Page last updated at 23:06 GMT, Thursday, 9 April 2009 00:06 UK

How Japan's Uniqlo is defying recession

By Mariko Oi
Reporter, BBC News, Asia Business Report

Uniglo store 2
Uniqlo's brand of cheap clothing has captured the imagination

Bargain shoppers have flocked to clothing discounter Uniqlo, making it one of the most profitable retailers in Japan.

"It's not that we're selling well, others are just doing badly," laughs Tadashi Yanai, the CEO of Japan's Fast Retailing - parent company of budget clothing brand Uniqlo.

Sounds humble, as the company reported a double-digit rise in quarterly profit and lifted its sales forecast on Thursday.

"But we have always operated as if we are in a recession - making sure our costs are low, even when the economy was in a better shape," Mr Yanai added.

Cautious attitude

His cautious attitude is based on the many economic ups-and-downs that he has experienced since setting up Ogori Shoji, which later changed its name to Fast Retailing, at the age of 23 in 1972.

Uniqlo boss Tadashi Yanai
We want to have stores in every Asian country, where we see stronger growth than in the US or Europe
Tadashi Yanai, chief executive, Fast Retailing

But it was during the Asian financial crisis a decade ago, when Uniqlo built its reputation by selling cheap clothes to cash-strapped consumers.

Now, history is repeating itself as the country battles another recession.

Uniqlo has seen its sales rise 13% in the last six months.

What differentiates Uniqlo from other budget clothing brands is its mega-hit products.

Products such as "Heattech" (heat-trapping inner wear for winter) and "Bra top" (singlets with built in bra-style support) have sold millions around the world.

Rich man

Not surprisingly, investors are in love with its stock, and it has risen by 20% on the Tokyo stock market in the last year, while the benchmark Nikkei average has fallen by a similar amount.

The success of the brand recently made Mr Yanai the country's richest man - he is now worth $6bn (£4bn).

But it has not always been an easy journey.

Fast Retailing had bitter experience after the last recession six years ago.

As the Japanese economy recovered, people ditched Uniqlo and went back to more famous and more expensive brands.

Poor sales forced the company to close most of its Uniqlo stores in Britain and in China in 2003.

But as Japan, the world's second largest economy, faces a shrinking population and the worst recession in over three decades, it is increasingly crucial for Fast Retailing to aggressively expand its business overseas.

Overseas expansion

Uniqlo stor
Uniqlo wants to expand the brand overseas.

Uniqlo now has a worldwide network of 54 stores outside Japan.

And despite the global downturn, it is opening two new stores in Singapore, and is now eyeing India and Russia.

"We want to have stores in every Asian country, where we see stronger growth than in the US or Europe," says Mr Yanai.

"We are not here to compete with cheaper clothing stores of the region. But we offer quality clothes at affordable prices."

"We also represent Japan. I believe Japanese youth has the world's number one casual fashion sense, so we want to bring that to Singapore and to Asia," he adds.

Low prices

Japanese shoppers walk through the Shibuya district of Tokyo
Will Japanese shoppers still shop at discount stores after the recession?

But how can Uniqlo continue to sell its products at such affordable prices?

"We have shifted production away from China to lower-wage Cambodia to keep prices low," says Mr Yanai.

And that means Fast Retailing could sell even cheaper products than Uniqlo.

Confident of Uniqlo's successes, Mr Yanai has launched a competing and cheaper brand in 2006 called g.u.

At g.u., a pair of jeans costs only 990 yen ($10) - a quarter of those at Uniqlo.

He believes sales of what he claims are the cheapest jeans in the market are likely to be "explosive" and could easily top the planned annual target of 500,000 pairs.

"I am not concerned that Uniqlo and g.u. would be directly competing," says Mr Yanai.

"Uniqlo sells good quality products at reasonable prices, g.u. sells OK quality products at cheaper prices, so they are targeting different customers."

As consumers around the world become more price and value conscious than ever, it could be a good time for Uniqlo to expand its business at home and overseas.

Its challenges will begin when the economy starts to pick up.

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