Cl uniqlo case by Changellenge

«AT THE PEAK OF FASHION»:

Developing a Leadership Strategy for a Large Fashion Retailer UNIQLO Immerse yourself in the case and find out how to become a manager in practice. Suggest the best possible solution — how to lead hundreds of people and plan a range of 1000 items? You need to develop a new strategy for the best store of UniQlo — the leader of the fashion industry! Suggest how to meet the needs of thousands of people a day, leave customers satisfied with their purchase, and charge them positively for the rest of the day! Do not forget to think about the ideal planning of the range, the inventory, marketing, and promotions.

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

CONTENTS

Changellenge >> Capital team wrote this case solely for education purposes. The author did not intend to illustrate either effective or ineffective handling of a managerial situation. The author may have disguised certain names and other identifying information to protect confidentiality. The data represented in this case is not necessarily actual or true and may have been changed to preserve confidentiality. Changellenge >> Capital prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to reproduce materials, please contact info@changellenge.com.

INTRODUCTION

UNIQLO HISTORY: FROM THE FIRST STORE TO THE GLOBAL EXPANSION 6

UNIQLO: UNIQUE CLOTHING & STORE ENVIRONMENT 8

COMPETITORS’ BUSINESS MODELS 15

CHALLENGES GOING GLOBAL 18

UNIQLO IN RUSSIA AND RUSSIAN FASHION LANDSCAPE 21

UNIQLO BUSINESS MODEL AND PROMOTIONAL CAMPAIGNS

APPENDIX

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

INTRODUCTION

Today, Karina, the managing director of the first UNIQLO store in Moscow, came in to work a little earlier than usual. Anticipating the imminent arrival of her colleagues, Karina left her belongings in the manager’s room, and made her way to the salesroom. As usual, she went along the control route, past the shelves that were neatly stacked with clothes, expecting the arrival of the first customers. Jeans, trousers, even piles of colourful T-shirts, stands with perfectly ironed shirts, soft and comfortable hoodies... Karina herself loves the products of UNIQLO – they are of high quality, comfortable to wear, attractive, functional, and most importantly – free of anything superfluous. That is the essence of UNIQLO. Soon, the colleagues began to arrive. Exchanging cheerful greetings and brief news, they were all in a hurry to get changed and start preparing for the new day at work. Karina had plenty of responsibilities of her own. She was responsible for the store’s main financial indicators, managed her team’s work, made sure that customers were satisfied, planned the stocks of goods, and organized the retail space and local marketing campaigns. Karina’s work had been very highly rated by the heads of the company, as she always stood out through her perfectionism. It was the desire to be the best and to work in one

of the most successful companies in the fashion retail business that led her to the UNIQLO Manager Candidate leadership programme, and then to Japan, where she learned a lot and found close friends, and finally, to central Moscow – one of the fashion capitals of the world, where she soon became the head of Russia’s first UNIQLO store. Karina moved into fashion retail at a time when global consumerism came to be replaced by the newer trend of more targeted selection of new products. In view of the changing economic situation, consumers began to attach greater importance to the ‘price-quality’ ratio. The whole retail sector saw a slight decline in consumer activity, and thecustomers’ increasing fastidiousness in choosing products. There has certainly been no decrease in the number of customers at UNIQLO, but Karina did notice certain changes in the buyers’ activities. This meant that in order to maintain the same high positions, the store manager had to devote even more time to working with staff, carefully selecting the range, and to marketing activities. Most recently, the company’s global leadership announced the Healthy Competition between Stores campaign to establish the best UNIQLO store in Europe. As part of this new competition, all managers will have to develop a leadership

strategy for their stores and share with the global managers their ideas regarding improved customer service, new methods of promotion and forming team interaction, which would ultimately lead to an increase in sales and enhance customer satisfaction. Karina, like other store managers in European countries, was expected to deliver a reasonable initiative within the standards of quality and productivity of a company with a global reputation. It was planned to improve the efficiency of work by carrying out local marketing activities that did not contravene the advertising policy and strengthened the image of UNIQLO, through a competent management of the personnel, through a change in navigation and display of goods inside the store, and by increasing brand loyalty. Colleagues in Japan have promised a special prize for the best UNIQLO store – the launch of a pilot podium project showcasing the latest collections and technologies in the world of fashion at the store itself, where all employees will be able to act as models and appear on the catwalk. This is worth fighting for, one would presume! Karina had no doubt that she could achieve the first significant results within a year. Meanwhile, visitors were already filling the salesroom. Customer advisors, promptly responding to requests from customers, were selecting the right sizes, colours and

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

INTRODUCTION

styles, trying to provide them with an atmosphere of hospitality and good cheer. Karina always tried to be in the thick of things: she watched customers, helped them with their choice, asked them for their opinion on the product, and collected feedback. Karina loved interacting with customers. The store gave her the drive and the responsibility that she would never have felt sitting in a big office chair. She really liked the atmosphere of emancipation and freedom, when there was no need to comply with a certain formal dress code, or to wear a watch of a specific brand. Instead, one could pick their own image, and it could be a different one every day. The management valued her primarily for the good results; the employees – for the friendly atmosphere in the store, the opportunity to learn and improve their knowledge of the fashion industry; and the customers – for quality products and friendly service. After all, customer satisfaction is the Japanese company’s core value, and this is confirmed by the fact that the store’s book of feedback mostly contains kind words and gratitude from the customers, rather than complaints. As usual, the day was tense and busy, but Karina never stopped thinking about new challenges. Gradually, ideas and suggestions began to mature in her mind. Going into the manager’s room in the evening, Karina recorded her goals for the immediate future in the diary. She needs to hurry: already within a week, Karina will have to work through each of the tasks in detail, and provide a detailed action plan for moving the store into a leading position.

_____________________________________________________ 1 UNIQLO regards 50 % - 45 % - 5 % (for women’s, men’s and children’s clothing, respectively) as an ideal ratio 2 The ratio between positive and negative feedback from customers

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO HISTORY: FROM THE FIRST STORE TO THE GLOBAL EXPANSION

Three years ago, when Karina was still working on her Master’s thesis on the fashion industry, Moscow was sizzling with the news about the long-awaited entry of the Japanese fashion retailer into the Russian market. Immersing herself into the history of UNIQLO, Karina immediately imbued its principles and values. She fully shared company founder Tadashi Yanai’s ideas, and wanted to see the Japanese brand’s quality clothing sold in Russia. UNIQLO is a Japanese unisex casual wear designer, manufacturer and retail chain, which has been expanding at an extremely quick pace and large scale. This all started in 1949 when Hitoshi Yanai opened a multi-brand store for men’s apparel, called Ogori Shoji in Ube (West Japan). The small family business rapidly became profitable, due to the rise in the Japanese economy after World War II. In 1972, Tadashi Yanai joined the family business, and in 1984 the company opened a unisex casual clothing store in Hiroshima, under the name Unique Clothing Warehouse. Soon the name “UNIQLO” was born as a contraction of “unique clothing”. This warehouse-style shop offered understated garments, in line with Tadashi Yanai’s simple and rational vision of the apparel world.

