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Japan-Update

Asia saves the day for Japan's Uniqlo

'E-commerce site yet to attain wide recognition among consumers'

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A customer leaves the Uniqlo store in Paris.   © Reuters

TOKYO -- Japan's Fast Retailing, the world's third largest apparel maker, is struggling to increase domestic sales, but the Uniqlo operator at least has Asia to look to.

The company reported a 9% year on year rise in sales to 460 billion yen ($4.1 billion) for its March-May third quarter. Net profit dipped 4.5% to 22.8 billion yen ($202 million), though it would have increased had it not been for a change in how dividends from overseas subsidiaries are accounted for.

Operating profit increased 7.5%. Profit at overseas Uniqlos grew 51% and made up for an 18% fall in domestic profits. Uniqlo's overseas sales grew 18%, compared with 3.5% for its domestic sales.

Much of the growth in sales and profits is courtesy of China, South Korea and Southeast Asia, chief financial officer Takeshi Okazaki said.

Fast Retailing kept its full-year estimates unchanged at 1.85 trillion yen for sales, up 3.6%, and 100 billion yen for net profit, double from the previous year.

The number of stores is expected to increase by 134 to 1,929 through August. China will account for 554, an increase of 82. The company plans to open more stores in Southeast Asia in the next business year.

Fast Retailing faces the urgent task of reviving top-line growth, which has sharply decelerated from above 20% a couple of years ago.

In response, CEO Tadashi Yanai in the March-May quarter began moving the 68-year-old company away from building brick-and-mortar stores and mass-producing low-cost products in Asia.

Instead, a "digital-powered apparel retailer" will offer only the products customers want and ensure that stores are well-stocked with best-selling items. Yanai also wants to build a more prominent online presence that would rival competitors such as Amazon.com.

But the quarterly results show the "digital revolution" remains a work-in-progress. CFO Okazaki said the company will have to wait till the next fiscal year or the one after to see the strategy's full impact.

E-commerce sales grew 17.3% and accounted for 6.2% of Uniqlo's domestic sales in the quarter. The growth, however, undershot the company's expectations. E-commerce sales "should grow at least 30%," Okazaki said. "Our e-commerce site has yet to attain wide recognition among consumers or to attract many customers."

For Uniqlo, keeping prices competitive will remain the guiding principle, at least in Japan.

"The apparel industry in Japan is facing a very tough environment," Okazaki said. "And it is by keeping prices low that we have remained competitive."

For Fast Retailing, he added, future sales growth depends on e-commerce.

Japan Inc. generally lags in technology, analysts say, and Uniqlo may be no exception.

"Investors understandably feel that Japan has been behind in the development of internet platforms, digital payment and scalable globalization strategies," said Nicholas Smith, Japan strategist for brokerage CLSA. "There's plenty of room to grow inside Japan by taking share off other, weaker companies."

Smith added that Fast Retailing "does, however, appear to have a business model that can be duplicated overseas."

CEO Yanai has a goal of making Fast Retailing the world's largest apparel maker, ahead of Spain's Inditex, which owns such brands as Zara, and Sweden's H&M Hennes & Mauritz.

At the current pace of top-line growth, this vision will remain a goal -- Inditex is increasing its sales by double digits. Sales at Inditex totaled $26 billion in the previous business year, compared with a little less than $16 billion at Fast Retailing.

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