‘Chic Cheap’ Retailer Explodes on the Japanese Clothing Scene

Casual clothing retailer Uniqlo carried out its assault on Japan’s affluent and complacent retail industry with all the mastery, stealth and daring of a guerrilla band taking a smug capital city.

The upstart patiently marshaled its forces in the shadows over a 15-year period. It liberally borrowed ideas and tactics from other innovators. And it struck with audacity once it had the pieces in place, sending shock waves through Japan’s $54-billion apparel industry.

Now Uniqlo’s years of preparation are finally paying off--and forcing its rivals to restructure by streamlining their own manufacturing and distribution systems.

Uniqlo has become a media darling, with top billing on numerous year-end lists of hit concepts and top trends. The chain, owned by parent company Fast Retailing, has also been on a tear at the cash register, doubling its sales and racking up a fivefold jump in profit in the past year, to $2.1 billion and $310.9 million, respectively.

Eye-popping statistics, like the 29 million Uniqlo T-shirts sold last summer in this nation of 126 million people, have also helped quadruple its stock price over the last 18 months.

Uniqlo’s “chic cheap” product line includes $17 fleece jackets--about half of what American retail chains charge here and a fraction of what department stores are hawking them for--shirts in a range of colors and $26 denim jackets. In fact, with its pants and tops selling for up to 50% less in Japan than those of its American counterpart, Uniqlo is credited with “out-Gapping the Gap.”

“The clothes are cheap, durable and there’s a good range of products,” says Yukihiro Ogawa, 29, a video production worker, emerging from Uniqlo’s flagship Tokyo store after buying a $26 pair of khakis. “My company won’t let me wear jeans but Uniqlo’s stuff works quite well.”

Along the way, Uniqlo--short for “unique clothing”--has jolted the struggling Japanese retail apparel industry by drawing on the lean inventory ideas of Dell Computer and the in-house branding and rapid turnover concepts of convenience store chain 7-Eleven. This has earned company founder and President Tadashi Yanai, 51, a reputation as someone who thinks outside the shopping bag.

Yanai didn’t always show such promise. A mediocre student, he found business boring and spent most of his college years “playing mah-jongg and sleeping.”

After graduating with a degree in political science in 1971, he was asked to manage two struggling boutiques owned by his father, who also ran a small construction company in Yamaguchi prefecture and couldn’t be bothered with the shops.

Six of the seven shop workers quit almost immediately “because I was apparently too impertinent, even though I knew little about the business,” Yanai told the Asahi Shimbun newspaper. “However, I found the business interesting after I was forced to think for myself.”

Retailing in Japan has long been dominated by traditional companies weaned on fixed prices, risk-averse managers, expensive middlemen and government protection. Looking for an edge, Yanai concentrated on the Japanese suburbs, far from the glitzy lights of Tokyo’s traditional Ginza shopping district.

With his first suburban outlet a success, he eventually opened a dozen. To most customers, each store seemed unique, even though all shared the same name. Yanai made little effort to tie his growing network together to outsiders, even as he kept his costs and profile down by advertising with hand-distributed fliers and steering clear of high-rent urban areas.

Through the latter half of the 1980s, even as he remained largely under the competitive radar, Yanai set about reworking the organization. Long before foreign companies such as Toys R Us started shaking up Japanese retailing by marketing directly to consumers, Uniqlo embarked on its own manufacturing and distribution, cutting out costly layers by ordering directly from Chinese factories.

While this is second nature in the U.S., most Japanese retailers do not own the goods they sell and are in fact little more than sales agents for layers of wholesalers and distributors, each taking their cut.

By November 1998, with all the pieces in place, it was time to strike. In a bid to reposition the suburban brand and put his growing empire on the map, Yanai launched a splashy national TV advertising campaign featuring Japanese pop singer Masayoshi Yamazaki.

He also opened with great fanfare a store in Tokyo’s Harajuku district--retailing’s ground zero in Japan and a magnet for teenage girls who dictate what’s hot and what’s not. It worked; suburban youngsters who once hid their Uniqlo bags in shame because of their cut-rate image now flouted the newly cool brand.

