Thirty Years of Selling T-Shirts: How Big Can This Business Get?

Thirty years ago, Tadashi Yanai, now Japan's richest man, opened his first T-shirt shop. Here is how it became the Uniqlo of today.

How does a company that "sells T-shirts" make someone the richest man in Japan?

If it were Akio Toyoda of the Toyota dynasty, or the financier Masayoshi Son, that would make sense. But Tadashi Yanai, who runs Uniqlo, became Japan's richest man in 2009, and over the following four years he held the top spot every year except 2011.

Thirty years ago, Yanai opened the first Uniqlo store in Hiroshima. Four years later, when he set up a subsidiary in Hong Kong, a clerk registering the trademark mistakenly wrote the "C" in "UNICLO" as a "Q", and so "UNIQLO" was born. In 1991, Yanai renamed Ogori Shoji, the company his father had founded, "Fast Retailing" and began running a chain of directly operated stores, with Uniqlo as the flagship brand.

In 2000, a winter hit, the fleece jacket, made Uniqlo Japan's largest apparel retailer, and the company began expanding worldwide. Kashiwa Sato's unusual "canned T-shirt" displays gave "UT" a fashionable edge, and his bold flagship-store designs led people to start seeing Uniqlo as a casual fashion brand.

As of August 2014, Uniqlo had opened 1,500 stores in 14 countries. Over these 30 years, what fashion and pop culture did Uniqlo create, what opportunities did it seize, and what exactly put Yanai at the top of the rich list?

How Big Can a Uniqlo Get?

• The world's fourth-largest fast-fashion brand

By 2012, Uniqlo was the world's fourth-largest fast-fashion brand, behind Spain's Zara, Sweden's H&M and America's Gap.

• It made Yanai Japan's richest man

In 2009, Forbes named Yanai the richest man in Japan, and he took the title three more times, in 2010, 2012 and 2013. Then this year, after Alibaba went public, Masayoshi Son, CEO of SoftBank Group, who holds about 7.8% of Alibaba, replaced Yanai as Japan's richest man.

• 1,464 stores in 14 countries

According to Fast Retailing's results for the year ending August 2014, Uniqlo has 1,464 stores worldwide. More than half are in Japan. China is Uniqlo's largest overseas market, with more than 59% of its 633 overseas stores.

What Did It Do in 30 Years?

At first, Uniqlo mainly sold foreign brands such as Nike and Adidas. Then Yanai, inspired by the business model of the American casual brand Gap, began experimenting with warehouse-style self-service shopping and with designing and selling Uniqlo's own clothing. He set a goal: "continuously offering high-quality goods at the lowest market prices".

In 1999, Uniqlo made the biggest leap since its founding, thanks to its star product, the fleece. By 2000, it had sold fleece jackets to nearly a third of all Japanese people and become Japan's largest apparel retailer. The fleece also carried Uniqlo into markets outside Japan; its global expansion began that same year.

In 2005, Yanai hired the designer Kashiwa Sato as creative director. Sato changed the "UNIQLO" logo from dark red to pure red and designed Uniqlo's first global flagship store, in New York. He set the imposing "whole-wall display" style of Uniqlo stores and launched the "flagship store" model the company has followed ever since.

At the end of that year, Uniqlo, which had been losing money in China, reached a turning point. Pan Ning, a professional manager, took over as head of Uniqlo China, and his strategy of positioning it as a "middle-class" brand made China Uniqlo's most successful overseas market to date. Uniqlo now has more stores in China than H&M does.

In 2007, the UT flagship store opened in Harajuku, Tokyo. Sato's "canned T-shirt" design freed the T-shirt line from its old "big-box store" image and made it fashionable, and Uniqlo has since built many campaigns around UT.

In 2014, Tomoaki Nagao (NIGO) relaunched UT as a "new-generation T-shirt", with about 30 themes and more than 1,200 colors and prints, setting off a UT craze.

And, Of Course, It Calls Itself a Technology Company

Uniqlo may be the apparel company closest to technology. Yanai would rather call Uniqlo a "technology company" than a "fashion company", because he believes applying technology to everyday clothing lets it stand apart and add value.

