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Uniqlo’s success mirrors growth of Japanese industrial giant

Manriver pass Any city in Southeast Asia and Japan has a commercial presence everywhere: vehicles made by Toyota, Honda and Nissan clog the roads, the result of decades of market dominance in the region. If Fast Retailing, the parent company of clothing retailer Uniqlo, has its way, the drivers of these vehicles will soon be donning Japanese clothing, too.

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The company’s latest results were a boon for shareholders, with an operating profit of 103 billion yen ($760 million) in the three months to the end of February, up 48% from a year earlier. They’ve had good reason to cheer: The company’s shares have risen 53% in the past 12 months, making it one of Japan’s best-performing large public companies. Its shares are now just 10% below their February 2021 all-time high, and with a market capitalization of $76 billion, it is China’s sixth-largest listed company.

At first glance, Uniqlo is an unusual overseas success story for a Japanese retailer. Fast Retailing’s main international competitor – Hennes & Mauritz abparent company h&riceand Zara’s parent company Inditex are located in Sweden and Spain respectively. But the company’s overseas development, like its European counterparts, has followed in the footsteps of Japanese industrial and manufacturing firms.

Japanese industrial companies, especially automakers, have made Southeast Asia their second home since the 1960s. Fast Retailing is also expanding particularly rapidly in Asia, where sales in Asia (excluding its home market and Greater China) rose 71% in the six months to the end of February compared with the same period last year. The region now accounts for 16% of sales, up from 11% a year ago, and is approaching China, Hong Kong and Taiwan, which fell from 25% to 22% over the same period. In the 1960s, Japanese companies focused on exploring for oil, supplying natural resources, and producing industrial products in countries with import substitution policies. Now, the area is a promising market for Uniqlo, not a place to build a factory.

This comparison goes beyond geography. Facing demographic constraints in rapidly aging Japan, Fast Retailing has used technology and automation to replace workers, further emulating the country’s big manufacturers. Keyence, an obscure giant in industrial automation, is Japan’s second-largest public company with a market cap of $111 billion. Since 2017, Uniqlo has embedded tiny identification tags in all of its clothing that can be automatically scanned at checkout.

The reliance on automation also runs deep into companies’ business operations and supply chains. In 2019, it teamed up with two small robotics companies, Japan’s Mujin and France’s Exotec Solutions, to automate their warehouse work. It already partnered with larger automation company Daifuku in 2018 to help reduce labor at its Tokyo warehouse by 90%.

The money saved is no longer just a reward for corporate profits. In March, UNIQLO increased the salary of some employees by as much as 40%, trying to make the salary level of the company comparable to that of similar international companies in order to compete for talents. In the future, the salary standard will be formulated in accordance with global standards. Savings from automation will be necessary if companies want to avoid cannibalizing their profit margins to boost employee salaries.

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