Real insight on Japanese consumer markets

Fast Retailing continues its search for major acquisitions — all part of the goal that Tadashi Yanai, the company’s president and majority shareholder, has to be not only the largest apparel retailer in Japan, but equally the largest in the world. This kind of ambition is exactly what the Japanese press like to report on, especially given the stark contrast with the depressed nature of some other parts of the industry.

In a recent Nikkei interview, Yanai is quoted as saying he is willing to spend as much as ¥1 trillion (about US$11.12 billion) on overseas acquisitions. He also reiterated that Fast Retailing aimed to be the biggest in the world by 2020.

Europe and North America are both areas where Fast Retailing is looking for suitable targets. Yanai not only wants to buy volume, but also wants to add to the chain’s stable of brands.

This is at least the third time in as many months that Yanai has appeared in the press touting his desire for acquisitions around the world. There has been some speculation that this is a key reason that the company is keen on bolstering its share price with genuinely impressive performance at home. Indeed, the spectacular same store sales increases in October and November, both months up around 30% on the previous year, were met with amazement. Things have since settled down. Same store sales dropped 7% in January.

In the latest interview, Yanai was at pains to insist any company it acquired must fit the Fast Retailing philosophy — in the past a difficult requirement to meet as shown by problems in its acquisitions to date, both overseas and at home. Despite adding numerous companies over the past 10 years, few of the brands brought into the group are yet to turn a profit and it is the core Uniqlo chain of casual apparel stores that holds the whole company together.

There is currently only a single Uniqlo outlet in the USA, but this flagship store in New York has proven a model that the company has since replicated both in Europe and back home in Japan. It was arguably the first time Uniqlo proved it could offer fashion in addition to cheap and basic clothing – although even now few would argue that Uniqlo’s fashion credentials are up to the standards of most of its international rivals. It is, according to Yanai, looking at opening in California, and has begun to explore possibilities in emerging markets. This includes Brazil, which Japan feels some affinity to due to the relatively large Japanese diaspora there.

China remains big on the Fast Retailing radar. Uniqlo already has 40 stores there. It will open in Russia this Spring and plans to continue expansion in Singapore and the rest of SE Asia. India too is of interest, but as with all international retailers, Yanai notes that regulatory difficulties make it a problematic market. “To sell your products in India, you would have to manufacture them in India as well, because the tariffs are so high,” he said. “It will take two to three years before opening stores in India,” he said.

Uniqlo products will be made available worldwide through online channels over the next couple of years.

The other big issue for Fast Retailing is Yanai’s succession. Traditionally in Japan, such retail powerhouses are handed down in the family, and Yanai continues to insist he’ll move to the chairman’s position when he hits 65 in four years time. But right now, it looks like his successor will be groomed from within the ranks. The company recently launched a high profile training programme for 200 middle to senior managers, involving IMD in Switzerland, Hitotsubashi University in Tokyo, and Harvard University in the USA. Such a major investment in education is unprecedented for a Japanese retailer (and rare for retailers in general) and, perhaps more than anything else, helps to put weight behind all the hype about Fast Retailing becoming world No. 1.

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