The chain quickly grew in size, and in 1991 the name of the parent company was changed from Ogori Shoji to Fast Retailing, which was soon listed on the Tokyo Stock Exchange. By 1994, there were more than 100 UNIQLO stores in Japan, and by 2001 the number of domestic outlets exceeded 500. The early 2000s also saw the success of UNIQLO in selling fashion blockbusters: first, the fleece fever in 1999-2000 with 35 million pieces sold in Japan, followed by the sensational success of the HEATTECH (a unique and highly functional line of innerwear) in 2003 with record sales of more than 64 million pieces sold in the domestic market3. In 2001 leadership of the domestic market had already been reached and UNIQLO decided to expand overseas, opening their first UNIQLO outlet in Shanghai (China) and four outlets in London (UK). At this time, the company started a long journey of adopting its business to other cultures and gradually achieved global recognition. In 2006, UNIQLO opened its first American flagship store in Soho (New York) and in 2009 the first French flagship was launched in Paris. By the end of 2014, UNIQLO was operating stores in 15 countries which included China, Taiwan, France, Russia, Singapore,

the United Kingdom, the United States and others, besides its native market. In total UNIQLO had 852 stores in Japan and 633 overseas4. Under the guidance of CEO Tadashi Yanai, Fast Retailing has grown into the largest retail apparel company in Japan and the fourth largest in the world behind Spanish retailer Inditex (Zara), H&M, and Gap. Fast Retailing won the fiscal 2014 Retailer of the Year Award from the World Retail Congress for exceptional, world-class performance. It was a great achievement for the company, as its CEO commented: “I see this as a testament to UNIQLO’s unique position as the world’s only LifeWear brand. LifeWear means everyday clothes for a better life: high-quality, fashionable, affordable and comfortable.” UNIQLO International is the clear driver of Fast Retailing’s current growth. Two hundred new stores are scheduled to open in fiscal 2015, with Greater China and other parts of Asia expected to perform strongly. Within the next couple of years, the company expects revenues at UNIQLO International to surpass those of UNIQLO Japan.

_____________________________________________________ 3 Choi Eugene K. (2011), The rise of Uniqlo: Leading Paradigm Change in fashion business and distribution in Japan, ESKA/ Entreprises et Histoire 4 Fast Retailing official site

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO: UNIQUE CLOTHING & STORE ENVIRONMENT

UNIQLO: UNIQUE CLOTHING

UNIQLO has an unconventional marketing strategy. Unlike other successful brands such as H&M, Topshop, and Zara, UNIQLO does not produce “fast fashion” to be worn and disposed of each season. Instead, it produces basics: t-shirts, jeans, socks, tops for men, women, and children, and keeps costs low by preordering huge volumes of clothing many months in advance. Such basics, the firm believes, have the added benefit of appealing to a wider audience than the preppy Americana sold by Gap or the faddish wares of Zara and H&M. Instead of having a target segment and making clothing to suit the segment’s specific tastes like most clothing retailers, they have chosen to focus on providing clothing of high quality for virtually everyone.

Basics are not normally considered the most exciting part of the business, but UNIQLO has managed to transform them into a goldmine. UNIQLO apparel has three key competitive advantages which are detailed below: The first advantage comes from the design of their clothing, which combines simple aesthetics with high-quality craftsmanship. With many colors to choose from, it is easy for UNIQLO’s shoppers to customize their clothing and style. Apparel components may be worn in conjunction with other items, all featuring the same basic design, appropriate for various occasions given their smart-casual appearance. And such components necessary to complete an

individual’s style or look are included within each store. The second element of UNIQLO’s value proposition is their sensible pricing. To compare, pricing at UNIQLO is greater than that of general stores, but lower than similar items at major department store chains. Often the quality and style of clothing is sacrificed to keep prices low, but UNIQLO sacrifices none of these by producing attractive, inexpensive products resulting in a higher overall value at a set price. Finally, UNIQLO offers innovative technology of its fabrics. For example, HEATTECH fabric provides lightweight insulation, while tops in the AIRism line have special fibers that keep you cool and dry in hot weather. Thus, reducing the design costs and at the same time investing more on the quality of fabrics, UNIQLO can sell items like pure cashmere sweaters and Japanese selvedge jeans at affordable prices, which is an in-between that attracts both the quality seekers and those who are budget conscious. In all, UNIQLO has created a distinctive brand identity and its positioning has been so effective that the company now has more than 1400 stores worldwide, which has made Tadashi Yanai the richest man in Japan.

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO: UNIQUE CLOTHING & STORE ENVIRONMENT

UNIQLO: STORE ENVIRONMENT

Besides the quality of goods, UNIQLO attentively manages in-store service, which is usually the second if not the first component of retail business success. Instore UNIQLO maintains clothing organized by color culminating in a rainbow display. The sales floor is kept clean and bright, and embraces modern minimalism, free from any possible distractions, leaving the clothing central to the design of the space. UNIQLO embodies an “unbranded” fashion philosophy that is deeply rooted in its Japanese origin but still demonstrates a contemporary and culturally inclusive experience. UNIQLO has standards even for the music: they have a “global music palette” meant to be familiar, optimistic, and vaguely international.

the employee break rooms, so that every employee is informed exactly how much business the store does on any given day, and in each department, down to the number of jeans sold.

UNIQLO is a company that prescribes, records, and analyzes every activity undertaken by every employee, from folding techniques to the way advisers return charge cards to customers (which is done in a Japanese style, with two hands and full eye contact). Each morning, employees practice the ways in which they are taught to interact with shoppers including the six standard phrases such as “Hello, my name is …,Please let me know if you need my help” and other common replies which are the benchmarks of polite service. The financials are completely transparent, and sales are charted and posted each day in

However, UNIQLO has a lot to offer in terms of future growth and career development. They share experience, have some international vacancies and believe that a good manager can only grow within a firm. That is why manager positions are proposed only for internal employees; even an experienced external candidate has only the option to apply for an adviser position. Human development is one of the major tasks for local store managers to perform — they are fully empowered to assess and promote people from within their team.

UNIQLO is regularly hiring new employees as the retail business has high staff turnover and UNIQLO in Russia is no exception. The adviser role implies a lot of activity and requires sharing the corporate culture. Students are the best candidates for this job as they are ready to work hard with flexible working schedules. But for them this is the first working place in life, and only a few of them look forward to the future and consider an adviser role as the start of a long-term career.

