Home Book retailers Amid US retail gloom, Uniqlo shines on COVID-triggered overhaul

Amid US retail gloom, Uniqlo shines on COVID-triggered overhaul

0

Join now for FREE unlimited access to Reuters.com

  • The Fast Retailing brand is set to make its first-ever profit in North America
  • Company has ‘scratched everything’ about pandemic – Uniqlo regional chief
  • No discounts as the company has adopted new logistics, tariff plans
  • Company ‘still has a lot to prove’ in North America – analyst
  • End of the risky analyst update; Supply problems in Xinjiang

TOKYO, Sept 2 (Reuters) – As inflation ravages the big guns of U.S. clothing retail, awash in high inventories and steep discounts to lure shoppers into stores, Japan’s Uniqlo is on poised to have its best year in North America after a COVID-imposed revolution in its business model.

Retailers from Gap (GPS.N) to Kohl’s (KSS.N) are warning of falling profit margins as inflation-conscious customers hold back buying clothes. But flagship Fast Retailing brand (9983.T) said it was on course to deliver its first full-year profit in North America – after 17 years of trying – helped by an overhaul of its logistics and marketing strategy. pricing, introduced during the pandemic, and essentially stopping discounting. Read more

Fast Retailing did not say how much it would make from its 59 Uniqlo stores in the region, including 43 in the United States and 16 in Canada. The number will be small compared to 290 billion yen ($2.1 billion). Analysts polled by Refinitiv expect it to post an overall operating profit for the 12 months ending August at more than 3,500 group stores around the world.

Join now for FREE unlimited access to Reuters.com

But his customer base is shrinking in an aging Japan, and worries are growing about how much he can rely on China as a growth engine. Analysts say Fast Retailing’s ability to continue its progress in North America will be a key indicator of how close it can come to its lofty goal of overtaking Spain’s Inditex (ITX.MC) as the top retailer. of clothing in the world, set by founder and CEO Tadashi Yanai.

“Uniqlo has a lot to prove over the next few quarters and years before we can have any confidence that North America can successfully replace China as Uniqlo’s next growth market,” said Oshadhi Kumarasiri, analyst at LightStream Research, which publishes on the Smartkarma platform.

Fast Retailing’s North America chief Daisuke Tsukagoshi, 43 but already a 20-year veteran at the business, told Reuters in an interview that Uniqlo has used the pandemic as a chance to “scratch it all.” and start over in North America. Critically, Uniqlo has stopped almost all discounts, essentially retraining its customers to get used to fixed prices.

“Our competitors are offering 50% or 60% discounts, but we’ve basically stopped that,” Tsukagoshi said.

Instead, the company focused on basic apparel items like loungewear and lean inventory management, implementing an automated warehousing system that linked inventory across its physical stores and its e-commerce stores.

A GOOD DEAL?

Uniqlo has also increased the use of more expensive air freight to reduce lead times for popular items and avoid logistical problems caused by the pandemic. Adidas (ADSGn.DE) and Lululemon Athletica (LULU.O) are among others that have increased the use of air transport to bypass seaport bottlenecks.

“We try to get products into the warehouse as soon as possible, even if we have to use air,” Tsukagoshi said.

It is unclear to what extent the company’s operations have benefited from trading in the yen at its lowest level in decades. US earnings are worth much more in Japanese currency, but the cost of buying materials in Yen is now much higher.

Away from the warehouse, the company’s stores appear brighter and more suited to American tastes than before, said Neil Saunders, retail analyst at GlobalData. But Uniqlo may have misinterpreted the market by waiving the discounts.

“Low prices are great for the American consumer and they work, but sometimes people like these bargains and feel like they’re getting a lot,” he said.

“And Uniqlo doesn’t necessarily offer that.”

XINJIANG A RISK?

Uniqlo, best known for its fleeces and inexpensive basics, first entered North America in 2005 and now plans to open 30 stores a year until it hits 200 in the next five years. branching out to big cities like New York and San Francisco along the way. in larger locations, such as Texas and Florida.

The company estimates the region will produce 300 billion yen in annual sales by 2027 and aims to increase operating profit margins to 20% from more than 5% currently. Regional chief Tsukagoshi said this would be possible by reducing logistics and marketing costs, as well as lowering rents beyond major cities.

Some are skeptical.

The expansion and profitability targets seem “a little too ambitious” because Fast Retailing hasn’t achieved a 20% margin even in its home market of Japan, said Kumarasiri, an analyst at LightStream Research.

One of the risks to the company’s plans could be its reliance on manufacturing in China, where human rights concerns have swirled around labor and labor. cotton produced in the Xinjiang region.

Although there are no signs of a U.S. consumer boycott so far, Fast Retailing has not disavowed the use of Xinjiang cotton, unlike rivals including Sweden’s H&M . A shipment of Uniqlo shirts was held up at the Port of Los Angeles last year on suspicion of violating a ban on the material.

In addition, French prosecutors last year opened an investigation into the company and three other retailers suspected of covering up “crimes against humanity” in Xinjiang. Prosecutors did not respond to a request for comment and the status of the investigation was not immediately clear.

The company has denied the allegations and said it does not tolerate human rights abuses among suppliers and vendors. China denies all accusations of abuse in the region.

($1 = 139.5000 yen)

Join now for FREE unlimited access to Reuters.com

Reporting by Rocky Swift and Miho Uranaka; Editing by Kenneth Maxwell

Our standards: The Thomson Reuters Trust Principles.