ES4C9 Supply Chain Management Globalisation Daniel Law

Who are UNIQLO? Japan’s No. 1 casual wear brand - “Made for All” motto Japan’s biggest clothing company - 6th largest in the world Goal to be the world’s largest apparel retailer - sales of five trillion JPY per year by 20201. Approx. 800 stores in Japan. 140 stores overseas2. “Trading industry” and “Born-global company”. - UNIQLO accounts for 90% of Fast Retailing’s profits. “Made for All” motto is to convey that UNIQLO’s clothing is made to be universal. 5 trillion JPY = 41.55 billion GBP 820 billion JPY sales in 2010 = 6.81 billion GBP China, South Korea, Hong Kong, UK, USA, Singapore, Russia, Malaysia, France, Taiwan, Thailand Plans to open 300 new stores annually over the next 3-5 years (200 new stores in Asia)3. UNIQLO falls into “trading industry” category with low international investment but high international trade. Access to low cost production. UNIQLO is a “born-global” company – used foreign resources since its inception. [1] http://www.fastretailing.com/eng/ir/financial/graph.html [2] http://www.economist.com/node/16436304 http://www.fastretailing.com/eng/ir/direction/message.html

UNIQLO’s Strategy UNIQLO’s revenue is around two thirds that of Gap, H&M and Inditex (which runs the Zara chain). UNIQLO has a distinctive business model3. Zara and H&M - Rapid up-to-date fashion UNIQLO sells significantly fewer products – on shelves for longer Same item – variety of colours “We don’t want to chase after fashion trends” – CEO Lower-priced, higher-volume deals with suppliers Managing inventory - simpler and cheaper Basic everyday items such as T-shirts, socks and jeans are not normally considered the most exciting part of the business. But they are found in almost every wardrobe. UNIQLO has transformed them into a goldmine. Fast Retailing’s revenue is around two third that of America’s Gap, Sweden’s Hennes & Mauritz (H&M) and Spain’s Inditex, which runs the Zara chain. Fast Retailing has a distinctive business model. Zara and H&M bring the latest fashions to the masses quickly, ordering new lines many times a year. Fast Retailing, by contrast, sells only around 1,000 items, far fewer than its rivals, and keeps them on the shelves longer. They “don’t want to chase after ‘fast-fashion’ trends” which lets Fast Retailing strike lower-priced, higher-volume deals with suppliers (most products cost $10-20) and makes managing inventory a much simpler and cheaper affair. UNIQLO makes up for the narrowness of its offering by selling the same item in many colours: socks come in 50 hues at its flagship store in Tokyo. Such basics, the firm believes, have the added benefit of appealing to a wider audience. [3] http://www.uniqlo.com/uk/corp/model/ http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html

Business Model Specialty store retailer of Private label Apparel (SPA)5 UNIQLO introduced SPA industry model into their operation, and it is the first company who use SPA industry model successfully in Japan. SPA apparel manufacture model is conducting and controlling the entire product making process from planning & design, material procurement, factory quality control to the last link of sale. This model means the company have to bear 100 percent risk from the manufacture of merchandise to the selling at retail store. By continuously refining the SPA model, UNIQLO successfully differentiates itself from the competition by developing unique products. They quickly make adjustments to production to reflect the latest sales environment and minimize store-operation costs, such as personnel costs and rent. This is how UNIQLO provide such high-quality clothing at such reasonable prices. Inventory Control maintains optimum store inventory levels by monitoring sales and inventory at stores on a weekly basis, and dispatching necessary inventory and new items to stores to fill their product orders. At the end of seasons, Inventory Control works with merchandisers and marketing to coordinate the timing of markdowns to ensure that inventory is completely sold. http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html Source: http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html

Global Sourcing 90% of UNIQLO’s products are manufactured in China. Business dealings with 70 companies – mostly located in China. UNIQLO view factories as long term partners. Material costs brought down due to large-scale world wide network. May commit to buy up 100% of the raw materials that a particular supplier can provide4. Able to negotiate directly with leading global textile manufacturers Labour in China is cheap (1/13 of those in Japan). 90% of UNIQLO’s products are manufactured in China. Other places are Malaysia, Vietnam and Bangladesh In Shanghai, it is easy to source the materials needed for producing clothes, such as buttons, zippers, and fabrics. The prices of the materials are very low Business dealings with 70 companies – mostly located in China. To integrate the advantages of using the facilities in China into the supply chain, it is important to reinforce the cooperation between UNIQLO and the Chinese factories i.e. reinforcing the relationship with the foreign factories leads to strengthening the organizational capability of a supply chain. premium cotton - high-quality, long-staple cotton — which can only be harvested from three percent of the world’s cotton plants http://www.henley.reading.ac.uk/web/FILES/management/436.pdf [4] http://www.uniqlo.com/uk/corp/model/

5 Year Financial Summary [6] http://www.fastretailing.com/eng/ir/financial/statement.html The Shareholders' Equity section on the balance sheets has been eliminated, and a new section, Net Assets, has been added. With this change, all accounting items that can be classi-fied as assets have been included under Assets, and all accounting items classifiable as liabilities have been included under Liabilities. Accounting items that are not classifiable as assetsor liabilities have been entered under Net Assets, which is the numerical difference between total assets and total liabilities. For comparison purposes, the items formerly included in Shareholders' Equity have been included under Net Assets. As can be seen in the table, the “Net Sales’ have been increasing every year over the last 5 years. In terms of income, all aspects seem to be on the rise. Which is encouraging considering UNIQLO’s goals for the next few years. Unfortunately, UNIQLO does not publish figures such as the stock turnover or the cash to cash cycle time. But the cash to cash cycle time should be very low considering the way in which UNIQLO operates. Source: http://www.fastretailing.com/eng/ir/financial/statement.html

What are the risks? Specialty store retailer of Private label Apparel (SPA) 90% of production in China Transportation breakdown? Natural disaster? Legal/political issues? Economic risks Currency risk Breakdown in communication – UNIQLO’s way of avoiding this:The Takumi Team is a group of engineers with over 30 years experience in the Japanese textile industry. The Team transfers expertise to the factories on overall factory management including spinning, knitting, weaving, dying, sewing, finishing and shipping. A total of 170 UNIQLO production management personnel are assigned to Product Management Offices in Shanghai and Shenzhen (China), Ho Chi Minh (Vietnam), and Dakka (Bangladesh). There, they monitor product quality, etc. through weekly visits to their contract factories. Economic risk - UNIQLO’s +J range (luxury). Launching during recession – viable? Currency risk – transactions are in USD. UNIQLO has concluded foreign exchange contracts to cover imports for approx. the coming 3 years. http://www.uniqlo.com/uk/corp/production/ http://www.fastretailing.com/eng/ir/direction/risk.html

What about in 10 years time? "If Toyota can become a household name, then why not UNIQLO?” Tadashi Yanai - President, Chairman and CEO. FAST RETAILING CO., LTD. UNIQLO’s 2020 vision Achieve sales of five trillion JPY per year To be world’s No.1 apparel retailer UNIQLO looking to expand more globally Open 300 new stores annually So what does the future hold for UNIQLO? They are striving to achieve the five trillion yen in sales per annum by 2020. With their aim to open 300 new stores annually for the next few years it’s inevitable that the supply chain will become more global. Although a majority of their manufacturing will still take place in China, UNIQLO may seek more manufacturing plants around the world to keep up with the demand of the hundreds of new stores which they will be aiming to open.

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