Working conditions are friendly, but require discipline. Employees should always smile, be helpful, start work on time etc. There are standards for virtually every task. Take folding for instance, which UNIQLO treats as if it were a scholarly discipline, with specific rules, best practices, and mandated times for completion. Employees at most retail stores fold with the assistance of a plastic board, but UNIQLO employees are taught the “body fold” technique and are expected to fold six shirts in one minute while the staff are told to practice this on their own, after work, until they get it right. To some extent, all companies have rules and guidelines, but UNIQLO is on another level entirely. There is always a sense of urgency about everything. UNIQLO’s obsession is more like an exaggerated version of kaizen, the Japanese concept that translates roughly as the continuous search for perfection. UNIQLO has a relatively flat power structure and encourages employees to suggest ideas for improving productivity. Experimentation, however, must go through the proper channels. There is a poster in every UNIQLO manager’s office outlining the “Ten Accountabilities.” One of them says: “As a store manager, always follow company direction. Do not work in your own way.”

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO: UNIQUE CLOTHING & STORE ENVIRONMENT

THINKING BIG

Tadashi Yanai wants to move beyond the primary mission to enrich people’s lives by providing truly great clothing to offer customers everywhere the world’s best stores, service and products. In 2004, that ambition grew as the UNIQLO Way was developed under the theme, “Changing Clothes. Changing conventional wisdom. Change the world.” There is an element of corporate social responsibility that shows how serious UNIQLO is about contributing to the world. In 2014 UNIQLO took on some relevant social responsibilities. For example, the company redistribute quality secondhand UNIQLO clothing to refugees, displaced persons and others around the world, either through global partnership with the Office of the United Nations High Commissioner for Refugees (UNHCR) or with the help of various non-governmental organizations. In addition, UNIQLO is actively hiring people with disabilities worldwide, constantly monitoring thoroughly the working conditions at partner Chinese factories and always pressing for minimizing production facilities’ environmental impact across the whole value chain.

To Be a Top Global Company The Fast Retailing Way �FR Group Corporate Philosophy� Changing clothes. Changing conventional wisdom. Change the world. Group Mission To create truly great clothing with new and unique value, and to enable people all over the world to experience the joy, happiness and satisfaction of wearing such great clothes To enrich people’s lives through our unique corporate activities, and to seek to grow and develop our company in unity with society

The CEO of the company said: “I believe our most important mission is to use our business to change the world for the better”. And the company does its business in a way to prove this message.

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO BUSINESS MODEL AND PROMOTIONAL CAMPAIGNS

UNIQLO was the first company in Japan to establish an SPA (Specialty store retailer of Private label Apparel) model encompassing all stages of the business - from design and production to final sale. Although SPA was not a very new concept for leading fashion retailers, the company managed to fine-tune the model to guarantee the development and production of unique and well-made products. UNIQLO makes centralized adjustments to production to reflect the latest sales trends and to minimize store operation costs such as personnel expenses and rent. This is how UNIQLO provides such high-quality clothing at such reasonable prices. The product development in UNIQLO is oriented towards the customers’ needs and wants. The customer plays a vital role in the product development and feedback can be gathered from any possible source. For example, in Russia they have a questionnaire for customers, which can be optionally completed. Each year, around 70,000 customer comments are received regarding the company. Customers provide feedback on certain products, so UNIQLO can improve their apparel products. For example, brandnew HEATTECH products have been refined each year based on customer feedback — such as comments asking for softer fabric, a function to keep skin both warm and prevent dryness and an expanded range of colors. It is precisely the ingredient that makes it possible for UNIQLO to produce the high-quality apparel that it does.

Development and procurement of materials

Planning

Proposals

Price negotiations

R&D (Designers/Pattern makers)

Proposals

Sales promotion plans

Designs

Materials manufacturer

Merchandising

Production volume guidance

(External)

Order design sample

Samples

Production departments

Guidance for adjusting production

Takumi

Marketing

Quality control/Monitoring of production schedules

Production

Production planning

Sales (promotion )

Technical guidance

Partner factories (External)

Warehouse (External)

Sales

Order guidance

Inventory control

Place orders

Markdown guidance

Stores and e-commerce business

Feedback

Customer center

Opinions

Customers

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

Feedback

UNIQLO BUSINESS MODEL AND PROMOTIONAL CAMPAIGNS

Moreover, product development works in collaboration with the marketing and merchandisers department. Merchandisers play a vital role from product planning through to production. After meeting with the R&D designers, merchandisers then apply the concepts for each season to product plans, materials and designs. Next, they decide the product lineup and volume for each season, paying close attention to a detailed marketing strategy. One other important task for our merchandisers is to decide when to increase or reduce production during a season. Any decisions about adjusting production in line with demand are made jointly with the product planning department. As for marketing each season, UNIQLO conducts promotional campaigns for core products such as fleece, Ultra Light Down, AIRism and HEATTECH. During these campaigns, UNIQLO advertises these core products’ unique qualities and noteworthy features on TV and through other media. For example, weekly flyers in the Friday editions of Japan’s national newspapers, which are delivered to most households, promote the apparel that will be discounted through until the following Monday. One step before producing the developed and planned apparel is material procurement. UNIQLO Material Development Team procures high-quality materials at low costs through bulk purchases from global

material manufacturers. The company seeks partners from around the globe for quality products like their denim fabric produced by KAIHARA Co., Ltd. The global efforts of UNIQLO make it possible to secure high-quality materials for the products.

and new products to fulfill orders. At the end of each season, merchandisers and the marketing department help coordinate the timing of markdowns and limited-period sales (typically 20-30 % off the regular price) to ensure that the inventory sells out.

UNIQLO pays close attention to the production technology and maintains the quality of produced apparel. In order to produce millions of products of standardized quality, it becomes important to implement quality control across factory production technology and management. UNIQLO has a team of technical specialists (about 400), known as the Takumi Team, members of which boast several years of experience in the Japanese textile industry. These specialists are sent directly to the partner factories in China to offer technical instruction and share their abundant experience. At the same time, the supervisors from the Production Department, based in the Shanghai office, make weekly visits to partner factories to check the quality and progress of production. We have established production offices in Shanghai, Ho Chi Minh City, Dhaka, Jakarta and Istanbul to help ensure our clothes are made to the highest global standards.

Finally, freshly made items are distributed to the stores. UNIQLO had 852 stores in Japan at the end of August 2014 and now that it is a huge chain, UNIQLO has had to change its approach to the management of its stores dramatically. The previous chain of centrally managed retail stores, which has spearheaded UNIQLO’s growth up to the current point, was transformed into a group of individual stores managed by empowered local employees. This has been motivated by the broad success of the franchise stores. Managers of franchise stores embrace Fast Retailing’s corporate vision, values and culture, and local employees feel secure in their positions and in their prospects for long-term employment. The UNIQLO Kichijoji global hotspot store, opened in October 2014, is a great example of a community-focused store. A range of fun ideas proposed by local staff was incorporated into the opening events, including in-store displays which referenced Kichijoji’s strong manga culture. They also gave customers a commemorative mug designed by a local illustrator.