Uniqlo launched its fleece in 1998. Foreign manufacturers had monopolized the fabric, import costs were high, and other clothing shops typically sold fleece jackets for 5,900 yen each. By developing the fabric jointly with its supplier, Japan's Toray, Uniqlo cut costs and sold the jacket for 2,900 yen.

In 1998, it planned to sell 6 million pieces and sold 8.5 million. On the strength of that success, in 1999 it planned for 12 million, made the same style in 15 colors and sold it at a rock-bottom 1,900 yen. That winter it sold 26 million, a record unheard of in Japanese apparel, and Uniqlo leapt to become Japan's largest apparel retailer.

Heattech, so popular in recent years, followed the same path. Japan had long had a fabric similar to Heattech made into sports underwear, but it was sold only in sporting-goods shops, and it looked and felt poor. Seeing a latent market, Uniqlo worked with Toray, the Japanese textile giant and its longtime fabric supplier, to overcome the technical obstacles and bring this specialist fabric into mass-market clothing. Development of Heattech began in 2002 and continues today.

Toray's R&D team stands behind every technically advanced Uniqlo "hit". In 1998, when Uniqlo was still a small company, Yanai visited Katsunosuke Maeda, Toray's former chairman, and the two agreed to work together. In 2006, Uniqlo and Toray signed a strategic partnership and formally set up a "next-generation materials development team", staffed by employees of both companies, to develop new clothing materials.

From fleece to light down to Heattech, Uniqlo's way of "commercializing technology" has stayed the same: take a material that is expensive and excels in some respect but is rarely used in everyday clothing, develop it with the supplier to bring the cost down, and create a new market.

What Makes Uniqlo Competitive

For nearly 10 years, Uniqlo's sales per square meter of floor space have held at around 1 million yen. At their 2001 peak, they were about a third of those of Apple's retail stores, the highest in the world; today they are roughly equal to those of the American affordable-luxury brand Kate Spade. For a budget brand, that is a very good showing.

What makes this possible?

• "Good value for money"

Whether in Japan, the United States or China, ask consumers what they think of Uniqlo (and Uniqlo has run such brand surveys) and you get essentially the same answer: good value for money. That usually means most people can "afford it", the quality is decent and the taste is not "cheap".

Its design director, Naoki Takizawa, formerly chief designer at Issey Miyake, once told reporters that if single-stitching a coat's hem took 20 seconds less than double-stitching, Uniqlo would choose the single stitch. Uniqlo designs by subtraction, keeping only what is needed; it cares more about what a product does than about how "fashionable" it looks. This explains why Uniqlo sells all kinds of basics, and it is the main reason its prices are so low.

• "We don't talk about clothing design, we talk about store design"

Interestingly, when Uniqlo talks about design, it often means store design. Much of the credit goes to the designer Kashiwa Sato.

In 2005, Yanai hired Sato as creative director. His first job was the New York flagship store. To stand out in the fiercely competitive American casual-wear market, Sato replaced the old dark-red logo with an eye-catching bright red, and filled the store with striking displays: in the new flagship, polo shirts in the same color family formed an overwhelming wall of color. The American press called the store "unprecedentedly bold".

This became Uniqlo's standard store style. In April 2007, the UT flagship in Harajuku, built entirely on this idea, opened. Sato packed each T-shirt into a cylindrical plastic can with a red lid and displayed 500 designs across whole walls. This was his famous "canned T-shirt". It saved floor space, spared staff from folding clothes and, above all, gave customers something new. From then on, UT gradually became a fashion item.

After 2005, Uniqlo also began opening larger stores of more than 500 square meters, most prominently its flagships. In 2010, it opened its fourth global flagship on Nanjing East Road in Shanghai. Sato designed the three-floor store himself. In its windows he hung a set of suspended mannequins, an idea as novel as the "canned T-shirt" he created to promote UT. As of April 2014, Uniqlo had 13 flagship stores worldwide.

