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Uniqlo to Cut Prices to Get Customers Back

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Fast Retailing has blamed the weather, lack of marketing and sluggish economic conditions for poor sales at Uniqlo, but the company’s leader admitted the problem was more likely pricing.

For the six months to February 2016, Fast Retailing reported same store sales for Uniqlo Japan down 1.9% on poor sales of winter gear, with a resulting 28.3% plunge in operating profit. Revenue was up 12.7% at Uniqlo International to 389.2 billion Japanese yen ($3.56 billion), but sales were weak in Hong Kong, Taiwan and South Korea and operating profit fell 31.4%.

Beyond the warmer weather, which was to blame for many a retailer’s weak sales, Fast Retailing president and CEO Tadashi Yanai said the company’s past price hikes were a mistake.

Uniqlo prices went up 5 percent in 2014 and then another 10 percent in 2015, partly in response to currency fluctuations and partly to reflect what the company considered fair value, factoring in market shifts and changes in sourcing costs.

But consumers didn’t feel the higher prices were fair at all. And with the economy in the state it was, and consumer spending down, timing was bad, too.

“The market was in a very tough situation,” Yanai told the Nikkei in an interview. “We made a mistake of raising prices under such circumstances. Consumer sentiment has turned out to be far worse than we thought.”

Store traffic in Japan fell more than 6 percent in the first half of fiscal 2016 and to get shoppers back in stores, the company cut prices by between $2.76 and $9.21, but that didn’t bode well either.

Uniqlo products used to be priced in simple numbers, like 1,990 yen and 2,990 yen but the price hikes—more than just being too high—brought pricing to numbers like 2,490 yen, which was less simple and less clear for consumers.

The company said it will return to its simpler, lower prices, and will also do away with most of its weekend-only discounts in favor of always-low prices.

“The signs were already there in 2014, but we happened to achieve sales growth due to a cold winter,” Yanai told the Nikkei. “We had it too easy in 2014. We continued to operate in the same way in 2015 and ended up with lower gross profit margins and higher costs.”

Yanai also attributed Fast Retailing’s less-than-great performance to getting away from the business owner’s (his) perspective. Employees got complacent and Yanai’s vision for the business wasn’t trickling down.

So to avoid that moving forward, Yanai is changing up the organizational structure at Uniqlo. Instead of having divisions with their own executives, midlevel managers, and those below, there will be smaller teams of five to six people assigned to specific projects and held accountable for them.

Fast Retailing said for the full fiscal 2016, it expects to bring in revenue of 1.8 trillion yen ($16.5 billion), a 7 percent growth, though it still sees operating profit down a full 27 percent to 120 billion yen ($1.1 billion).

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