The Inventory Control department maintains the optimum level of store inventory by monitoring sales and stock on a weekly basis, and dispatching necessary inventory

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO BUSINESS MODEL AND PROMOTIONAL CAMPAIGNS

DEDICATED PROMOTIONAL CAMPAIGNS

Following the global expansion, the company’s global advertising and marketing — its external communications — have decisively shifted. Throughout the last half a decade, a growing emphasis has been placed on creative campaigns that include digital marketing rather than traditional forms of marketing. “Our emphasis is on digital marketing because we feel that by harnessing the power of the web we can overcome language barriers as we expand globally. We also believe that an image speaks a thousand words and images and music transcend language. Combining the web and placing an emphasis on image and sound can be extremely powerful when creating global campaigns,” Daisuke Hase, UNIQLO’s public relations and global marketing communications spokesman explained5. UNIQLO’s creative vision in the digital sphere first grabbed the world’s attention in 2007 when the company’s ‘Uniqlock’ campaign took the online advertising sector by storm. The viral marketing project, designed to

build brand awareness internationally, featured a clock with spliced clips of wellchoreographed dancing and catchy lounge music all timed to match the clock’s ticking. It ran all year round, 24/7. In summer the girls dancing wore polo shirts; in winter, cashmere; and at midnight they slept. ‘Uniqlock’ swept the board at a raft of major advertising awards in the following year, even scooping a Grand Prix at Cannes. The web animation, Uniqlock, was perceived as very advanced at the time. In addition, the animation could also be embedded into blog sites, which meant it was distributed naturally. In 2008 UNIQLO launched another international campaign ‘Uniqlo jump’, using quirky online audio and video to advertise the company’s autumn/winter collection. Six hundred and ninety-six UNIQLO employees from around the world were photographed jumping in the new collection, and the resulting images and films were distributed via Flickr, YouTube and a blog site ahead of the launch of the official campaign site.

Equally unique and much-lauded in the advertising sector was UNIQLO’s 2009 autumn/winter campaign to promote its fall collection — Tokyo 2009 Collection. A simple website that was linked to UNIQLO’s online retail sites in the US, UK, Korea and China ran alongside TV advertisements. The site featured an interactive catwalk that allowed web viewers to explore the clothing ranges worn by models. It created a personal fashion experience and a few clicks led through to UNIQLO’s online retail stores for shoppers in Europe, China, Japan and Korea who had spotted the models wearing something they liked. The campaign was praised at the time for being, not simply ‘unique’ but also “very simple and effective”: look, like, buy. By building a digital presence, UNIQLO is not simply driving more consumer engagement but it is also shifting its advertising from paid media to owned media. In the longrun, this may be a more effective way for the brand to deepen its relationship with its customers.

_____________________________________________________ 5 Tessa Thorniley (2011), How UNIQLO used digital marketing to build a global brand

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

COMPETITORS’ BUSINESS MODELS

Overall most of the key fast-fashion retailers apply the Specialty Store Retailer business model in a particular way. It was GAP in the mid-eighties that first introduced the idea to integrate all stages of the clothes-making business, from design and production to final sales. This integration strategy led to a progressive globalization of the fashion apparel manufacturing system under the total control of corporate headquarters, enabled by the technical innovation in IT and computerization. SPA companies partner with local factories for production, by establishing secured contracts with regional producers, in order to reduce costs and benefit from partners’ expertise. The American GAP and the Italian Benetton are widely recognized as the most representative of this first chronological sequence of the SPA business model. Both companies offer standardized basic and good quality apparel items at an affordable price. They moved from a very retail-oriented position at their beginning towards a production-focused perspective. As for UNIQLO, the Japanese firm is also considered as a classic version of SPA.

_____________________________________________________ 6 2013, Case The Future of Retail Clothing: Will Uniqlo turn the World Japanese, Edhec Business School 7 Forbes “The Future Of Fashion Retailing” 8 Inditex Annual Report 2013

This formula has been followed similarly by many retailers for decades, but in recent years a major shift has led to great success for fast-fashion giants Zara and H&M. In the 90s, the European apparel brands focused on enhancing the fashion elements in their value chain, beyond the total integration strategy. The business value shifted from the initial standardization of items or “offthe-peg” to an “off-the-catwalks” vision6. The idea was to quickly adapt the creations

of couture designers to street fashion garments, at an affordable price. That was the starting point of what is widely recognized as the ‘fast-fashion’ industry. In this most-flexible version of SPA, strategic competitiveness drives from reduced production timelines and the ability to lead fashion trends. Retail digitalization is required to accurately estimate market demand and trends. The most typical representatives of this business model are Zara (Spain), H&M (Sweden) and Next (UK). Quickly, those firms also focused on reaching a global scale, by aggressively penetrating foreign markets and developing international retail networks. Zara: Responding to Consumer Trends7 Spanish apparel company Zara has built its strategy around fashion trends, embracing the fast-changing tastes of its customers. To do this successfully, Zara has developed a highly responsive supply chain that enables delivery of new fashions as soon as a trend emerges. Zara delivers new products twice a week to its 1,991 stores operating in 87 countries8. The company’s strategy involves producing clothes in small batches, stocking very little and updating collections often. Instead of other brands that only update once a season, Zara proposes new designs twice a week. The vast commercial and design team constantly develops new

designs based on customer opinion gathered directly from the store, or catwalk trends. It then takes the company only 10 to 15 days to go from the design stage to the sales floor. This is a staggering pace, helped by the fact that around 50 % of clothing is manufactured in neighborhood markets — Spain, Portugal, Turkey and Morocco, instead of Asia. Because of this streamlined model, Zara is not forced to be ahead of the curve. Rather, they exist on the curve, evaluating trends beforehand, and then following. Zara was designed to be responsive from its inception. Rather than subcontracting manufacturing to Asia, Zara built 14 highlyautomated Spanish factories, where robots work around the clock cutting and dyeing fabrics and creating unfinished “gray goods,” the foundations of their final products. Like UNIQLO, Zara leverages automaker principles; these automated factories use a “just in time” inventory approach pioneered by Toyota Motor Company. Zara has also created a partner network of more than 300 small shops in Portugal and Galacia to handle the finishing work; here, the gray goods are transformed into dresses and suits. By following this approach, if an item looks like a winner, Zara can quickly ramp up manufacturing and get items to their stores in a matter of days. Zara has been very successful with this approach, which is a big reason why its parent company is now the world’s largest clothing retailer.

