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Fast Retailing Co. President Tadashi Yanai says Asia key to making firm global industry leader

by Kazuaki Nagata

Staff Writer

Tadashi Yanai — head of the clothing giant Fast Retailing Co., which runs the popular Uniqlo casual wear brand — may be in the later stages of his career as a business manager, but he has no plans to take it easy.

The 68-year-old, who has shaped a small Yamaguchi-based firm into the world’s third-largest apparel retailer over some three decades, still dreams of leading the industry.

With Fast Retailing now focused on global markets, Yanai says, it’s like participating in the Olympics after surviving national-level competition.

“Nobody would get excited if you said that you were aiming for bronze or silver when you were about to compete in the Olympics,” he said in an interview last month.

But seizing the gold is by no means trivial. Even though Fast Retailing has an overwhelming presence in the domestic apparel market, it is still overshadowed by more powerful behemoths worldwide — namely Swedish H&M and Spanish Inditex SA, which runs the Zara brand. But Yanai said Fast Retailing has a good chance of ascending to the summit through its primary strategy of holding the largest market shares in growing Asian markets.

Also, competition is not just limited to apparel companies, said Yanai, who also sees major tech firms such as Google, Amazon and Alibaba, as rivals. As he seeks to woo more customers to the online stores for Fast Retailing’s brands, having physical stores remains a huge advantage, Yanai said, noting seamless integration of physical and internet shopping experiences will be the greatest benefit for customers.

Yanai has said he is considering retiring from such an active role within the business management at 70, as he thinks that his physical strength won’t be able to keep up with the daily work.

A goal for 2020

Industry observers are now closely following whether, along its path to becoming the world’s top apparel firm, Fast Retailing can achieve its ¥3 trillion sales target with a 15 percent operating profit margin for the 2020 business year. The sales goal was revised downward from an initial target of ¥5 trillion.

In the 2017 business year, which ended in August, the company posted ¥1.86 trillion in sales and ¥176 billion in operating profits, with a 9.5 percent operating profit margin.

To reach the 2020 goal, Fast Retailing must boost its sales by about 20 percent annually for the next three years. That may be a daunting goal for some, but potential for overseas growth has given Yanai cause for optimism.

“There are many locations where we can open new stores, and I think it’s possible to achieve the goal if we maintain our pace of opening about 300 outlets annually,” Yanai said.

Uniqlo’s presence in Asian markets has indeed been growing rapidly, especially in China and Taiwan. Since opening its first store in Shanghai in 2002, the number of Uniqlo outlets there has grown to 645 as of August. The first quarter (September-November) of the ongoing business year also saw overseas Uniqlo sales exceed those of domestic outlets for the first time.

While Uniqlo remains Fast Retailing’s core brand, Yanai said the firm’s other brands also appeal to the worldwide market — including GU, which focuses on lower-priced outfits. “We currently have GU stores in Taiwan, Hong Kong and mainland China, but we can expand going forward to Southeast Asia and even to Europe and the United States in the future,” he said.

Overseas, it’s ‘back to the floor’

In Japan, Fast Retailing has become an overwhelming force in the apparel industry. Sales at Saitama-based Shimamura Co., the second-biggest clothing firm, are only one-third those of Fast Retailing.

However, there are bigger players in the global market. Inditex currently tops the list of the world’s apparel firms, with sales of €23.3 billion (¥3.2 trillion) in the 2016 business year — well above the ¥1.78 trillion marked by Fast Retailing in the same year. Inditex also boasted higher profitability, with a 17 percent operating profit margin.

While Uniqlo and Inditex’s Zara are both apparel brands, their strategies are quite different. Takahiro Saito, a fashion consultant, says in his book “Uniqlo vs Zara” that one of the reasons behind Uniqlo’s success is that it has focused on becoming a special brand that provides basic items pretty much everyone can wear regardless of their taste in fashion.

Meanwhile, according to Saito, Zara’s strategy is based on providing high-quality, fashionable and trendy items comparable to those that can be found at ritzy department stores but at reasonable prices.

