One of the clearest signs of China’s explosive economic growth is the country’s robust consumer sector. Fashion retail in particular has attracted increasing attention as more and more foreign brands elbow their way into the market. Japan’s Uniqlo (Fast Retailing, 9983.TYO), one of Asia’s biggest fashion retailers, first entered China in 2002 and has since opened more than 60 stores around the country, including a flagship store in Shanghai. Fueled by the expectation of rising consumer spending in second- and third-tier cities, the company expects to open 1,000 stores in the country by 2020 – a target that Uniqlo’s director of global marketing, Hideo Majima, told China Economic Review is within reach.
Q: Who are Uniqlo’s target customers?
A: We have a brand philosophy. We say it doesn’t matter who you are, or where you come from, Uniqlo makes clothes that transcend all categories and social groups. Our designs are aimed at going beyond age, gender, occupation, or any other way that defines who people are.
Q: How has Uniqlo’s flagship store in Shanghai been performing since it opened last summer?
A: Business at our Shanghai flagship store is going well and sales have been strong. We are very happy with the location on Nanjing Road West. It has proven attractive not just to local customers but also to customers from other provinces and other countries visiting Shanghai. Shanghai now joins our flagship stores in New York, London and Paris. When opening a global flagship store, we always want to have the best location and a good, large-scale format store. This is what the Shanghai store is and it has been very successful in spreading Uniqlo’s brand name.
Q: What about outside Shanghai?
A: Excluding Hong Kong, we currently have 60 stores around the country. We divide China into five areas – north, northeast, east, south and southwest – and this is how we are expanding our store networks. We are targeting expansion in large second-tier cities in these regions, and will then work our way into third-tier cities. In the coming year or so we will have 100 stores and toward 2020 we want to have 1,000 stores in China. That is our long-term view. It is a big challenge, but it is achievable.
Q: Just how important is China to Uniqlo’s global operations?
A: We don’t disclose financial figures for each country we operate in, but considering the number of Uniqlo stores overseas, you can see how important China is to us. Our fiscal year ended last August when we had 136 stores outside Japan – of those, 54 were in China. For the coming year ended August, we will have 180 stores overseas, 76 of which will be in China, excluding Hong Kong. Our main growth emphasis is obviously on China and I don’t think it is necessary to explain the impact of the mainland’s growing economy on our plans. China is very, very important to us.
Q: Uniqlo President Tadashi Yanai recently suggested that the company would return its focus to core products. How would this affect business?
A: He said we should go back to Uniqlo’s strengths, offering customers basic and quality products – our core products. This is the right move and the right policy for Uniqlo, to re-strengthen our attractiveness as a brand. We are not a so-called “fast fashion” brand. As a global player we are often compared with H&M (HMB.STO), Zara (ITX.MCE) or Forever 21, but we don’t see ourselves in this way. It is important that we as a company don’t chase brands or fast fashion trends too much.
Q: Then how does Uniqlo keep up with growing competition in the industry?
A: Even though consumers follow fashion trends, we like to offer an alternative way to enjoy clothes. We want to offer quality, well-designed clothes for people going about their day-to-day business. I’m not saying we deny fashion. Our policy is that our products have to be simple, essential and basic, but naturally have to have some fashion element.
Q: Which product lines have been the most successful?
A: The most recently successful product line has been our HeatTech range of T-shirts and undergarments. This material helps generate and retain body heat. Also, our down jackets and coats are very popular. We like to look at innovative new materials.
Q: Is this true of China or just Japan?
A: There is no real difference in consumer demand between China and Japan. We feel that consumers in China already have enough information when it comes to choosing what to buy. There is a high level of consumer education on the mainland. In fact, we don’t see any real difference between customers in Tokyo, Paris or Shanghai.
Q: What proportion of your products are sourced in China?
A: China is the most important source for products – about 85% of our product line comes from the mainland. However, we are trying to move a proportion of this from China to other countries in Southeast Asia, countries like Vietnam or Bangladesh and Malaysia. We are aiming to have about 30% of our production lines outside of China, as we think that as a global strategy it is safer in the long run to have several sources. That said, in terms of quantity, or volume, China remains our number one production source.
Q: Are there new regional markets or consumer demographics in China that Uniqlo is considering paying special attention to?
A: The youth sector is of course growing strongly, but China’s overall consumer fashion market is growing very, very rapidly. We don’t see any specific trend in China, we simply see the market as growing. People are getting fashion-sensitive, and are looking for quality products. And of course, they are very sensitive about pricing. This is where competition is getting serious.
Q: Does Uniqlo have a special pricing policy for the mainland compared with foreign markets?
A: No. Uniqlo’s pricing policy is a global pricing policy. We have stores in many cities in the world and when people travel they want to see the same prices and same goods and services in our stores. In China, we include sales tax and duty, so the price isn’t 100% the same, but in general it’s the same price for the same product in each store around the world.
Q: Many fashion retailers depend on promotions to boost sales. Is this true of Uniqlo?
A: When it comes to discounting or promotions, we will set a special price period as a promotion. We also have end-of-season markdowns. We can’t carry over our inventory to the next season and we see contributions from promotions to our overall sales figures.
Q: Are there any particular challenges that Uniqlo faces when it comes to the Chinese market?
A: Overall branding is difficult. But we are continuously working to tell people what Uniqlo is. The most important way of doing this is by having an actual physical store. Service itself is a challenge. Human resources development is very important to Uniqlo – in fact, good service is key. Training staff to communicate with customers is essential in extending our brand in China.