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

COMPETITORS’ BUSINESS MODELS

H&M: Building a Bridge between Timeless and Trendy9 H&M is the second largest apparel retailer in the world, just behind Inditex. With 2,936 stores in 53 countries10 H&M’s business concept is to offer fashion and quality at the best price, and its strategy is to always have the best customer offering in each individual market. H&M was a pioneer in pursuing vertical integration with its own distribution network with the company’s clothing collections created in-house in Sweden. H&M always offers a wide and varied range of new fashions, from the latest trends to sustainable classics to wear season after season. The collections are created by H&M’s own designers, pattern makers and buyers, who all work in tandem. This team of people of different ages and nationalities finds inspiration everywhere: from travel, films, fashion and the catwalk to the street

and trend seminars. When designing the collections the focus is on quality, best price and capturing the feel of a trend. Flexible planning of the product range and efficient logistics result in continually adapted products according to customers’ preferences. H&M outsources production to a network of 800 suppliers: 60 % of the production takes place in Asia, the rest in Europe. It has an approach that is a hybrid of the UNIQLO and Zara models. It manages to merge a commitment to longevity while staying responsive to fashion trends. H&M offers two main collections each year, one in spring and one in fall. Within each season, there are several sub-collections that allow H&M to continually refresh its inventory. The primary collections are traditional long-lead items; the subcollections are trendier items with short lead times.

The enabler to H&M’s ability to react quickly is its network of 20 to 30 production offices, which are placed close to its suppliers. These offices work with both the buyers in Sweden and the production facilities, reviewing samples, checking quality, and choosing the suppliers, which will handle each order. Generally, the items with very short lead times are manufactured in Europe, with longer-lead items manufactured in Asia. Like Zara, this allows H&M to be more responsive to trends. H&M also has a world-class IT infrastructure, which is key to its success. Each store is connected with corporate logistics and procurement systems and the central H&M warehouse. The IT systems also reach as far as the design and product development teams, so executives have visibility into the entire process, from product design to sales. This leads to more effective management across all channels.

_____________________________________________________ 9 Forbes “The Future Of Fashion Retailing” 10 H&M Annual Report 2013

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

CHALLENGES GOING GLOBAL

UNIQLO is Japan’s leading clothing retail chain in terms of sales and profit, holding a 5.5 % share of Japan’s domestic apparel market. For Japanese consumers, UNIQLO is the only company that offers clothing made with luxury materials at reasonable prices. UNIQLO products are considered as an “investment” on the domestic market: the garments are top-quality temporal items, designed to last in one’s wardrobe, as they can adapt to any style and can be worn in many circumstances, whether at work or for leisure. Due to its strong and historical establishment on the domestic market, UNIQLO is perceived as a proximity brand, very close to its local customers. However, initial global extension was a little more challenging. UNIQLO made its first attempts to expand abroad in 2001, opening 21 stores in the UK and later three in the US. The majority of the first English stores were small storefronts in the suburbs, while three American stores opened in malls in New Jersey. Within five years, however, UNIQLO had closed many of them. The problems had been multiple. The initial choice of replication outside Japan was entirely wrong, according to UNIQLO managers. The stores were, like in Japan, located in secondary zones and suburban malls. Moreover, the assortment did not fit the local needs: very basic products, unisex line-up. Finally, the UK and US staff were not trained

well enough to UNIQLO culture, values and objectives: the sales results were very deceptive. This situation was worsened by the total absence of promotional campaigns on the brand, the store openings and the products. As a result, there was no impact at all and no reaction on the consumer side. Tadashi Yanai was fascinated by failure. In 2005, he announced a reversal strategy for international expansion: to keep the stores in Japan, but focus international growth on splashy stores in the major cities of each continent. The owner decided to reposition the fashion brand to appeal to a wider, more multicultural set of consumers but without losing its ‘Japanese-ness’ — a quality that can be glimpsed as much in the technologically hip way it communicates with shoppers, as in the discipline of its clothing designs. As Tadashi Yanai stated in a recent interview: “We really have to transform this company to be successful and compete. Before we manufactured in China and sold in Japan. Now we need to manufacture in the world and sell to the world.” The UNIQLO team worked quickly, and the transformation was surprisingly fast — it designed and built the Soho store (Manhattan) in about eight months, with 150 workers working overtime seven days a

week. Unlike many retail flagships, the store is purposely non-referential: “UNIQLO is the brand that happens in a nonexistent space,” says Kiersztan. “It’s a white box, always on a white background. It’s not a lifestyle brand.” The drama of the store, therefore, would come from the overwhelming sense of plenitude11. In any case, the company saved the pure values it offered on the domestic market, but changed slightly in the way these were presented. In the UNIQLO vision, there is no abstract notion: clothes are seen as simple and essential items, that help the customer feel comfortable, well dressed, with style, every day. In fact, UNIQLO does not want to dictate style or trends. It does not want to turn customers into shop window models. The brand philosophy is more a mindset focusing on change, diversity and challenging conventional wisdom, which considers fashion garments as a toolkit with elements or pieces of information, full of details, to help the customer develop his/her own style. For UNIQLO, the core idea is to enable the customer to mix Western fashion with a Japanese twist. The influence of Japanese culture lays both in the attention given to details and the opportunity given to the client to create or recreate their own original style.

_____________________________________________________ 11 2014, Uniqlones, New York Magazine

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

CHALLENGES GOING GLOBAL

UNIQLO NEW WESTERN FLAGSHIP STORES

UNIQLO has selected an experiential approach to conquer overseas markets. The UNIQLO experience relies primarily on Experiential Retailing to actively engage and immerse the consumer in the brand universe.

contrary to the existing image, but rather reinforces UNIQLO’s cultural Japanese roots, while expressing the Japanese cool and futuristic side of the brand. UNIQLO also aims to convey the other side of brand: functionality, emotion and beauty.

Experiential Retailing can be defined as a ‘retail strategy that transforms products and services into a total consumption experience, satisfying emotional or expressive (hedonic) desires as well as rational or functional (utilitarian) needs of the consumer’ (Kim et al. 2007)12. This instore experience is made possible through the use of elaborated store environments, technology, interactive facets, highlytrained staff and entertainment.

As Japan is often considered by Western consumers as a leading nation for high technology, a strong emphasis has first been placed on the use of in-store interactive hi-tech to reinforce the ‘Japanese cool side’ of UNIQLO, e.g. promotional messages displayed by red LED-lights, image walls, color-changing LED-illuminated star risers, hundreds of monitors throughout the space, and image-changing LED panels in the glass elevator cabs, plus rotating mannequins to give the stores a futuristic look. This hi-tech touch must make people think “Here, it’s Tokyo!”

