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Uniqlo gains on Zara for apparel market cap crown

Investors cheer Fast Retailing's strength in China

The Uniqlo Tokyo will open Friday in the capital's upscale Ginza district. (Photo by Masayuki Kozono)

TOKYO -- Fast Retailing, the Japanese operator of the casual clothing chain Uniqlo, has narrowed the gap against Zara, the global apparel leader in market value, as investors applaud the company's major presence in China.

While apparel sales are down sharply in the U.S. and Europe, Zara's main markets, as the coronavirus pandemic takes its toll, the decline is relatively mild in Asia where Fast Retailing is focused on. Their share prices appear to be factoring in this reality.  

Fast Retailing had a market capitalization of 6.53 trillion yen ($60.9 billion) on Friday last week, data from QUICK FactSet show. This compares with Inditex's market cap of around 9.17 trillion yen.

The market capitalization of Zara parent Inditex was once roughly 300% larger than that of Fast Retailing as recently as summer 2017. Now the gap is about 40%.

Inditex stock has dropped 23% since the end of last year while Fast Retailing shares are only down 2% due to a recent rally.

The global apparel and footwear market is projected to contract 10.8% this year because of the coronavirus, according to Euromonitor. The fallout will be especially heavy in the U.S. and Italy, which both face a 20% plunge. Double-digit declines are projected elsewhere, with France falling 18% and Spain facing an 11% attrition.

But China is poised to shed demand by just 7%. Fast Retailing has a strong presence on the mainland, behind only Denmark's Bestseller and Germany's Adidas, according to Euromonitor. Fast Retailing's 745 outlets at the end of May exceeds Inditex's 560 stores there.

Fast Retailing is intent on capitalizing on all the geographical advantage it has. On Friday, Uniqlo will open its global flagship store, Uniqlo Tokyo, in the capital's upscale Ginza district.

Taking up four floors of the sleek and modern Marronnier Gate Ginza shopping center, Uniqlo Tokyo boasts 5,000-sq.-meter of floor space designed by renowned Japanese designer Kashiwa Sato. The shop is one of the biggest in the chain, rivaling that of the nearby Uniqlo Ginza store.

The new outlet features a children's play area and art installations on each floor, as well as a LifeWear Square in the central atrium that will host seasonal displays. The setup aims to publicize the LifeWear brand concept.

"I look forward to transforming this decade's global apparel retail industry," Tadashi Yanai, chairman and president of Fast Retailing, said during a Thursday event to open Uniqlo Tokyo.

Following the example of the recently-opened store in Tokyo's Harajuku district, Uniqlo Tokyo will also fuse digital technology to the shopping experience.

"Our way of thinking will be the center of the world," Yanai said.

The Ginza outlet will be the first physical store to sell bedding that was only available on Uniqlo's online shopping platform. Customers can design original T-shirts using their smartphones, and there will be a sales floor melding Uniqlo's crowdsourced style-picker app.

"An appealing store can make e-commerce a success," said Takahiro Kinoshita, a group executive vice president.

The pandemic is expected to transform the way consumers think about apparel, with business attire such as suits expected to decline in sales. "Because of the rise of telework, the need for high-fashion clothing will shrink," said Dairo Murata, senior analyst at JPMorgan Securities Japan.

This places Uniqlo at an advantage, due to its line of highly functional loungewear.

"There's a potential of [Fast Retailing] overtaking fashion mainstay Inditex," Murata said.

Fast Retailing rivals are hungry to secure market share. Inditex said last week it will shutter up to 1,200 locations worldwide by next year. But the plan targets mostly small outlets, and the company looks to open 450 massive stores that adopt technology into the shopping experience.

"Activity is moving toward large stores that not only project the brand and worldview, but also function at the supply-chain level," said Minoru Fukuda consumer goods partner at the consultancy Roland Berger.

Even if there is a post-coronavirus boost in consumer trends, Fast Retailing is projected to take in 2.09 trillion yen in consolidated sales for the year ending August. It is still far behind the revenue reported by Inditex for the year through January 2020, which was equivalent to 3.4 trillion yen.

"I aspire to surpass the retail that had guided the era and create a new business concept," Yanai said. Echoing that sentiment, the inside of Uniqlo Tokyo is festooned slogans promising to transform clothes, common wisdom and ultimately the world.

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