August 26, 2017 5:51 pm JST

Uniqlo's retail empire embarks on a digital revolution

CEO gets a hand from SoftBank's Son in hiring IT talent

HISASHI IWATO, Nikkei staff writer

Employees of Fast Retailing, operator of Uniqlo clothing outlets, work at the company's new headquarters building called UNIQLO CITY TOKYO, in Tokyo. © Reuters

TOKYO -- Tadashi Yanai, the chairman and president of Uniqlo operator Fast Retailing, has embarked on a digital renovation of his retail empire.

He believes, for instance, that artificial intelligence could help factories, distributors and Uniqlo stores understand with precision what the customer wants, and reduce excessive inventory. By analyzing big data on consumer behavior, Uniqlo could make recommendations on clothes or deliver the right product at the right time to a specific customer.

As such, the company seeks to hire an army of experienced information technology specialists who can help improve operational efficiency and create innovative systems. It wants software engineers capable of handling data analysis, image analysis and system development.

The problem, however, is that the casual clothing chain is not widely seen as a cutting edge digital company and has difficulties attracting the best IT talent.

Yanai, therefore, decided to turn to an old friend.

On July 6, SoftBank Group chairman Masayoshi Son joined Yanai at a recruiting fair, to which some 400 engineers and other job seekers aspiring to work in the apparel or IT industries were invited.

The two entrepreneurs, who go back decades, talked about the trends in retail and the digital world we live in.

"Consumers typically screen brands and information before actually picking up a piece of clothing and buying it," Yanai said. "We have to be selected during the initial process, otherwise we, as an apparel brand, won't survive."

"In the end," Son insisted, "the winner-takes-all principle rules the world."

Fast Retailing and SoftBank went public in the same month, back in July 1994. Since 2001, Yanai has been an outside director on SoftBank's board.

At a press conference on Thursday, Yanai talked more about his digital vision. Currently, the company plans and produces clothing before each season, which entails a risk of excessive inventory if the designs are not in line with the trends.

In a digital age, Fast Retailing will "only make clothes that consumers are demanding," Yanai said.

Japanese customers turned away from Uniqlo stores after price hikes that lasted through the beginning of 2016.

"Unfortunately, wages in Japan are not rising," Yanai said. "We cannot think of price hikes right now."

Strategic price cuts put in place a year ago have helped revive earnings, but sales lack momentum and the company has few hit products. Uniqlo's domestic sales for the six months ended in February 2017 rose just 0.3% on the year.

Sluggish gains by domestic stores could spell trouble for Fast Retailing's growth strategy as the company aims to become the world's largest clothing chain. Uniqlo's domestic outlets account for over 40% of sales and 50% of operating profit for the Fast Retailing group. With little room for new stores in Japan,

Uniqlo is targeting sales of 3 trillion yen ($27.4 billion) in 2020. Locations elsewhere in Asia will be the main growth engine, but stable gains at domestic Uniqlo stores are needed to maintain the pace.

Yanai's digital revolution is meant not only to cultivate the fertile overseas market but also to reap more from saturated Japan.

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