Committed to global domination, Fast Retailing Co., owner and operator of Uniqlo, revealed that it is in talks with the owners of J. Crew Group Inc. to buy the preppy clothier for a reported $5 billion.
According to insiders, the talks are only recently underway. Fast Retailing originally approached J. Crew, but rumors have swirled that J. Crew has been courted by other potential buyers, fomenting gossip that the American chain is on the hunt to be acquired. J. Crew has experienced a succession of ownership changes in recent years. And its two current owners, private equity firms TPG and Leonard Green & Partners LP, have been exploring the possibility of an initial public offering (IPO) sometime in 2014. It’s not clear how far along J. Crew’s management is in preparing the IPO, but they have already contracted with Goldman Sachs to supervise the project. The two firms jointly acquired the retailer in 2010 for $2.8 billion.
The bid for J. Crew is Fast Retailing’s boldest in a naked grab at the U.S. apparel market, one more step toward its goal to become the world’s premier provider of apparel. Uniqlo chief executive Tadashi Yanai believes a more aggressive positioning in the U.S. is a central feature of its intention to become the world’s largest retailer by 2020. Currently, Uniqlo maintains seventeen stores in the U.S. and intends on launching as many as thirty more annually to reach 100 in the next few years. Globally, there are over 1,300 Uniqlo stores. Executive vice president Yoshihiro Kunii said, “New York, London, Paris – these are at the forefront of the fashion industry. To establish ourselves in these markets is crucial.”
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Fast Retailing Co. sees further penetration into the U.S. market as one part of an ambitious plan to expand globally. Business for Fast Retailing Co. has been booming. Its sales surged 22 percent to 389 billion yen ($3.76 billion) in the last three months ending in November. Net income leapt 8.8% to 41.8 billion yen ($398 million) for the same period. The company’s shares grew an astonishing 99 percent in Tokyo trading for 2013, swelling its market value to 4.6 trillion yen.
In 2013, Uniqlo opened new stores across the U.S. and in Indonesia, Paris, and Shanghai and plans to open more in Australia, China and Berlin. As it stands now, Fast Retailing Co. has 2,327 stores globally with 847 Uniqlo outlets in Japan and 359 abroad. It has plans to keep a pace of 200 to 300 store launches annually.
Uniqlo also intends to grow in minor Asian cities outside of Japan, like in Chiang Mai, Thailand. Since the average consumer in these cities has less access to disposable income, success in those markets requires offering more affordable apparel lines. “There’s a difference in the amount of money that customers can spend on clothes,” said Kunii. “So we need something that’s more within reach, even though that might mean a slight drop in quality. It would be reasonable and affordable, but maintain Uniqlo’s quality.
It would take a juggernaut to absorb J. Crew, which operates more than 400 stores in the U.S, U.K. and Canada. For the fiscal year that ended this February 1, it reported revenue totaling $2.4 billion, a brisk 9 percent increase over last year.
Yanai also considered buying Gap Inc. at one point and closely studied their apparel design, mining it for inspiration for Uniqlo’s lines. Some say he has closely modeled much of the chain’s casual wear–including t-shirts and sweats–on the Gap’s own aesthetic.
The main pillar of Uniqlo’s strength is overseas sales, which have skyrocketed 77 percent in the three months leading up to November, forty times the pace of domestic sales growth.
In efforts to better understand the U.S market, Fast Retailing has been recruiting top executives from American retailers, luring them from their employers with the promise of superior pay and greater managerial autonomy. Taking over as chief creative officer for Uniqlo Global Design is LeAnn Nealz, formerly a president at Juicy Couture. Nealz, who has also held executive positions at The Gap Inc. and Calvin Klein, will head design teams based in New York and Tokyo. Uniqlo’s e-commerce business will now be lead by John Fleming, who spearheaded web sales for Walmart. After top posts at Esprit and H&M, Jorgen Andersson has been hired as the new global chief marketing officer at Uniqlo. And formerly a general merchandising manager for Express Inc., Steven Sare is now Uniqlo’s chief merchandising officer. Yanai, reportedly the richest man in Japan, said that the new hires will “help us launch the next stage of our global growth.”
According to the Bloomberg Billionaires Index, Yanai has assembled a net worth of $19.3 billion. He is forthcoming about his ambitions to surpass Inditex SA, owner of Zara, as the world’s premier global retailer. Fast Retailing employs more than 23,000 people worldwide, and has a market capitalization of $36 billion.