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China drives record profit for Uniqlo operator as Japan slumps

CEO Yanai remains bullish on Chinese market but looks to India as well

Japanese fashion giant Uniqlo is partnering with robotics startups to automate the last tasks still handled by human workers at its warehouses. (Photo by Akira Kodaka)

TOKYO -- Uniqlo operator Fast Retailing's net profit for the fiscal half ended in February climbed 9.5% on the year to a record 114 billion yen ($1.02 billion) on brisk sales in China despite sluggish results in its home market of Japan.

Monthly sales for Uniqlo's Japanese operations were down from September through December for their first decline in three years, dragged down by warm weather that slowed purchases of fall-winter items. The stellar profit for the half thus highlights the company's deepening dependence on the Chinese market.

"Uniqlo's domestic slowdown was significant," Chief Financial Officer Takeshi Okazaki told reporters Thursday.

The company's projected operating profit for the year ending in August was downgraded to 260 billion yen, a 10% increase on the year, as the gross margin shrinks from more sales discounts.

Fast Retailing has aggressively expanded the Uniqlo chain in Japan since opening its first location 35 years ago. The company secured a dominant position thanks to hit products like fleeces but is now facing a saturated market as Japan's population declines. The retailer has cut the number of stores it operates directly by about 30 from five years ago, while efforts to transform itself into a digital company with artificial intelligence also remain half-baked.

On the other hand, Greater China, including the mainland, Hong Kong and Taiwan, continues to grow quickly, with annual sales expected to hit 500 billion yen for the first time. The region has over 700 stores, and the company aims for about 1,000 by fiscal 2021.

"China's apparel market is 50 trillion yen. There is no chance it will slow down," said a bullish Tadashi Yanai, the company's chairman, president and CEO. 

But rival Ryohin Keikaku, which sells Muji brand clothing, is experiencing slower growth in its Chinese operations.

Aware of its heavy reliance on China, Fast Retailing is now looking at India as its third core market after Japan and China. The retailer plans to open the country's first Uniqlo location in Delhi and is looking at having the same number of stores as China in 10 to 20 years down the road.

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