Japanese retailers didn’t know what hit them. A chain they had long dismissed was suddenly redefining industry rules. Department stores and supermarkets, already weakened by a decade-long downturn and their own increasingly fusty image, began to realize just how deep their Rip Van Winkle slumber had been.

“We underestimated Uniqlo’s potential to attract customers,” said Motoya Okada, president of Jusco, one of Japan’s largest chain stores. “We will boost low-priced products under our own private brand to win back customers.”

Competing clothing retailers quickly dropped their prices--whether or not their cost structure justified it. Renown, one of Japan’s largest apparel makers, has added new women’s labels and cut prices by 30% or more. Another popular chain, Muji, has dropped skirt prices by 25% to $26, while retailer Itokin Co. has unveiled a “price-busting 2-for-1” sale.

Ultimately, however, competitors are only cutting into their own profit margins by lowering prices without lowering costs. And Uniqlo has a big head start.

“Most people know Uniqlo only over the past year or two,” says Misa Kitazawa, a Uniqlo marketing executive. “They don’t realize all the work we’ve been doing for the last 15 years.”

But Uniqlo’s success, combined with the arrival of efficient foreign retailers such as Benneton, Costco Wholesale and France’s Carrefour, is forcing Japanese competitors to simplify their structures, cut overhead and streamline distribution. Apparel retailers such as Itokin, Tokyo Style and Muji are boosting production in China and offering more private brands, part of a 36% rise in Japanese clothing and textile imports from China during the first half of 2000.

“Uniqlo and other specialty shops are driving the new ‘price destruction,’ ” says Hideyuki Suzuki, director of pricing research at Japan’s Economic Planning Agency. “We’re seeing a revolution in Japan’s distribution system.”

While low-cost retailers are always vulnerable to someone coming in cheaper, Uniqlo retains several advantages--at least for now. Its size, in-house designers and rapid-fire corporate culture allow it to keep its economies of scale high and its inventory at half that of some rivals.

Uniqlo also has stayed away from fashion’s risky cutting-edge--where a sudden change can leave a retailer with 50,000 of last year’s pale green tank tops--to concentrate instead on casual wear that remains in style longer and has broader age appeal.

Yanai has now set some new targets. He hopes to have 750 stores in Japan within three years, up from the current 500. He plans to open 50 stores in the British market. Uniqlo recently started Internet sales and within two months became Japan’s third-largest e-commerce Web site. Yanai is even eyeing the U.S. market.

Despite all of its successes, the chain has a few question marks. Analysts wonder whether it can succeed in foreign markets, maintain its torrid pace of growth and avoid costly mistakes as it scrambles to find enough management talent to keep the ball rolling.

“The question is how long Uniqlo can keep winning,” says Takashi Yanahira, senior analyst at ING Baring. “Easy money might make them sloppy.”

And in the minds of some discerning Japanese consumers, Uniqlo may have become too successful. “Even though Gap is more expensive, I like the designs better,” says Tomoko Kishida, a 17-year-old high school student. “Uniqlo is such a boom that everyone wears the same thing.”

But so far Uniqlo has been able to stay on target by following a simple concept: Sell high-quality clothing at low prices.

And while that is seen as revolutionary in this slow-to-change society, what is really revolutionary is that Yanai has been able to pull it off. For that, he has earned a place in Japanese economic history.

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Hisako Ueno in The Times’ Tokyo bureau contributed to this report.

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Uniqlo’s Glow

Japanese apparel chain Uniqlo carefully built its brand by liberally borrowing ideas from foreign counterparts. As a result, the upstart has turned the Japanese retailing industry on its head and earned steady returns for investors in its parent company, Fast Retailing.

Fast Retailing, split-adjusted monthly closes and latest on the Tokyo Stock Exchange

Wednesday: 23,530 yen (U.S. $206)

Source: Times research