Uniqlo, Let's Talk: Five Things You May Need to Rethink in China | Top 15 Annual Report

Greater China is now Uniqlo's single most important market. To hold and build on that position, these are the questions the company cannot afford to ignore.

Thanks to Greater China, Uniqlo had a decent 2015.

The year brought no escape from its troubles in the United States, and in Europe's big cities the brand moved carefully — across the whole continent, new store openings stayed in the single digits all year.

In Greater China (the mainland, Hong Kong, and Taiwan), the picture was the reverse. In fiscal 2015, Uniqlo opened 93 new stores across the region, with sales topping 304.4 billion yen (about 16.1 billion yuan), up 46.3% year on year, and operating profit up 66.1%.

Of these results — reached thirteen years after entering China — Tadashi Yanai, CEO of Uniqlo's parent company Fast Retailing, said: "I think Uniqlo in China is just getting started. From here on, we want more and more people wearing our clothes." It recalls another line Yanai often repeats: "Stability is risk; not growing is as good as dying."

The Uniqlo China that Yanai calls "just getting started" must, of course, keep growing. The question is how.

Last November, Uniqlo's overseas store count passed its domestic Japanese total for the first time. For a company that has declared its ambition to become "the world's largest clothing manufacturer and retailer," future growth will lean ever more on foreign markets — above all Greater China, which last year already supplied half of its overseas revenue. And when a company comes to depend so heavily on one market, that is a double-edged thing: pull one thread and the whole cloth moves.

We have picked out five questions Uniqlo is likely to face. If it wants to go deeper into China, these may be the things it needs to think through.

Is Tmall an opportunity for Uniqlo, or a constraint?

Uniqlo entered China in 2002, the first fast-fashion company to do so, and the first fast-fashion brand to build an e-commerce operation in the country.

By its own plan, Uniqlo aims to have 1,000 stores in Greater China by 2020 — nearly twice the current number. To get there, it will need to open roughly 100 stores a year over the next five years.

Yanai does not believe China's economic slowdown will hurt Uniqlo: "The deceleration of China's broader economy and Uniqlo's store-expansion strategy are not in conflict. Whatever the conditions, people need to buy clothes — it's a basic necessity."

The confidence is understandable.

For one thing, when the economy is weak, people spend less freely than in good times, and the low-priced Uniqlo becomes a more appealing choice. It was precisely during Japan's post-bubble slump, when shoppers turned price-sensitive, that Uniqlo took hold at home.

For another, the vast third- and fourth-tier markets remain largely untapped. Uniqlo's store count in Greater China has reached 467 (as of the end of fiscal 2015), but its official China website shows that more than a quarter of them — 126 stores — sit in just three cities: Beijing, Shanghai, and Guangzhou. Across the more than 100 cities nationwide where Uniqlo has a presence, many second-, third-, and fourth-tier cities have only a single store.

"It has not yet fully cracked the third- and fourth-tier cities," Jiang Jiongwen, a marketing professor at China Europe International Business School, told QDaily. Uniqlo's footprint in China is genuinely large, he noted, but the market as a whole is not saturated — there is still room to grow.

Against other fast-fashion brands, Uniqlo holds some first-mover advantages. On Tmall it has been the top-selling apparel brand on "Double 11" for two years running, and the data it has gathered through e-commerce can guide site selection as it pushes into lower-tier cities.

Last year, though, Uniqlo briefly opened a store on JD.com, only to pull out three months later. Speculation about the reasons has centered on pressure from Tmall. O2O researcher Jiang Jiongwen backs this reading: "Most brands run across several platforms; the withdrawal from JD.com may simply mean the two sides couldn't agree on terms." A source with knowledge of the matter put it more bluntly to QDaily: "If they hadn't left, they wouldn't have been able to keep going on Tmall."

But this doesn't mean Uniqlo will hand Tmall exclusivity. On e-commerce in China, Yanai is especially cautious.

In August 2015, when Tmall announced exclusive deals with 20 international brands, Uniqlo was not among them. Back in 2014, Pan Ning — Fast Retailing's global senior executive vice president and CEO of Uniqlo Greater China — had said that if online sales grew to 20–30% of Uniqlo's total revenue, the company would not rule out building its own e-commerce platform.

For Uniqlo, leaving Tmall would be costly, but the returns from e-commerce are clearly thinning. As more brands pile onto Tmall, the cost of winning each new customer keeps rising for Uniqlo and other established names; offline, or on other platforms, conditions are nowhere near as cut-throat. Weighing whether a Tmall store still pays its way is, sooner or later, an unavoidable exercise.

Who will become Uniqlo's competitors?

H&M, Zara, Gap, Uniqlo. For a long stretch, the four names worked almost as a set phrase, lined up against one another and lumped together as "the four big fast-fashion brands."

But as we noted in our coverage of fast fashion's turn toward younger shoppers, the brands threatening Uniqlo are probably multiplying.

Here, Uniqlo's position may be no different from that of any large company. Procter & Gamble's rivals are not just Unilever; Estée Lauder's are certainly not just L'Oréal. Countless small, ever-shifting long-tail players scatter consumers' attention, a trend the internet and mobile commerce have only sped up.

Look at the rise of the shopping-guide industry: how hard is it now to learn "what's worth buying"? Even for something as plain as a basic hoodie, there are detailed breakdowns of every brand's strengths and weaknesses.

QDaily randomly interviewed 18 shoppers at Uniqlo stores in Beijing and Shanghai. Asked "when you're not shopping at Uniqlo, which other brands do you go to?", they named H&M and Zara most often — because those brands are "fashionable" — while they choose Uniqlo because it is "good quality."

"Uniqlo is not in direct competition with H&M," Jiang Jiongwen said.