Therefore, stores have been considered as the primary promotional media to convey the brand identity and values in overseas markets. For this, a distinctive store model has been designed, in which technology, design, sensory marketing, premium customer service and innovative in-store events play an important role. As a result, UNIQLO has chosen to enter Western markets through so-called flagship stores. Those super-large stores are currently located on the best highstreets worldwide, such as on 5th Avenue in Manhattan and Oxford Street in London.

_____________________________________________________ 12 Kim,Y., Sullivan, P., and Forney, J. C. (2007). Experiential Retailing. New York, NY: Fairchild Publications

The company purposely created an environment, which is unique and very different from the key fast-fashion competitors. Surprisingly this is not

In addition, some minimalistic hints of typical Japanese style can be found in the first megastores: sleek modern design and industrial chic to express the ultracontemporary cool aspect of Japan. Overall service principles were the same as in domestic stores. In order to deliver a consistent store experience, a great emphasis has also been placed on a premium level of service in UNIQLO stores. Based on the Japanese sense of hospitality, the UNIQLO in-store service policy is a basis for brand differentiation – compared to competitors. However, some other Japanese traditions such as the salespeople yelling promotions in-store have been abandoned for foreign markets, due to cultural factors.

The visual dimension is considered crucial for UNIQLO differentiation. Indeed, merchandising and displays are used to expose and ultimately sell the wide range and colorful image of the brand. The store walls are a massive, beautiful and vibrant colorama of products, visually expressing UNIQLO’s multicolored aspect and textile expertise, while eliciting positive emotions from its consumers. Besides from color, the visual display is used to differentiate UNIQLO from its sometimes messy fast-fashion competitors. Each and every UNIQLO store must be very clean, without any dirty areas, and be nicely organized, which is a real difference. Another objective is to limit to a minimum the number of damaged products on the store surface to positively impact on consumer perceptions. In order to also reinforce consumer functional benefits, UNIQLO merchandising is very attractive and clear. As UNIQLO sells basic clothes, it must be easy for the consumer to shop in the stores. In this sense, products are always placed in the same location. This is to foster repeated purchase without any change or distraction for the consumer. As one can find routine products in supermarkets, the UNIQLO consumer can find his daily wardrobe in UNIQLO stores. To boost customer shopping experience, UNIQLO also used innovative in-store animations in some Western shops. For example, “The Mickey Touch Wall Party”.

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

CHALLENGES GOING GLOBAL

Within this campaign customers were encouraged to act and create in-store, through a drawing app in a massive multi-touch wall - in order to give their interpretation of the current t-shirt theme (Mickey in 2011). The multi-touch wall also enabled interactive customer battles on the screen. Another example – “Heat-Tech Game”, was provided in 2012: the concept was to convert customers’ energy through an innovative floor surface that transformed footsteps to energy at the entrance of the flagship store. Alongside the kinetic pads that power digital screens through the shop floor, ‘heat spots’ popped up in high-streets, where passersby can interact with them through a custom-made game, converting their social energy to redeem a piece of the HEATTECH product. This original event was backed-up by online actions: it was also possible to convert energy on UNIQLO’s Facebook page or through its mobile app, with all the social media conversations on the event showcased on the in-store screens.

Additionally, UNIQLO provided various instore events. Thus, in-store events were created to promote the unique manga t-shirts line. Those events are temporarily immersing customers in the manga universe, welcoming autograph sessions with manga authors or game creators, and staging parades of manga heroes. To emphasize its involvement in arts and music, UNIQLO also organizes acoustic live sessions in its flagships to commemorate the biannual release of the UNIQLO-Music Labels collaboration t-shirts: e.g. the live Scandal concert at UNIQLO Ginza in 2012.

the brand innovativeness and uniqueness. Finally, in order to always surprise the customer, UNIQLO also systematizes constant change of its store layout and shop windows. All in all, this experiential approach has been very pertinent: nearly 500 people were queuing outside the Soho store and more than 800 people in Paris the day the flagships opened. At the moment, UNIQLO has nine flagship stores worldwide (New York Soho and 5th Avenue, Paris, London, Shanghai, Osaka, Taipei, Seoul, Tokyo), all of them being very profitable.

When opening new flagships or for specific fashion events, such as London Fashion Week, UNIQLO sets up VIP parties celebrating fashion, technology, art, design and Japanese culture through interactive experiences and artistic performances in flagships or pop-up stores. During the time of the event, limited edition items can be purchased by mass-customers, reinforcing

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO IN RUSSIA AND RUSSIAN FASHION LANDSCAPE

Having UK, France and USA conquered UNIQLO set its sights on the other megalopolises, including Moscow. The first ever Russian UNIQLO shop opened up on 2 April 2010 in Moscow’s downtown Atrium shopping center. It was a long-awaited opening and there were a lot of talk and expectations about Russia having the fourth largest retail chain in its domestic market. UNIQLO also helped a lot to increase the initial brand awareness and supported its expansion with sound advertising. At Kurskaya metro station in Moscow in the middle of spring the walls at the escalators had been covered by publicity boards of only one company — Japanese UNIQLO. At one exit promoters distributed weighty colorful catalogues of the chain. Additionally there were huge posters in Atrium — UNIQLO advertised jeans for 599 RUR and cashmere sweater for 1999 RUR. The first day of sales caused a real stir. To avoid overcrowding, the Japanese were allowing people into the store in groups of a certain size. Because of this, the queues stretched from the store, located on the second floor of the Atrium, all the way to the exit from the shopping centre. Promoters with flags helped the new arrivals find their places in the queue. People were recalling the day in January 1990 when Russia’s first McDonald’s opened on Tverskaya Street. Moscow’s UNIQLO store is divided into two equal sections, male and female, which

mirror each other. T-shirts are hanging opposite other T-shirts, jeans opposite other jeans. The sales ratio of 50% - 45% 5% for women’s, men’s and kids’ clothing is considered ideal. The first UNIQLO store set the prices for basic products on par with H & M — almost 60% lower than Benetton, and one-and-ahalf to two times lower than Zara. In Russia, the traditional range was supplemented with ‘special collections,’ such as the +J collection. Its prices are comparable with UNIQLO’s basic products. It was developed by the famous German designer Jil Sander, who in 1968 founded the fashion house Jil Sander, and sold it to the Prada Group in 1999. TNS Media Intelligence recorded 138 advertising outputs by UNIQLO on the radio, press and outdoor advertising (billboards, not including the metro and the street banners). Such investments were clearly made with a focus on future development — one store would have found it difficult to recoup the costs.

operates clothes with calm colours account for more than two-thirds of the sales, more fashionable products with brighter colours were in higher demand in Russia. Soon after hearing the opinion of the customers, UNIQLO changed its network’s positioning in Russia, increasing the share of bright and fashionable products within its range. Talking about the Russian market it should be noted that in 2011-2013 Russia was one of the world’s most promising fashion markets. But in the middle of 2014, weakening currency and surging interest rates have seen the country experience an economy recession. Slow GDP growth and a decrease of average disposed income have impacted upon local demand. Consumers have felt the rise in prices for goods and have started to avoid unnecessary spending or look for better deals. Changes in Customer behavoir