It is worth noting that Uniqlo was not at first considered a fashion brand in Japan. Only during its overseas expansion did these novel flagship designs and displays come to be seen as fashionable, after which Uniqlo brought the same approach back to its Japanese stores. Uniqlo, in other words, became fashionable abroad first.

Besides Sato, Uniqlo has a team of designers with staggeringly big names: design director Naoki Takizawa, formerly design director at Issey Miyake; creative fashion director Nicola Formichetti, Lady Gaga's stylist; Yukihiro Katsuta, senior vice president for global research and development, formerly a senior buyer at Polo Ralph Lauren and other companies; and Tomoaki Nagao (NIGO), creative director of UT and formerly creative director of A Bathing Ape...

• "Quick to react"

Zara gets a design from the runway to its stores in about 30 days, a benchmark for the industry. Uniqlo does not follow runway trends, but it can go from a new idea to goods on shelves in as little as a month. Uniqlo rarely tells the press about its supply chain; when QDaily asked for an interview for this story, we were told it involved too many "trade secrets".

In the 2014 Gartner Supply Chain Top 25, published by the research firm Gartner, Zara's parent Inditex and H&M ranked 11th and 13th. Uniqlo did not make the list. On inventory turnover alone, though, Inditex and H&M take 90 and 100 days respectively, while the figure in Uniqlo's financial report is just 83.72 days.

Where Uniqlo is rare in the industry is how quickly its stores adjust. Uniqlo store managers have wide authority. Depending on a store's location and customers, a manager can set and change order quantities, product displays and store operations, and can even decide what goes into advertising flyers.

A typical case: whenever a store finds an item selling slowly, the manager asks headquarters to approve a price change. A request made in the morning gets an answer by the afternoon, and the item goes on sale at the new price the next day. That is why consumers feel that "Uniqlo always seems to have price cuts, but you can never tell when".

Beyond store managers' decisions, Uniqlo's customer center receives about 70,000 comments directly from customers every year. Headquarters uses these suggestions to keep improving and developing products, for example by adding sizes, colors or functions. Heattech, for instance, evolved through steady customer feedback from basic warmth to anti-static properties, and the women's line now adds camellia oil to moisturize the skin.

Uniqlo's Real Secret: It Created a Culture of "Basics"

Uniqlo dislikes being called "fast fashion" and prefers to be described as "somewhere between fashion and basics". The subtle difference is that the latter focuses less on delivering fashion and more on meeting consumers' practical needs and letting them mix and match for themselves.

According to the book The Secret Behind Uniqlo's Global Success, Sato believes Uniqlo is not a fashion brand but, like Tokyu Hands, a supplier of all the parts of daily life, helping consumers build their own everyday lives. In other words, Uniqlo sells the components of fashion. "We just provide some objects and let consumers combine and create freely. It represents Japanese culture, a power that is simple yet contains joy," Sato explained. You can find the same quality in other Japanese brands such as MUJI: simple and plain, but never clichéd.

Do you feel this way about Uniqlo: no single piece looks like much, but put together as an outfit they look pretty good? That is also why Uniqlo could grow so fast into the world's fourth-largest fast-fashion brand. In recent years it has been the fastest-growing fast-fashion brand of all.

Above: Uniqlo's 2014 LifeWear fall/winter show, held in Shibuya, Tokyo, on May 14 this year. To show off the best ways to combine its basics, Uniqlo used 54 real people as models.

In 2010, Uniqlo itself wavered over whether to put more effort into fashion instead of devoting itself to basics. It designed a line of fashion clothing that was not very Uniqlo, and cut its orders of basics.

The result: for a whole year, the fashion items piled up in Uniqlo's warehouses. Heavy markdowns to clear the stock drove September revenue at its Japanese stores down 25%, and the slump lasted into November. When it warned of its first profit decline in four years, spooked investors rushed to sell, and Uniqlo's shares fell 26% in 2010.

Today, 70% of Uniqlo's products are basics, and it carries fewer SKUs (stock-keeping units) than other apparel companies. Uniqlo keeps around 1,000 SKUs year-round, while Chinese casual-wear companies typically carry 2,000-5,000. The online brand Vancl, which once claimed to be modeling itself on Uniqlo, peaked at 90,000 SKUs, filling more than 30 warehouses.

