Uniqlo bil­lion­aire Yanai re­vis­its Drucker roots to end slump

The Pak Banker - - Company& -

TOKYO: Tadashi Yanai, Ja­pan's rich­est man, used ad­vice from man­age­ment guru Peter Drucker to build his Uniqlo cloth­ing em­pire. To pull out of a slump that's ham­mered prof­its and shares, the bil­lion­aire is re­vis­it­ing the lessons.

Yanai, 61, founder and pres­i­dent of Fast Re­tail­ing Co., built his es­ti­mated $9.2 bil­lion for­tune over 26 years, turn­ing his fa­ther's tai­lor shops into the Uniqlo chain of low­priced ca­sual wear to be­come Asia's biggest cloth­ing re­tailer. Yanai says his suc­cess was in­spired by Drucker's man­age­ment strate­gies and the idea of "cus­tomer cre­ation" with a prod­uct that cre­ates de­mand.

This year, some­thing went wrong with Yanai's strat­egy. Fast Re­tail­ing's shares have plunged 26 per­cent in 2010, sales at stores open more than a year fell 25 per­cent in Septem­ber, con­tin­u­ing to slide through Novem­ber, and the com­pany fore­cast its first profit de­cline in four years for the fis­cal year end­ing in Au­gust.

"Fast Re­tail­ing lost fo­cus on its core prod­ucts," said Mik­i­hiko Yam­ato, an an­a­lyst at Ja­pan­in­vest KK in Tokyo. "The com­pany tilted to fashion items that didn't sell well."

Sec­ond-half Uniqlo sales through Au­gust fell 6.4 per­cent in Ja­pan, where Ya­m­aguchi-based Fast Re­tail­ing gets more than 80 per­cent of rev­enue. The com­pany's shares de­clined 0.7 per­cent to 12,900 yen at the 3 p.m. close of trad­ing in Tokyo.

Mean­while, com­peti­tors such as the Zara brand from Spain's In­di­tex SA and Swe­den's Hennes & Mau­ritz AB added stores. Zara had 54 Ja­pan out­lets in July af­ter open­ing its first in the coun­try in 1998. H&M en­tered Ja­pan's mar­ket in 2008 and had 10 out­lets in Novem­ber.

Try­ing to match Zara and H&M may have been what took Uniqlo off track, an­a­lysts and in­vestors said.

"The com­pany fol­lowed trendy mak­ers like Zara," said Yam­ato at Ja­pan­in­vest. "Uniqlo needs some fashion items, but the com­pany's strength is to mass-pur­chase fabrics to make large quan­ti­ties of func­tional cloth­ing," said Yam­ato, who rec­om­mends buy­ing Fast Re­tail­ing's stock.

"The com­pany should stick with its ba­sic de­signs to dif­fer­en­ti­ate it­self from Zara and H&M," said Koichi Ogawa, chief port­fo­lio man­ager at Daiwa SB In­vest­ments Ltd. in Tokyo. He de­clined to com­ment on his hold­ings.

Yanai got the mes­sage. Fast Re­tail­ing will fo­cus on func­tional de­signs af­ter "su­per­fi­cial fashion" items eroded sales, he said at an Oct. 8 press con­fer­ence in Tokyo.

Broad­caster NHK this year pub­lished a book ti­tled "My Way of Man­age­ment in The Drucker Style," from in­ter­views with Yanai on the man­age­ment con­sul­tant's in­flu­ence.

"Drucker is not only my man­age­ment pro­fes­sor, but he is like the com­pass to pro­vide a path I should fol­low," he said in the book.

For­mer Gen­eral Elec­tric Co. CEO Jack Welch, In­tel Corp.'s co-founder An­drew Grove and Shoichiro Toy­oda of Toy­ota Mo­tor Corp. con­sulted with Vi­enna-born Drucker, who died in 2005.

Drucker's "The Prac­tice of Man­age­ment" in­flu­enced Yanai "to first think what cus­tomers want and pro­vide more value, rather than what a com­pany wants to sell," the bil­lion­aire said. He de­clined to be in­ter­viewed for this ar­ti­cle.

Masa­fumi Shoda, head of re­tail in­dus­try re­search at No­mura Se­cu­ri­ties Co., said Yanai has been down and bounced back be­fore.

His book "Throw Away Your Suc­cess in a Day," pub­lished in 2009, cites his move into veg­etable stores in Ja­pan in 2002 and los­ing money un­til he pulled the plug two years later. He took Uniqlo to the U.K. in 2001, aim­ing for 50 stores in three years. He got to 21 out­lets be­fore shut­ting 16 in 2003 to stem losses and re­struc­ture.

"He makes quick de­ci­sions to with­draw from a fail­ing busi­ness to avoid more losses," said Masamitsu Ohki, a fund man­ager at Toky­obased Stats In­vest­ment Man­age­ment Co., which holds Fast Re­tail­ing shares.

Yanai has also worked a sales floor, sell­ing kitchen items and men's cloth­ing at a Jusco su­per­mar­ket in 1971, ac­cord­ing to his book. He quit Jusco in 1972 to join his fa­ther's tailor­ing busi­ness, Ogori Shoji. He be­came pres­i­dent in 1984, when he opened the first Uniqlo store, known at the time as Unique Cloth­ing Ware­house. To his ad­mir­ers, Yanai's misses show as­tute­ness, such as in 2007 when he walked away from a bid­ding war with Dubai in­vest­ment firm Istith­mar PJSC for Jones Ap­parel Group Inc.'s Bar­neys New York unit.

"We were lucky not to be able to buy Bar­neys af­ter all," as the fi­nan­cial cri­sis cut lux­ury de­mand, Yanai said in an in­ter­view in March.

Even as growth has fal­tered this year, Yanai has dou­bled Fast Re­tail­ing's sales in the past five years and tar­gets six­fold rev­enue growth to 5 tril­lion yen ($60 bil­lion) by 2020 to over­take H&M and In­di­tex.

Yanai has said he wants 4,000 stores by 2020, ex­pand­ing in over­seas mar­kets in­clud­ing China and South­east Asia. Uniqlo has out­lets in the U.S., Rus­sia and France.

"Yanai should keep pur­su­ing ex­pan­sion abroad, as Ja­pan is shrink­ing and of­fers lit­tle growth," said Daiwa SB In­vest­ments' Ogawa.

Fast Re­tail­ing will add 44 Uniqlo stores over­seas and 36 in Ja­pan in the 12 months to Au­gust, bring­ing the to­tal to 1,024, the com­pany said Oct. 8. That's the same pace of open­ings as its last fis­cal year.

A hir­ing plan in­cludes 1,200 over­seas store-man­ager can­di­dates in the year start­ing Septem­ber 2012, com­pared with about 300 this fis­cal year.

"Open­ing new stores out­side of Ja­pan is im­por­tant, but train­ing our em­ploy­ees is even more im­por­tant," Yanai told in­vestors and an­a­lysts in Oc­to­ber. Be­sides Drucker, Yanai counts on Fast Re­tail­ing's part­ner­ship with To­ray In­dus­tries Inc., Ja­pan's biggest syn­thetic fiber maker, for an edge. -Bloomberg

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