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More than 20 years ago, UNIQLO's founder Tadashi Yanai realized that it would not be possible to make UNIQLO into a clothing giant by only doing business in the domestic market, so he planned to expand into overseas markets.

In 2001, UNIQLO opened its first overseas store in the UK, and the following year, its first store in China opened in Shanghai. In fiscal 2023, the sales of UNIQLO's overseas business accounted for more than 50% for the first time, of which China accounted for more than 40%.

There is no doubt that China is an important part of Fast Retailing Group's (UNIQLO's parent company) overseas market and an important engine of overseas growth. But now, this market seems to be stalling.

Fast Retailing Group CFO Ken Okazaki previously predicted at an earnings conference that the Chinese mainland and Hong Kong markets will continue to see declining revenues and sharp drops in profits in the second half of the year.

Sales hit a new high, and tourists visiting Japan went shopping

The first Uniqlo store opened in June 1984, and this year marks its 40th anniversary. The business road over the past 40 years has not been smooth. In Japan, Fast Retailing launched new formats such as "SOPQLO" and "FAMIQLO" in 1997, but decided to withdraw within less than a year. In 2002, Fast Retailing started online sales of vegetables, fruits and other foods under the "SKIP" brand, but also withdrew in 2004.

Today, Fast Retailing, which is "dedicated" to selling clothes, operates 3,500 stores around the world, with a total market value of 12.7 trillion yen. Even in the past few years, Fast Retailing's performance has continued to rise.

Last October, Fast Retailing released its fiscal 2023 data, with consolidated sales increasing 20% ​​year-on-year to 2.7665 trillion yen and net profit increasing 8% year-on-year to 296.2 billion yen. At that time, the company announced that consolidated sales (IFRS) for fiscal 2024 (ending August 2024) are expected to reach 3.05 trillion yen, a 10% increase from the previous fiscal year, breaking the 3 trillion yen mark for the first time.

The growth in performance also helped Yanai Tadashi retain his title as Japan's richest man. In the latest 2024 "Japan Billionaires List" released by Forbes, Yanai Tadashi ranked first with a net worth of US$38 billion, an increase of US$2.6 billion from 2023.

The latest published third quarter results for fiscal year 2024 (ending March-May 2024) show that Fast Retailing's total comprehensive revenue reached 236.65 billion yen, a year-on-year increase of 10.4%; net profit for the period was 31.28 billion yen, a year-on-year increase of 31.2%.

Due to population decline, Fast Retailing has been worried about reaching its growth peak. In addition, due to successive price increases in Japan, consumers' "life defense awareness" of actions and awareness required to maintain household income and expenditure has increased. Under such circumstances, Fast Retailing has seized the demand of inbound tourists (foreigners visiting Japan), and Uniqlo's domestic sales in Japan have reached an all-time high this time.

Demand from tourists visiting Japan has boosted sales. The proportion of duty-free sales in Japan's domestic sales has increased by about two times in one year, reaching 7% to 8%. At the financial report briefing, Ken Okazaki emphasized that duty-free sales of Uniqlo in Japan are in good momentum and have contributed to Uniqlo's revenue growth in Japan.

Next stop betting on Europe and the United States?

Although domestic sales have rebounded, Fast Retailing's overseas business has now surpassed that of Japan. According to the financial report, UNIQLO's overseas sales are 1.5 times that of its domestic sales.

"If we can't grow, we will die," Yanai Tadashi said in October 2003. Yanai Tadashi's goal is to build Fast Retailing into a truly global international group. He once said in an interview with Japanese local media that there are fewer and fewer young people in Japan (the core customer base), and the company must go global.

The company plans to increase the proportion of foreigners in global management to 80% by 2030, and will also increase the proportion of foreigners in executive directors to 40%. Whether it is campus recruitment or social recruitment, Fast Retailing envisions the career planning path to start as a store employee, then manager in charge of the entire region, and then CEO of each country and region. In departments such as logistics and product development, it is possible to be promoted all the way to director in charge of various departments.

The Chinese market is an important part. In fiscal 2023, China accounts for 43% of Uniqlo's overseas business, Southeast Asia accounts for 31%, and North America and Europe account for 26%.

In terms of the number of stores opened, China also presents an "overwhelming advantage". Dongwu Securities (Hong Kong) mentioned in a research report on Uniqlo that the rapid growth of Uniqlo's revenue in China since fiscal 2013 has been mainly driven by the number of stores opened. The number of stores in China has increased from 280 in fiscal 2013 to 1,031 in fiscal 2023, with a compound growth rate of 13.9%, driving the overall revenue compound growth rate to 17.4%.

However, starting this year, the carriage that has been driving Uniqlo's overseas market has begun to slow down. Against the backdrop of a sharp increase in the third quarter report, during the third quarter of fiscal year 2024, Uniqlo's revenue in mainland China and Hong Kong declined, operating profit fell sharply, and same-store sales shrank.

Ken Okazaki said: "(Chinese consumers') consumption willingness is low, and the product composition that meets local demand is not in place, so sales are struggling."

The voice that over-reliance on the Chinese market would become a risk to the company's sustainable operation has been fermenting in the local Japanese media. Some Japanese media believe that in China, the "national tide" consumption trend of integrating traditional culture into modern style is expanding. Chinese consumers are buying domestic products, and some overseas brands are struggling. A securities analyst in Japan said that (Uniqlo) is still in a good market in China, but "we need to pay attention to the impact of the national tide."

Ken Okazaki previously stated that in the past few years, UNIQLO has expanded from first-tier cities to second-tier and third-tier cities, opening 100 stores each year, but the revenue per store in China in fiscal 2023 was 3% lower than in fiscal 2019. "Stores that cannot play a role in brand promotion have also appeared in large numbers." The decline in store profitability has forced Fast Retailing to adjust UNIQLO's store opening strategy in China, and will increase store profitability by closing loss-making stores and opening stores in good locations. Fast Retailing's specific plan is to close loss-making UNIQLO stores in the next 2 to 3 years and concentrate store openings in areas with more traffic and prime locations.

In September 2023, 45-year-old Tsukosuke Tsukagoshi took over as president of Uniqlo's operating company. He was previously in charge of Uniqlo's US and Canadian businesses. The industry believes that Tsukagoshi's greatest achievement is leading Uniqlo's US business to profitability. Uniqlo has been losing money since entering the US in 2005, and it achieved profitability for the first time in fiscal 2022 (ending August 2022).

Tsukikoshi emphasized that "the North American business has entered a growth phase from structural reforms" and will accelerate the growth of overseas business. The European and American markets, which once had to shrink in size, have entered a period of expansion. The company expects sales in Europe equivalent to operating income to reach 250 billion yen by fiscal 2024, a 30% increase from the previous fiscal year.