"Not everyone needs fashion, but everyone needs basics," Huang Chuanbo, a tennis enthusiast who spent three years in the fashion industry, told QDaily. His answer captures how one slice of shoppers actually feels.

Uniqlo's global slogan, "LifeWear," adopted in 2013, voices a similar "clothes that suit your life" idea — and seems built to widen the gap between Uniqlo and its old rivals H&M and Zara. Since the brand was never really "fast," and is not especially tuned to trends, it has chosen to do something else entirely.

Wang Wenbo, an assistant professor of marketing at the Hong Kong University of Science and Technology, calls this "reverse positioning" — deliberately not offering the "benefits" rivals provide. What Uniqlo communicates with "LifeWear," he argues, is essentially "the idea of clothes you keep wearing" — the opposite of fast fashion's rapid turnover and disposability — and this is a second brand-positioning strategy layered on top of its price advantage.

This also seems to be the need Uniqlo has steadily met: durable, decent-quality basics. Spelling out "LifeWear" reinforces that quality-driven stance, and deepens the relationship between Uniqlo and H&M or Zara into a complementary one rather than a directly competing one.

Since Uniqlo doesn't sell the hottest fashion, what are Chinese shoppers actually buying when they shop there?

"Uniqlo's quality and fabric are good — I go there for base layers and underwear," said Ms. Wu, 30, on the second floor of Uniqlo's flagship store on West Nanjing Road in Shanghai. "For outerwear I want more design, so I go to the brand stores at Plaza 66 or Baxian."

At a Uniqlo store in CapitaMall in Beijing's Chaoyang district, Ms. Wang, 25, stood before a shelf of Mickey Mouse plush toys priced at 79 yuan. She said she chooses Uniqlo because it carries her size and its styles more than meet her everyday casual needs — "and the prices are friendly."

Similar answers came up again and again in our conversations. In other words, what shoppers value most in Uniqlo is still the product and the price — and these two things will go on being the brand's core advantages.

At a Uniqlo spring/summer 2016 preview held recently in Shanghai, Dong Chunfang, PR manager in the marketing department at Fast Retailing (China), kept stressing that Uniqlo's new sportswear targets "light leisure" and "light sport" — made for shoppers who "may not be especially serious athletes, but work out now and then, don't necessarily want to spend thousands on gear, and just want to pull together a light-sport look for a few hundred yuan."

Value for money: still the brand's core edge. The question is whether that alone is enough.

How does Uniqlo make trends in the Chinese market?

If one aim sums up Uniqlo's recent marketing, it is "adding perceived value." The brand plainly does not want people to see only its price-to-quality ratio. To be both good value and cool — that would be ideal.

So you see Uniqlo set up an area called UT Factory inside its Disney concept store in Shanghai. Shoppers pick a Disney graphic they like on a tablet, have it printed onto a UT T-shirt on the spot, and — once the ink has set — walk out wearing it. Or take the digital screens Uniqlo has installed in a few stores in China: stand in front of one and street scenes from Tokyo, London, and other cities appear, so you feel as if you were somewhere else.

And so you also see Uniqlo pursuing collaborations at an unprecedented pace. In October 2015, the UNIQLO AND LEMAIRE collection sold out in China within three minutes of going on sale. Word spread by mouth: "a collection made with Hermès' former design director," and "Hermès design at Uniqlo prices."

In the spring/summer 2016 collection Uniqlo has just unveiled, the number of design collaborations has hit four — unheard of for a single season.

John C Jay, Fast Retailing's global creative president, explained it this way: Uniqlo is simply closing the gap between fashion and basics. "We don't split fashion and basics into two opposing things. What we're saying is that the basic is becoming more refined and fashionable, because if we were just a basics company, we'd have no future."

If Uniqlo wants Chinese shoppers to link these added values with the brand, one question it must wrestle with is how — as it pushes into lower-tier markets — to roll out the same services and experiences across more stores, so that the experience becomes as constant as the price and the fabric, present wherever there is a Uniqlo.

As a technology company, how does Uniqlo balance mass production, design, and cost?

Before joining Uniqlo, Naoki Takizawa — the brand's design director — was creative director at Issey Miyake. He described the difference between the two companies this way: "Fashion is about creating conversation, while we look at whether a product is truly necessary for the customer. At Issey Miyake, we created a new kind of clothing, opening up a new river. At Uniqlo, we stand in the middle of the river and ask how to make the water flow more smoothly — that is what Uniqlo does."

In an interview with Southern Metropolis Weekly (《南都周刊》), Takizawa gave a strikingly concrete example: a fall/winter 2012 Uniqlo parka, in a color somewhere between dark green and light brown. Its accent was a vertical chest zip pocket, echoing the fall/winter 2012 runways of Burberry Prorsum and Marc Jacobs. Pointing to a single-stitched seam on the left side, Takizawa said: "Double-stitching is much more complicated. Single-stitching is simpler, and takes twenty seconds less."

Uniqlo cut ninety seconds from making that parka, he said — leaving only what was essential. Make 600,000 parkas, and the time and cost savings grow large. Designing at Uniqlo, he said, is an exercise in subtraction.

Katsuda Yukihiro, a senior vice president at Fast Retailing, has also noted that 30 to 50 percent of the profits across global apparel brands come from basics. Even something as simple as a T-shirt can be pared down further. Half in jest: this may be why Uniqlo T-shirts "have no waist" — a quip that started in the comments section on QDaily.

This thinking runs through every Uniqlo product and is the heart of its design philosophy. In principle it poses no problem — but Uniqlo may need to answer a more recent joke now making the rounds: "Wearing Uniqlo is really about the attitude you bring to it." How to draw in more image-conscious shoppers while keeping this philosophy is no easy task.

Cover image from the Uniqlo official website