Author | He Zhexin
Edit | Qiao Qian
After revealing the "slowdown in store expansion" signal in advance, the poor performance of the mainland market in Uniqlo's latest financial report is not so surprising.
On Thursday, Uniqlo's parent company, Fast Retailing, released its performance report for the six months ended February 29, 2024, showing that revenue increased by 9.0% year-on-year to 1,598.9 billion yen (about 75.5 billion yuan), and revenue in Greater China (including mainland China, Hong Kong and Taiwan) increased by 12.3% to 360.5 billion yen, or about 17 billion yen. However, in the mainland market, "gross profit and net profit both declined slightly", which Uniqlo attributed to the lack of sales of winter single products under the influence of the warm winter and the overestimation of consumer demand.
After several years of rapid expansion, Uniqlo's growth in the mainland market has plateaued, and its performance has become more and more like that of the Japanese domestic market. In the first half of the year, Uniqlo's revenue in Japan fell 2%.
The most direct result of UNIQLO's long-term high-speed store opening in the mainland market in the past five years is that the domestic single-store revenue has been lower than the level of the Japanese domestic market for a long time. According to Fast Retailing's financial report, sales revenue per store in fiscal 2023 (ending August 2023) will be 600 million yen (including EC and e-commerce), which is only about half of that in Japan (1.1 billion yen). Fast Retailing's executives expect it will take 10 years for Uniqlo's single-store revenue in Greater China to catch up with the level of the Japanese domestic market.
Not long ago, Fast Retailing's chief financial officer (CFO) Ken Okazaki said that in the future, the opening of stores in the mainland market will "pay more attention to the efficiency of single stores", and said that after fiscal 2025, "the net increase of stores in mainland China may be at a low level for several years". Like other fast-fashion retailers, Uniqlo also faces a thorny inventory problem, and it makes sense for Uniqlo to shift to a conservative approach at a time when investors are more interested in profits than growth.
The share of Greater China continued to decline
In the first half of last year, Yanai proposed that Fast Retailing should achieve 10 trillion yen in revenue within 10 years, and said that "I basically see the hope of achieving 5 trillion yen in sales (in 2024)" - about equal to the total revenue of Inditex, the parent company of the world's largest fast fashion group Zara, in 2022.
It is worth noting that Uniqlo's Greater China revenue accounted for 22.5% of total revenue, an increase of 0.6% over the same period last year - this seems to be a positive signal, proving that Greater China, which is dominated by Chinese mainland, is still the pillar of revenue after the Japanese domestic market (the Japanese market has long contributed about 30% of revenue), but if this revenue is placed in UNIQLO's overseas sector and compared horizontally, it will be found that Greater China is becoming smaller and smaller in UNIQLO's expanding overseas layout.
Much of this is due to Uniqlo's "go south" strategy, which began circa 2019.
The Southeast Asian and South Asian markets are the "other basket" that UNIQLO uses to hold eggs after the setback in the European and American markets. The specific time dates back to 2019, when Uniqlo's first stores in India and Vietnam opened. In an interview with Nikkei in October 2019, Yanai also said that India will be a must for fashion brands, and although the new crown epidemic broke out soon after, the Indian market still proved Yanai's original prediction with its rapid recovery. As of today, UNIQLO has opened 13 stores in India, most of which are located in the capital New Delhi.
To some extent, Uniqlo's popularity in Southeast Asian and South Asian countries is largely similar to that of China – the good impression of "Made in Japan".
"Japan or Made in Japan is very much synonymous with quality, high-tech and a great deal of aesthetic and attention to detail," says José Wendell Capili, a professor of pop culture studies at the University of the Philippines, who understands Uniqlo India's popularity in Southeast and South Asian markets.
In addition to the aesthetic "dimensionality reduction", Uniqlo's success in the Southeast Asian market is also due to the targeting of the country's fast-growing middle class and affluent class.
When Uniqlo's Central World store in the heart of Bangkok was officially reopened last September, a merino cardigan was advertised in large advertisements on the subway and on the streets. In a country where temperatures above 30 degrees Celsius are perennial, such a push-off may seem incredible, but it makes a lot more sense when you take into account the social factors behind it: people who can work and live in a 24-hour air-conditioned environment usually mean a higher social class and income level, which is also an important consumer group for Uniqlo in the region.
However, it remains to be seen whether the affluent class alone will be able to sustain Uniqlo's growth in the region.
In the last quarter's financial report, Fast Retailing pointed out that the growth of the Southeast Asian market was less than expected due to the fact that the structure of "Changxia products" had not yet been completed. In the apparel industry, due to the higher average selling price, the gross profit of winter products is often higher than that of summer products, and Uniqlo also relied on the hot sale of polar fleece in the first shot of the Japanese market. If it is to achieve long-term growth in the Southeast Asian market, UNIQLO needs to think more about summer product innovation.
The new GAP for young people in Europe and the United States
Uniqlo is starting to pick up in the European and American world markets, and the timing of its expansion in Southeast Asia roughly coincides, but the reasons are very different.
In addition to the difference in aesthetic culture, young consumers in Europe and the United States are more sensitive to fashion and have more choices, but chasing trends (especially American trends) has never been UNIQLO's strong point. An interesting phenomenon is that many European and American consumers don't even know how to pronounce Uniqlo correctly, while those who have spent time in stores will joke that Uniqlo is not true to its name, not unique at all, "more like a huge warehouse of T-shirts of different colors".
In this context, UNIQLO is only alive in the European and American markets.
All of this changed 180 degrees around 2019.
One of the main reasons is that the mainstream fashion aesthetic has begun to develop in the direction of no logo, and low-key dressing has become the new fashion, and Uniqlo has better quality and tailoring than H&M, Zara, etc., making it a must-have-piece in the shopping cart of young people. "A pair of Uniqlo suit pants won't look like $200 Brooks Brothers, but they're well cut and well worth the $40 price. A customer in Florida left a message on Uniqlo's official YouTube page.
According to the last quarter's financial report, North America and Europe accounted for 80% of Fast Retailing's 30.9 billion yen increase in profit.
In addition to taking advantage of trends, analysts believe that the decline of traditional American fashion brands such as GAP, JCrew, and LEE has also left room for UNIQLO's growth. GAP once relied on plaid shirts and "mom jeans" to sell well in the United States, but in the later period, too many channels expanded into towns and villages, so that GAP lost its original young customers and became "uncool". GAP's recent earnings report shows that the former fashion giant is still struggling to restore profits.
Of course, there are still many challenges to UNIQLO's further expansion in the European and American markets, one of which is the sharp questioning of consumers' production model of UNIQLO. In a Youtube video uploaded in 2023 and now with more than 1.2 million views, the blogger questioned whether Uniqlo over-publicized the particularity of its materials, whether there was a suspicion of "greenwashing", and of course, the ethical issues involved in the production chain behind the low price.
In this video, the blogger also mentioned that Uniqlo is not a special case, H&M, Zara and even Nike and Adidas have been accused of similar problems countless times, or even more serious. But Uniqlo's intention to convince consumers that their products are "better, greener and more technological" inevitably creates a sense of disparity.
However, at present, it seems that the European and American markets have taken over the role of the Chinese mainland market, and are expected to become a new engine for UNIQLO to achieve the "10 trillion yen" goal. A very important reason is that young people in Europe and the United States who are shy of money can no longer afford expensive designer brands, and it seems that fashion will not return to the glitzy era of logos for a long time in the future. Just as a 2019 article in The Atlantic predicted that Uniqlo would become a fire in the United States, "Underemployment Chic" was the title of the article.