Not saving 28%

The Company planned further expansion in Russia. At the end of a 2010 year the company had two stores open – Atrium and Belaya Dacha. During the first year of operation, the company also tried to adapt to the local market. For example, the management changed the range policy slightly. While in other countries where the company

Avoiding temptation

Low price — purchase

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

28%

Avoiding unnecessary spending

20% 19%

Looking for special offers

Source: Accenture, 2013

UNIQLO IN RUSSIA AND RUSSIAN FASHION LANDSCAPE

In such economic conditions, companies need to worry about increasing their sales and keeping customers loyal. The latest Accenture study revealed that product loyalty drivers for the fashion market remained the same for multi-channel customers. Key Customer product loyalty drivers (% of consumers) Assortment Price Earned trust

78 51 48

But the question of service became more severe. The probability of changing the seller due to dissatisfaction with the service is increasing. The percentage of consumers who were renouncing one retailer in favor of another because of poor quality service has been growing. Almost 40% of respondents said they would buy elsewhere if their favorite store will no longer match their expectations. As for the purchase habits, the average Russian consumer still prefers traditional stores. 46.2% of Russians go shopping with their spouse, 21.5% make purchases together with friends, 20.5% - with children. In 2014 the share of customers buying clothes in the shopping centers increased by 6.5% compared to 2013. Online trade is gradually developing. Purchases from international and national e-commerce platforms keep surging. But the Internet is still used mostly as a source of information than the place to buy products.

Despite the complexity of the Russian market, UNIQLO again announced its intention to expand. In 2014, the company opened another new store in Moscow, and sees further potential for expansion. There are plans to open new outlets at the Kievskaya (Evropeyskyi shopping centre) and Okhotnyi Ryad metro stations. This will bring the total number of UNIQLO stores in Russia to 7.

According to the European Fashion and Textile Export Council, in 2014 some changes of consumer behavior were admitted: •ILess money spent on clothing •IAlthough salaries and wages rose at lower 2-digit rates, inflation rates between 6-7 % consume half of the monetary gain •IDramatic changes in consumer behavior for clothing: now rational against past emotional •IRussian consumers keep asking: “What is the fair’ price for a garment?” Pricequality awareness continues to rise as well as the trend to choose mediumpriced clothing when really needed •IClothing and “must have” brands do not confer status anymore, replaced by iPhones, iPads, handbags, travel and jewelry •ISpontaneous purchases decreased by 8% in 2013 •IPurchasing decisions are delayed until the discount phases: the “smart” shopper conquers retail •IShopping for pleasure slumped by 18% last year. While 5-7 shopping malls were visited at downtown or urban locations in the past, today Russians visit only 1-2 and prefer shopping much closer to home •IRussians are racing through shopping malls at a speed of 120 steps-per-minute. This speed prevents them from taking a closer look at displayed items. •IShopping of premium and luxury clothing transferred to foreign destinations: halfprice saving opportunities

The Japanese retailer’s concept has a chance to be successful in Russia. “UNIQLO puts emphasis on quality, and Japanese quality has always been held in high regard in our country. It is true that we have people who prefer more fancy products than those that make up UNIQLO’s core range. However, competent positioning could allow the retailer to achieve great success,” according to the experts within the fashion industry.

The main sources ofThe information (% ofofconsumers main sources informationusing (% ofthe consumers using the channel while selecting while selecting and making a purchase) channel while selecting and making a purchase) 88

Advice from relatives, friends, colleagues (word of mouth)

86 78

Information in the store (vendors, showcases)

70 66

Corporate websites (company, brand or product)

72 65

Information in social networks, blogs, forums, etc.

60 64

Reviews on the Internet (expert reviews, comparison sites

73 59

Printed advertising (newspapers, magazines)

64 55

TV / radio advertising

56 51

Internet advertising in search engines (Google, Yandex)

2013

2012

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

APPENDIX

APPENDIX 1 Fashion Retail Ranking by sales, 2014

Major Global Specialty Share Retailers of Private Label Apparel (SPA) Country

Sales Change (%) End of Sales (Billions (2014 to 2013, Fiscal Year (¥ Trillion) of dollar) local base)

ZARA (INDITEX)

Spain

Jan. 2014

2.28

22.04

+4.9

Hennes & Mauritz

Sweden Nov. 2013

1.91

18.45

+6.4

Gap

USA

Feb. 2014

1.67

16.14

+3.2

FAST RETAILING(UNIQLO)

Japan

Aug. 2014

1.38

13.33

+21.0

Limited Brands

USA

Feb. 2014

1.11

10.77

+3.0

PVH(Calvin Klein,Tommy Hil�ger)

USA

Feb. 2014

0.84

8.18

+35.5

Polo Ralph Lauren

USA

Mar. 2014

0.77

7.45

+7.3

Jan. 2014

0.64

6.20

+5.4

Abercrombie & Fitch

USA

Feb. 2014

0.42

4.11

-8.7

AMERICAN EAGLE OUTFITTERS

USA

Feb. 2014

0.34

3.30

-4.9

Company Name (Flagship Brand)

Source: UNIQLO Annual Report 2014

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

APPENDIX

APPENDIX 2 The UNIQLO performance measures

Fiscal Performance by Business Segment

UNIQLO Japan

Operating Income (billions of yen)

110.6

Contribution to Group Sales

96.8

(billions of yen) 1,500

+ 14.2% YoY

Global Brands

¥251.2bln

1,200

18.2 %

’13

’14

UNIQLO International

¥413.6bln

900

30.0 %

UNIQLO Japan

600

¥715.6bln

UNIQLO International

Operating Income (billions of yen)

34.7

51.8 %

300

18.3

+ 89.6% YoY

0 FY

’10

’11

’12

’13

’14

’13

Source: UNIQLO Annual Report 2014

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

’14

APPENDIX

APPENDIX 3 Comparison of Apparel Company Business Models

UNIQLO

Gap

Zara (Inditex)

H&M

Business Model

Vertical Integrationlike SPA

Horizontal Division SPA

Vertical Integration SPA

Horizontal Division SPA

� of items

300

500-700

1,200

2,500-3,000

Cycle

Nb of items / Year

900

2,000-2,800

12,000

25,000 -30,000

From planning to display

26 weeks

9 weeks

4 weeks

Product Planning

Strong

Production Control

Strong

Medium

Strong

Weak

Sourcing

Strong

Production

Outsourcing

Partly outsourcing Partly-owned factories

Outsourcing

Materials Development

Medium-High

Weak

Medium

Weak

Nb of designers

80+

120

Designers: 80 Patteners: 50

Place of Production

More than 90% All over the in China world

Corunna (Spain) : 60%

Asia : 60% (China 30%) Europe: 40%

Source: Case. The Future of Retail Clothing: Will UNIQLO turn the World Japanese, Edhec Business School, 2013

