By Yiting Wang, Mengxin Li
May 30, 2018
Uniqlo, in essence, is a tech company, competing against Apple instead of Gap, according to Tadashi Yanai, President of Fast Retailing. Just before his retirement, Uniqlo set another goal for its online business.
Tadashi Yanai, CEO of Fast Retailing Co Ltd (TYO:9983) recently said the corp will double the online sales volume of its core brand Uniqlo in the following two years, enlarging it to JPY￥ 300 b ($ 2.7 b), which will account for 20% of its total sales volume.
According to Fast Retailing’s financial report of year 2017, though Uniqlo’s online sales volume soared by 31.6%, its online revenue only reached JPY￥140 b, accounting for 7.5% of its total revenue and falling far behind its rival, Inditex’s fast-fashion brand Zara, which scored an online revenue of JPY￥ 330 b.
Tadashi Yanai revealed that reform will happen in two ways. On one hand, Uniqlo will connect global distribution channels via a brand new website. On the other hand, it will strengthen its basic product line and sell exclusive items online.
On top of that, Uniqlo also announced within this fiscal year it will speed up itsoverseas expansion with main focus on Asian market. It’s worth noting that the brand’s revenue overseas surged by 29.2% to JPY￥ 507.4 b, overtaking its domestic market for the first time.
In a time when global retailing is downsizing, Uniqlo bucks the trend to integrate its channels online and offline. Uniqlo’s former global VMD director Uchida Fumio pointed out that the brand prefers to build a model of online order and offline delivery.
Fast Retailing’s CFO Okazaki said the corp has established new delivery centers in China and America that will provide same-day or overnight deliveries.
The next step of Uniqlo’s digitalization is personalization through a steady transfer to AI. Now the company is testing the water by providing semi-tailored services. Ever since last September, Japanese customers were able to pick out semi-finished articles and adjust the size, color and details such as collar and cuff patterns to their liking.
Consumers can draw their unique patterns on Uniqlo’s App and order custom-made T-shirts on UT line, a service which will be accessible worldwide.
Analysts believe custom service extends the diversity of products at a minimum cost. Uniqlo specializes in basic models and invests heavily in functional features, rendering its products less fashionable than counterparts of other fast-fashion brands. But with consumers’ own design, its products become more fun and personal.
But for Uniqlo, it’s more essential to hold on to customers’ physiological data for personalized recommendation and CMR (customer-managed relationship). The service now is available on its App for customers to access on their smart phones.
Through Uniqlo App, t-shirts of UT collection can be customized with prints individually online, which is gradually promoted globally.
According to Uchida Fumio, the brainpower of the application is UNIQLO IQ, an AI tool that visualizes the whole supply chain. As soon as an order is placed, the information will go to the headquarter, meaning customers get to track their purchase from production to delivery on their cell phones.
As a matter of fact, the heavy investment in digitalization accords with Uniqlo’s long-prized value of functionality. On “The Art and Science of LifeWear”exposition last year, Mr. Yanai emphasized the importance of functionality overfed. As he put it, fashion trends will transform overtime, but Uniqlo will weather any conditions with its unparalleled functionality and comfort.
Provoking panic purchasing right after releasing, the promotion of UNIQLO U collection of spring & summer 2018 is combined with some try-on directions by some bloggers from Youtube etc.
But the collaborative collections it has launched in recent years seem to be contradicting that claim. Lately, it’s been involving itself with luxury brands, too. The beach-inspired leisure collection, co-designed by Bottega Veneta’s creative director Tomas Maier, is now available online and in select stores. On top of that, Uniqlo also brings out regular collections of “UNIQLO U” with its long-standing partner, former Hermes creative director Christophe Lemaire.
However, sporadic collaborations will not guarantee a fashion upgrade for the brand.
Just take a look at H&M, the fast-fashion brand that initiated the joint-design model. The latest Erdem X H&M collection boasted haute couture at a fast-fashion price, but wes faced with cold shoulders in Chinese market for lack of recognition. Taking note of this uncertainty, Yanai reiterated when he announced his own retirement that the person in charge should always be young, so that its products will play well with youngsters. His successor should also be experienced in digitalization and able to make timely decisions based on market changes.
Jolted by consumption upgrade and new business models, traditional fast-fashion brand is now standing on the crossroads of reform. On account of depreciated yen, Fast Retailing’s raw material and labor costs rose sharply during 2014 to 2015, prompting Uniqlo to raise its price of Autumn/Winter collection by 5% in July, 2014 and then 10% overall in 2015.
The two price hikes eventually led to a 6.3% drop in Uniqlo’s customer count as well as a 22.6% nosedive in profit during the first half-year. Yanai was forced to admit the act was a strategic mistake and cut prices globally by up to 30%.
The failure of price-raising strategy might have been a major turning point for Uniqlo.
Japanese retail expert Chen Liping pointed out that every retail giant starts off as a “price killer”. Industry insiders believe compared with integrated retailers, brands such as Uniqlo that focus on segmented areas have their advantage in quality. And in its own niche, Uniqlo edges out the front-runner with its competitive price.
In their heyday, those retail tycoons focusing on segmented markets perfectly balance low price with good quality, but when “price killers” show up, the balance will be thrown off.
Ultra-fast fashion brands such as Boohoo and ASOS still keep in step with fast fashion’s business model, however, their emergence transformed consumers’ perception of “high quality at low price”, meaning consumers realize they can enjoy the same or similar products at lower prices.
Furthermore, popularized internet gives a voice to every individual, therefore independent designer brands can get great publicity at a low cost. Besides that, fast-fashion brand Zara’s Weibo (a major social media in China) are flooded by complaints about refunds and new arrivals.
A great number of consumers complain about the quality and return of their purchases under Zara’s Weibo posts.
As customers become more fastidious, fast fashion’s intrinsic advantages might be overturned. For Uniqlo known for its functionality, fitful embracement of fashion will delight customers and boost purchase. But the most critical strategy is to exert core competitiveness of its products.
When publishing results of last year, Fast Retailing said its earnings went up because the unusually cold weather fueled the sales of winter items such as HEATTECH, down jacket, fleece and leggings.
Yanai once said Uniqlo per se is a tech firm, which competes with Apple instead of Gap. After it collaborated with high-tech company Toray and launched heating fabric HEATTECH in 2015, industry insiders predicted those two might co-design fabric that generates heat with solar power, collects physiological information and changes hue under light.
Toray said the invention is possible tech-wise, but it remains confidential whether the tech will be put into production. It means customers may well be able to buy high-tech clothing at fast-fashion prices. Uniqlo is renovating customers’ perception of “good quality”.
This may sound the alarm for fast fashion industry which is busy with promoting new brands, shutting down stores or laying off employees. After all, only products with good quality and low prices will always be in customers’ good graces. And Uniqlo, the “killer” in fast fashion, will further threaten Zara’s footing.
