[2014] Uniqlo: Is Simplicity a Passing Trend or Here to Stay?

Top 15 Year-End Review: Uniqlo

Regular article

Ask people about Uniqlo and you will probably hear the same puzzles. Why do its basics, which have almost nothing to set them apart, sell so well? Why does everything it sells look so cheap, while its founder, Tadashi Yanai, has become the richest man in Japan? And why does it keep advertising high-tech selling points such as heat-generating fabrics and light down, yet still manage to keep costs so low?

Uniqlo is a disruptor. It has every standard trait of one: low prices, a focus on basic needs, and fabric technology that adds value and sells the middle class the idea of a premium product it can afford. What makes this work is the idea of a lifestyle, backed by a formidable sales operation.

In 2014 Uniqlo seemed to carry on as usual. But it ran into trouble both in Japan and abroad. Beyond its distinctly Japanese identity, and beyond simplicity, it still needs to find what it stands for as a "lifestyle" brand.

A lifestyle for young people is Uniqlo's core value

Ever since Uniqlo hired Tomoaki Nagao as creative director of its UT line in 2013, many people had expected a younger, more fashionable Uniqlo in 2014. Nagao is better known as NIGO, who made his name in fashion by founding the streetwear label A Bathing Ape. Under this godfather of Japanese street fashion, Uniqlo moved even closer to fashion trends in 2014.

Once in the job, NIGO overhauled the styles and fabrics of the UT line, which Uniqlo billed for 2014 as The New Model T. NIGO loves American culture and wanted UT to remix pop culture. He began by bringing in his friend Pharrell Williams, now one of the hottest singers in America and Europe, as the face of the 2014 UT line, and the two launched a joint collection, i am OTHER.

NIGO also redesigned UT's long-running collections with brands such as Disney, Sanrio and Coca-Cola. He replaced their overly childish graphics and plain logos with retro-style graphics, posters and slogans that suit the taste of more young people.

Collaborations were a crucial step in Uniqlo's push this year to look younger and more fashionable. Beyond the UT line, Uniqlo also launched basics collections with a number of designers this year.

If NIGO's overhaul of UT and this year's string of collaborations made Uniqlo's products younger and trendier, then signing celebrity spokespeople who appeal to young shoppers and hiring two creative directors from W+K were its bid for a breakthrough in advertising and marketing.

In June 2014, W+K creative director Todd Waterbury joined Uniqlo to run creative work for North America. In October, Uniqlo brought in John C Jay as global creative director. What they will change at Uniqlo will not be clear until 2015.

Technology is changing how young people live, and Uniqlo has begun to take digital and new media seriously. Its promotion has moved from plain advertising to a wider mix of online marketing. And unlike brand promotion as we usually know it, once smartphones and mobile devices took off, Uniqlo began releasing a series of fresh, similarly styled lifestyle apps, such as the clock app Uniqlock and the calendar app Uniqlo Calender, which combines music, color and weather.

Collaborations, advertising and digital marketing alike are all aimed at the young.

So Uniqlo had a decent year

The financial numbers look fairly good. Uniqlo's total net sales have risen steadily over the past five years, reaching 1,129.27 billion yen this year, up 20.84% on the year before.

But behind the bright figures, worries have already surfaced. Look at the quarterly reports of Uniqlo's parent company, Japan's Fast Retailing, one by one, and a downward trend in revenue stands out. In 2014 Fast Retailing cut its revenue forecast twice.

This is partly the cost of Uniqlo's aggressive international expansion over the past year. Measured by share of sales and of stores, Japan is still Uniqlo's main market, but the gap between overseas and home is steadily narrowing.

Expanding overseas

In Japan, Uniqlo's stores already cover most of the country and the market is close to saturated. All it can do is make each store more productive, which means repeating the same business. In recent years it has slowed store openings and cut investment at home, turning its attention abroad.

Under the targets Yanai has set for 2020, overseas markets will overtake Japan. Uniqlo plans to open 400 more stores in the next two to three years, with a dozen or so more each year in the United States. Yanai, who visited India this year, also said he hopes to enter the Indian market and open 1,000 stores there within 10 years.

This year Uniqlo also expanded notably in Europe. In April it opened its first German store in Berlin, which is also its largest flagship in Europe. The same month it opened a new store in Paris. At the end of the year its first Belgian store opened in Antwerp.

In fact, Uniqlo began expanding overseas back in 2000, but the early years did not go smoothly.

In Japan, Uniqlo started with roadside warehouse-style stores near residential neighborhoods, with clothes displayed in folded stacks. It met local residents' basic need for these staples, and most shoppers came in knowing exactly what they wanted and picked it out quickly.

Uniqlo could keep opening stores in Japan until it reached its present size because Japanese shoppers already knew the brand: its image, its styles, its look, its prices and its quality. On that basis, each new store simply widened its reach. And because the products no longer needed showcasing, small stores were enough.

But in big cities and overseas markets, neither small stores nor stacked displays worked as hoped, and opening stores the way a convenience-store chain does was a poor fit. So large flagships in prime shopping districts became the rule for Uniqlo's later openings.

To introduce itself to foreign shoppers, Uniqlo put its first U.S. store, opened in New York in 2006, in crowded SoHo, and made it a huge flagship. Compared with the small roadside warehouse stores in Japan, the flagship leans on visual merchandising, with clothes shown on mannequins instead of in stacks. The stores are also more carefully designed, so that even passers-by want to step inside. A busy location, naturally, also lets more people get to know the brand.

Uniqlo's center of gravity keeps moving overseas. Besides growing in the United States and Asia, where it already has a foothold, it made opening new markets in continental Europe a priority this year. But constant expansion drives costs straight up. If sales cannot grow as fast as costs, Uniqlo may see its operating income growth slow or stall.