Yanai admitted that Inditex is indeed a powerful rival, but reiterated that Asia is the key battlefield. “We need to become number one in Asia,” he said.

“We have to grow in areas where growth is promising. I think that’s the most certain way (to climb to the top).”

As China’s economic growth is slowing, Fast Retailing is likely to make aggressive moves in the markets of members of the Association of Southeast Asian Nations, Yanai said.

Beyond apparel rivalry

While it tackles fierce competition in the global apparel market, Yanai said Fast Retailing is also set to lock horns with tech giants as the firm looks to increase its online sales.

The firm reported that online sales accounted for about 7 percent of total sales in the September-November quarter, but Yanai wants to boost that figure to 30 percent in the near future. Online shopping giants, including Amazon and Alibaba, may sell many different kinds of items within their stores, but Fast Retailing cannot lose in the field of clothing, where it has more experience and know-how in production and sales, Yanai said.

“I may sound overconfident but I think we can match Amazon” when it comes to selling clothes, he said.

Fast Retailing basically sells its items only on its own websites, and does not provide items to other online malls. “If customers can find our products anywhere, they become mere commodities,” he said.

Also, while admitting the importance of improving the firm’s online services, he said he wants customers to keep buying at brick-and-mortar stores. About half of Uniqlo’s 833 stores will need to be completely remodeled to make them more attractive for customers in the era of e-commerce, Yanai said. An increase in online sales won’t lead to a decrease in such stores, he added.

Yanai wants to push the idea of “click and collect” in which consumers purchase outfits online and receive them at stores. There is data that shows this system increases sales at physical stores because customers who come to pick up their products are likely to buy other items that go well with their purchases, he said. “Owners of physical stores may be unaware of this but having such stores is an advantage,” said Yanai.

Sustainable business

More global investors are taking into consideration environmental and social factors, along with governance and sustainability, when evaluating corporate performance, and firms face increasing pressure to disclose more nonfinancial information on issues such as how they treat their employees or what measures they take to reduce waste and carbon dioxide. In 2015, Hong Kong-based advocacy group Students and Scholars Against Corporate Misbehavior revealed a series of labor rights violations at Uniqlo suppliers in China, including low wages, excessive overtime and unsafe labor conditions. Since then Fast Retailing has strengthened its monitoring of the working environments at overseas suppliers, and has been disclosing the information gathered in its annual reports. According to the 2017 report, serious issues leading to an immediate contract review were witnessed at 14 partner factories.

While stressing that the extent of Fast Retailing’s disclosures is already considerable, Yanai said the firm will be more committed to the practice to avoid any misunderstanding. “I think we need to release such information more promptly and frequently.” Fast Retailing has also been providing support for refugees, including giving them job opportunities at apparel stores.

Preparing to step down?

In October, Yanai said in an interview with the daily Nikkei Shimbun that he was thinking about handing over the company’s leadership when he turns 70.

That would mean there is just around a year or so left for Yanai, who will turn 69 on Wednesday, to head the clothing giant. Yet Yanai told The Japan Times that such plans is not yet firm. “(The remark on stepping down at 70) was half true and half false,” he said.

“I don’t think I will have the physical strength to keep up with the work. … I want our management team to handle all the work, and if possible, I’ll just be the chairman when I am 70,” he said.

Whether Yanai — one of Japan’s most influential business leaders — will find a successor remains to be seen, but he stressed that nurturing capable business leaders is a tough job, noting that many tend to become conservative after making achievements.

In fact, Yanai stepped down from the post of president in 2002 but came back just three years later. Yanai said Genichi Tamatsuka, who took over the position at the age of 40, appeared to aim for stability rather than pursuing growth and making bold challenges. Tamatsuka later headed Lawson Inc., a convenience store giant, between 2014 to 2016.

“When business leaders attain certain achievements, they tend to become satisfied and think it means that they are good,” said Yanai. “But there is no end to business management.”

“It’s like sports. I think it’s better to send young talent overseas and let them experience business management as early as possible. You can’t train business managers unless you let them actually do it,” said Yanai.

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