen target and plans to develop another apparel-related business in the next three to five years.

“We could be selling shoes or underwear,” he said. “We may also try to sell more medium-priced or trendier clothes.”

In a time of both misinformation and too much information, quality journalism is more crucial than ever.
By subscribing, you can help us get the story right.