Fast Retailing looks abroad for sales growth

Fast Retailing Co., Asia s biggest clothing retailer, expects overseas sales to overtake domestic revenue in as soon as four years, driven by expansion of its Uniqlo stores in China and South Korea.

Growth will come from Asia, especially China, founder and Chief Executive Officer Tadashi Yanai, 61, whose $5.2 billion stake in the company helps make him Japan s richest man, said in an interview in Tokyo yesterday. Sales abroad may overtake Japan s in four to five years.

To meet Yanai s target, overseas sales must surpass those from the company s Japanese stores, which at $6.7 billion last year were almost eight times higher. Together with Spain s Inditex SA, owner of the Zara brand, and Stockholm-based Hennes & Mauritz AB, Fast Retailing is targeting a region whose more than 3 billion people emerged largely unscathed from the global recession that left millions jobless in the West.

That target may be just a dream, or could become a nightmare, said Einosuke Yoshino, who holds Fast Retailing shares among the stock he oversees as chief investment officer of Commons Asset Management Inc. in Tokyo. Yanai is setting very high goals, he said, adding that while the company can compete against the best in the world, it needs to train its people as fast as it increases the number of stores.

The retailer s stock rose 2.2 percent to 16,870 yen at the 3 p.m. close on the Tokyo Stock Exchange. Fast Retailing has risen 53 percent in the past year, outperforming a 36 percent gain in the benchmark Nikkei 225 Stock Average.

In the fiscal year ending August, the Yamaguchi, Japan- based maker of Heattech thermal underwear plans to have added a net 90 Uniqlo outlets to the 862 stores worldwide it had at the beginning of the year. Fifty-five of those will be in China, Hong Kong and South Korea. Japan will add 34, taking the total for the domestic market to 804.

Singapore, Russia and France will each gain one -- while the U.K. stores will be cut by two to 12.

Fast Retailing s rivals H&M and Inditex are also expanding in Asia. H&M, which sold a collection by luxury label Jimmy Choo in 2009, plans to add 240 stores this fiscal year, including 25 of its Monki and Weekday outlets and 12 higher-priced COS stores, mainly in U.S., U.K., China, France, Germany and Italy, it said in January. H&M will open in South Korea this year.

Inditex will enter India this year, with the opening of about five Zara stores, the La Coruna-based company said in December. The company, which operates 65 outlets in China, has strong expansion plans for the Chinese market in the coming years, Chief Executive Officer Pablo Isla said on Dec. 10.

To meet its targets and stay ahead of the competition, Fast Retailing has to keep running, or even accelerate, said Mikihiko Yamato, a Tokyo-based analyst at Japaninvest KK with a neutral rating on the stock. Still, Uniqlo knows how to tailor for Asian figures, unlike Western designs, he said.

The company s Asian focus may prove a boon as the region s economic growth is expected to outpace that of the West. The World Bank in January forecast growth in emerging nations of 5.2 percent this year, compared with a global average of 3.3 percent. China will expand 9 percent and India 7.5 percent, it said.

Europe, where Inditex and H&M make about 80 percent of their revenue, and North America, where Gap Inc. derived 88 percent of its sales last year, are both struggling to emerge from the global economic downturn of the past two years. Unemployment in the U.S. and Europe is running at almost 10 percent, the highest in more than a decade.

In addition to opening flagship stores in Moscow and Shanghai in the first half of this year, Fast Retailing may also enter Brazil in three to four years, said Yanai.

Brazilian Attraction

Brazilian retail sales rose the most in 18 months in January as the nation of more than 200 million people emerged from recession.

Fast Retailing expects to have 4,000 Uniqlo outlets worldwide by 2020, the company said last year.

It aims to raise pretax profit excluding extraordinary items to 1 trillion yen ($11 billion) by 2020, compared with an estimated 125.5 billion yen this fiscal year.

Japan s second-biggest retailer by market value, which began selling the +J line overseen by German designer Jil Sander last year, aims to raise its share in the 10 trillion yen domestic apparel market to 15 percent over the next 10 years from about 8 percent, Yanai said.

Fast Retailing is benefiting from Japanese consumers new- found propensity to shop for discounts and shun luxury goods, taking away customers from department stores.

The shift in Japanese consumption has been brought on by sluggish growth during the past two decades that caused life- long jobs to give way to lower-paid, less-secure temporary employment, McKinsey & Co. said in a report last week.

Japan s department-store sales last year plunged to the lowest level in 26 years. Uniqlo s domestic sales rose 21 percent in the three months ended November.

Fast Retailing has a brand power even just for ordinary underwear and a capability to develop new products, which are giving global competitiveness, Commons Yoshino said.