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

APPENDIX

APPENDIX 4 Performance by Group Operations, 2014

(Billion of Yen)

2015

2014 1Q Actual

UNIQLO Japan

208.4 42.1

232.6 51.1

+11.6% +21.4%

(to revenue)

20.2%

22.0%

(+1.8pct)

Revenue

114.0 15.4

168.0 24.3

+47.4% +57.8%

(to revenue)

13.6%

14.5%

(+0.9pct)

Revenue Operating pro�t

65.9 7.3

78.1 9.5

+18.5% +30.1%

(to revenue)

11.1%

12.2%

(+1.1pct)

Source: UNIQLO Annual Report 2014

y/y

Revenue Operating pro�t

UNIQLO International Operating pro�t Global Brands

1Q Actual

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

APPENDIX

APPENDIX 5 UNIQLO number of stores

UNIQLO Operations UNIQLO Japan Directly-operated Large-scale Standard Franchise UNIQLO International China Hong Kong Taiwan South Korea Singapore Malaysia Thailand The Philippines Indonesia Australia U.K. U.S. France Russia Germany

FY2010

FY2011

FY2012

FY2013

FY2014

944 808 788 102 686 20 136 54 13 0 48 3 0 0 0 0 0 14 1 2 1 0

1,024 843 822 129 693 21 181 80 15 1 62 5 2 0 0 0 0 11 1 1 3 0

1,137 845 824 147 677 21 292 145 16 17 80 7 5 4 1 0 0 10 3 2 2 0

1,299 853 834 177 657 19 446 225 18 37 105 12 10 10 6 1 0 10 7 3 2 0

1,485 852 831 199 632 21 633 306 22 46 133 18 21 20 16 4 1 10 25 6 4 1

Source: UNIQLO Annual Report 2014

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

APPENDIX

APPENDIX 6 Core fast fashion brands’ perceptual map

High Price

Basse Couture

Haute Couture

Low Price Source: Zara fashion official site, 2014

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

APPENDIX

APPENDIX 7 Russian total textile clothing and accessories market

€ 1.000 million Recovery Phase nominally 6% p.a.

40 Boom Phase

38,2 37,4

34,7

36,5

Stagnation Phase

29,1

CPM Take Oﬀ 2003

35,4

27,4 Financial Crisis

20 China Market Entry 2004 10

3,0

0 2003

4,0 2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: Clothing market report russia in spring 2014, European Fashion and Textile Export Council

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

2014p

2015p

APPENDIX

APPENDIX 8 UNIQLO stores in Russia

UNIQLO ATRIUM

UNIQLO MEGA KHIMKI

UNIQLO MEGA BELAYA DACHA

UNIQLO OTRADA

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

UNIQLO RIO-DMITROVKA

APPENDIX

APPENDIX 9 P&L statement, Uniqlo Store, 2014

Budget Net Sales COGS Gross profit Marketing Selling Personnel Depreciation Rent Logistics Others SG&A total Contribution Profit Headquarter Expense Other Expenses (FX Loss) Operating Profit

1 000 000 466 550 533 450 34 674 11 000 95 000 45 000 120 000 38 000 15 385 359 059 174 391 93 144 81 247

% Sales

Actual

% Sales

100,00% 1 120 000 100,00% 46,66% 570 065 50,90% 53,35% 549 935 49,10% 3,47% 68 320 6,10% 1,10% 11 468 1,02% 9,50% 109 760 9,80% 4,50% 47 040 4,20% 12,00% 165 885 14,81% 3,80% 50 400 4,50% 1,54% 16 064 1,43% 35,91% 468 938 41,87% 17,44% 80 996 7,23% 9,31% 83 453 7,45% 0% 23 764 2,12% 8,12% -26 221 -2,34%

Source: UNIQLO Russia materials

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

% Bgt 112% 122% 103% 197% 104% 116% 105% 138% 133% 104% 131% 46% 90% -32%

vs. Bg 120 000 103 515 16 485 33 646 468 14 760 2 040 45 885 12 400 680 109 879 -93 395 -9 691 23 764 -107 468

APPENDIX

APPENDIX 10 Sales inventory report Uniqlo Store 2014

Department Description Store, Total

Sales

Inventory

Actual, Yen

Ratio (%)

Actual, Yen

Ratio (%)

1 120 000

100,0

4 000 000

100,0

Kids

61 600

5,5

172 000

4,3

Womens

689 920

61,6

2 032 000

50,8

Mens

368 480

32,9

1 796 000

44,9

Kids and Baby

61 600

5,5

172 000

4,3

Women's Outer

349 440

31,2

444 000

11,1

Women's Bottoms

73 920

6,6

480 000

12,0

Women's Shirt

26 880

2,4

68 000

1,7

Women's Cut and Sewn

44 800

4,0

156 000

3,9

Women's Knit

118 720

10,6

252 000

6,3

Women's Accessories

8 960

0,8

80 000

2,0

Women's Inner

67 200

6,0

552 000

13,8

Men's Outer

150 000

13,4

292 000

7,3

10 Men's Bottoms 11 Men's Shirt

53 760

4,8

528 000

13,2

26 880

2,4

116 000

2,9

12 Men's Cut and Sewn 13 Men's Knit

47 040

4,2

128 000

3,2

39 200

3,5

244 000

6,1

14 Men's Accessories 15 Men's Inner

17 920

1,6

84 000

2,1

33 600

3,0

404 000

10,1

Source: UNIQLO Russia materials

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

APPENDIX

APPENDIX 11 Store scheme UNIQLO Atrium

ELECT ROOM

IT ROOM

ACCESS 1 FITTING ROOMS

1 BREAK ROOM

MANAGER

9 7

ACCESS 2

8 ALT. ROOM

STOCK ROOM

CASH REGISTERS ZONE

CASH WRAP

VISUAL PANELS

Mirror Mannikin CONTROL ZONE 2

Clothing rack 4X MONITORS

Hanger

MALL DISTANCE BETWEEN

LEASE LINE ROLLER SHUTTER GATE SENSOR GATE SENSOR

«AT THE PEAK OF FASHION»: DEVELOPING A LEADERSHIP STRATEGY FOR A LARGE FASHION RETAILER UNIQLO

4X MONITORS

This case study was written and published by Changellenge >> â&#x20AC;&#x201D; the leading provider of case studies in Russia. www.changellenge.com info@changellenge.com vk.com/changellengeglobal facebook.com/changellenge

This case study was written for UNIQLO www.uniqlo.com