The bigger problem overseas is online competition

Compared with other fast-fashion brands, Uniqlo has done well selling online in China. Of all the fast-fashion flagship stores on Tmall in 2014, Uniqlo's sold the most and offered the best experience.

Uniqlo runs its online shopping with its own e-commerce team. The team has only a dozen or so people, but because Uniqlo manages it in-house, its flagship store beats many others online on features, customer service and after-sales service.

Uniqlo also wants its online and offline businesses in China to send customers to each other.

According to Pan Ning, head of Uniqlo's Greater China business, Uniqlo plans to open 80 to 100 new stores a year in Greater China. Hu Guoxun, head of its e-commerce team, said online sales look better wherever Uniqlo has more stores: once customers have seen the quality of the products and the brand's service for themselves, they trust the brand more and feel comfortable buying online in future.

The flow runs both ways, though the official mobile app Uniqlo launched in 2013 and the QR-code scanning feature it added this year were both meant to bring mobile traffic to its online sales.

For Uniqlo, its online business works like one huge virtual store: style, price and quality are identical online and offline. That is also why customers feel safe buying from it online.

Still, Uniqlo can sell the same items at the same prices online and offline, and keep customers coming back, largely because of what it sells. Most of its products are basics in consistent sizes, and every design comes in a range of colors. Shoppers who know Uniqlo can quickly find their size and the style they want in the online store, and the colors are clear at a glance. For shoppers who don't, clear product categories, appealing colors and low prices are reason enough to order online.

In China, Uniqlo leads comparable international fast-fashion brands online, but competition offline is still fierce. Besides established fast-fashion brands such as Zara, H&M and GAP, Uniqlo has quite a few potential rivals.

On Tmall's Singles' Day shopping festival this year, Uniqlo ranked second in women's clothing sales and squeezed into the men's top ten in tenth place. Most of the rest of the list were little-known local Chinese brands and Taobao-native brands that have risen in recent years.

This shows that Uniqlo has still not reached second- and third-tier cities, or a large share of online shoppers. Its online store can serve some shoppers in cities without a Uniqlo store, but people in those cities often have never come across these international brands, and tend to pick the domestic brands they see in local malls. In second- and third-tier cities, Uniqlo may be far less known and trusted than brands such as Ochirly, Semir and Septwolves.

Uniqlo should also feel threatened by the Taobao-native brands that have grown up on e-commerce platforms in recent years. Looking at online sales alone, purely online brands such as Handu Yishe are far more nimble than Uniqlo. They can test styles and take pre-orders at any time, and data guides every product from design to sale, which cuts both piles of unsold stock and the shortages that come when one item is in heavy demand. And unlike brick-and-mortar brands aimed at everyone, Taobao-native brands usually have a clear position, winning over one particular type of shopper within the mass market.

Two sources of competitiveness: technology and management

Technology: new fabrics

Uniqlo often wins customers with new products, and it is especially good at innovating in fabrics, an innovation that rests on thinking about materials differently.

HEATTECH, a huge hit in 2007 and 2008, was another of Uniqlo's fabric innovations. The material actually started as winter base-layer sportswear sold in sporting-goods stores, but that underwear felt stiff and cost 3,000-4,000 yen. Uniqlo improved the material and launched the lighter, more comfortable HEATTECH thermal underwear we know today.

Uniqlo's technical breakthroughs also owe much to Toray's research team. In 1998, when Uniqlo was still a small company, Yanai called on Toray's then chairman, Katsunosuke Maeda, and the two companies agreed to work together. After they signed a strategic partnership agreement in 2006, they formally set up a "next-generation materials development team," staffed by employees of both Uniqlo and Toray, which mainly develops new clothing materials.

From fleece and light down to HEATTECH, Uniqlo has taken the same path to "commercializing technology": take a material that is expensive, performs well in some way, but is rarely used in everyday clothes, develop it with the supplier to bring down the cost, and create a new market.

Management: streamlining production and sales to save as much cost as possible

Uniqlo is a specialty retailer of its own private-label apparel and uses the "SPA" model, in which one company handles product design, production, logistics and sales, sending goods straight from factory to store. This lets Uniqlo control costs at every stage, understand exactly what customers want, and plan, develop and make its own products.

More important, the model lets Uniqlo's products carry more information, including the story of how each one goes from design to finished product, so that shoppers feel they are getting more value.

Tadashi Yanai's big idea

How Yanai sees Uniqlo's future may surprise everyone. In an interview with Wired, he said Uniqlo is, at heart, not a clothing maker but a technology company, and that its only competitor is Apple, not Gap.

When Uniqlo launched its autumn/winter 2013 collection, it introduced the idea of "Lifewear." The concept is built around innovation rather than fashion: products are grouped and developed by their technical features, such as light down and high-stretch jeans, rather than by style and trend. Naoki Takizawa, Uniqlo's creative director at the time, said in an interview with BoF: "Lifewear is this season's theme, but it will carry on into every season to come, just like the iPhone 4 and the iPhone 5. It is an ongoing concept, with new fabrics and new design elements coming out all the time."

But no company has yet copied Apple in quite the right way. If Yanai makes this his strategy, the challenges may be these:

1. Product updates. Apple's phones, after all, have Moore's Law behind them: every year or so, hardware costs keep falling while performance multiplies. Clothing has no such rule driving new styles. Put plainly, Uniqlo can use "added camellia oil" as the gimmick that sets the 2014 HEATTECH apart from the previous year's, but whether it can keep innovating is still in doubt.

2. Simplicity and basics, as lifestyle traits, depend largely on trends. This happens to be the age of Normcore and athleisure, and Uniqlo is riding that wave, so it is popular everywhere. But if the trend shifts, its value will fall.

Cover image from: ktmart.vn