Though its SKUs are few, Uniqlo develops each one in depth. A top usually comes in crew neck and V-neck, in versions for men, women, the young and the old. Every SKU comes in at least 4-5 colors, and for certain best-selling basics (such as long-sleeved underwear, sports jackets and plain socks), Uniqlo offers as many as 50.

To Last 30 Years, You Can't Miss a Single Good Opportunity

• It caught the tail end of the golden age of Japan's middle class

In the 1980s and 1990s, the Japanese enjoyed the economic rewards of rapid growth. Combined with their long-standing pragmatism, this made Japan a classic society in which the middle class did most of the consuming.

Economically, Japan's middle class had fairly stable incomes; as consumers, they had developed fairly mature habits: no get-rich-quick mentality, little need for brand image, and still a comfortable, leisurely life. This is one of the fundamental reasons Uniqlo has been able to sell in Japan for 30 years.

When the bubble burst and the economy slumped, the luxury and high-end apparel markets were hit hard. Uniqlo, meanwhile, took the affordable route, and its promise of "continuously offering high-quality goods at the lowest market prices" fit perfectly with the mood of ordinary people and the middle class, who had started counting every yen even on daily necessities.

• It caught China's fast-growing middle class

Although China is now Uniqlo's largest overseas market, Uniqlo's early years there were rocky. When it entered China in 2002, it simply transplanted its Japanese promise of "continuously offering high-quality goods at the lowest market prices". That did not work: those were low prices by Japanese standards, which meant something else in China, and its stores kept losing money.

That changed only at the end of 2005, when Pan Ning became general manager of Uniqlo China, repositioned it as a middle-class brand and introduced the marketing slogan "Uniqlo goes with everything". Asked by reporters what annual income counts as middle class, he said: "It's not about that. It's that an attitude to life, a way of living, is changing. These people want to consume. They are very sensitive not only to clothing but, fundamentally, to all kinds of information. They have their own ideas and their own aspirations. By changing themselves, they can lift the so-called mass market along with them." Pan Ning said this to a QDaily reporter.

China's middle class is also growing fast, just as Japan's did in the 1980s and 1990s. More than half of Uniqlo's overseas revenue now comes from China.

• It caught the shift of manufacturing to East Asia

Over the past 30 years, global textile and apparel production has been transformed: the textile and apparel industries of developed countries have declined, and production has moved to developing countries, especially in East Asia.

Cheap East Asian labor remains the main reason developed economies such as the United States and Japan invest in apparel production there. In 1975, the average wage in the United States was US$3.79 an hour, compared with US$0.75 in Hong Kong, US$0.29 in Taiwan and just US$0.22 in South Korea. By steadily improving quality, adopting flexible production and developing fashion goods, these economies quickly raised productivity and offered good-quality products at relatively low prices.

From the 1980s, to get around quotas imposed by the United States and European countries, East Asian apparel makers gradually moved production to less developed Asian countries, including China, Indonesia, Thailand, Pakistan, Sri Lanka and Vietnam. Today China is the world's largest manufacturing nation, producing about 20% of global manufacturing output.

90% of Uniqlo's products are made in China, where it works with 50 partners operating 60 factories in total. As Chinese labor costs have risen, Uniqlo has begun shifting factories to Southeast Asia. In 2010, Yanai decided to raise the share of factories in Bangladesh and other countries to a third of the total.

In these 30 years, Uniqlo has lived through two economic crises; through the embarrassment of clothes that sold well because they were cheap, only for buyers to cut the labels off as soon as they got home; and through the debacle of 2005, when sales and brand awareness fell together. The key market opportunities it did not miss, and the strengths it built along the way, made it one of the world's most successful apparel retailers.

In 2014, Fast Retailing's revenue rose 21%, driven mainly by Uniqlo's rapid growth overseas. Uniqlo's overseas revenue grew by as much as 65% this year.

Yanai's next step is the boast he made back in the 1990s: that Uniqlo would overtake Gap. To get there, it will clearly have to win overseas markets, above all Europe and the United States.