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Fast Retailing Co.’s Even Faster Decline

Typically a standout performer among Japan’s otherwise stagnant retail sector, Fast Retailing Co. reported a dramatic decline in third quarter profit. According to Bloomberg calculations, operating profits dropped 27.4 billion yen ($280 million), down from 27.6 billion the previous year.

As a result, the Uniqlo’s stock fell 5.8 percent. Fast Retailing Co. blamed its woes on a variety of contributing factors, including unseasonably warm weather that hurt sales of its autumn and winter clothing lines, steep discounts designed to attract more volume and basic operational and logistical problems that made it difficult for Uniqlo to keep its shelves adequately stocked with core products.

Despite some help from a substantially depreciated yen against the dollar, Uniqlo has struggled to regain former footing. Its overall sales have dipped 4.7 percent to 250.99 billion yen from 263.46 billion, and domestic sales have tumbled 15.5 percent. Uniqlo’s operating profit fell 18.4 percent to 49.85 billion yen from a once lofty 61.06 billion.

Uniqlo’s difficulties are a troubling indication of what the near future holds for the retail apparel industry. Even during straitened economic circumstances, it has managed to consistently outperform its competitors. Courting customers with  bargain basement prices and comparatively high quality, Uniqlo has been a shining star in Japan’s darkened retail sector.

And there doesn’t seem to be any relief in sight. Uniqlo lowered its forecast for domestic sales, anticipating a 11.4 percent decrease in the first half of the next fiscal quarter. It also revised its revenue outlook, expecting a 3.8 percent rise to 846 billion yen compared to an earlier, and rosier, prediction of 856 billion yen.

While acknowledging Uniqlo’s missteps, Fast Retailing Chief Financial Officer Hidetsugu Onishi maintained a generally optimistic view. “Our sales in December declined at a steeper than expected pace. I don’t think the domestic market has already become saturated or hit a peak. We will concentrate more on basic goods and will reap the benefits in the second half,” he said.

And Uniqlo continues an aggressive strategy of expansion. It opened new stores in Indonesia last June and plans to open more in Melbourne, Australia in 2014. The Yamaguchi based company also expects to open ten more stores in the US next fall and another twenty stores annually thereafter. As it stands now, Fast Retailing Co. has 2,327 stores globally with 847 Uniqlo outlets in Japan and 359 abroad.

In an attempt to revitalize slackening sales, Uniqlo plans to scale down both its labor costs and sales promotion costs by 7 billion yen over the next fiscal quarter.

 

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