Uniqlo: Uniquely Capable of Beating Zara?

In the face of “fast fashion” competitors, how should Uniqlo, a brand known for basics and fabric innovation, evolve its operations?

Basic Beginnings  

Uniqlo’s Production Cycle

Starting with one store in Hiroshima, Japan in 1984, Uniqlo has grown to over 1300 stores in 15 countries [1]. Their customer promise has remained the same– to provide high-quality, innovative, and functional clothing at affordable prices. Compared to other “fast fashion” retailers such as Zara or Forever 21 that launch new styles weekly, Uniqlo’s product development cycle is more similar to technology companies. Uniqlo’s year-long process is needed to research, source and test new fabrics, and then negotiate with vendors to place cost-efficient high-volume orders [1]. Uniqlo then deploys takumi, or textile “masters,” to production floors to ensure quality dyeing and sewing, a testament to its emphasis on fabric innovation and quality over trendiness [1]. Therefore, while innovative on textiles, they offer a limited variety of styles but in a high variety of colors [2].

Fearing Fast Fashion

Once upon a time, fashion collections were introduced twice a year. Now, technological advances at various points in the supply chains have condensed production cycles, decreasing design, lead, and production times and transforming the expectations of fashion retail consumers. Customers demand four to six collections a year that need to keep up with unpredictable trends, forcing retailers to adjust their merchandising and design processes accordingly [2]. In order to compete with other fashion retailers, Uniqlo is starting to think about the impacts of shortened production cycles on its value proposition. Competitors like Zara are able to respond to customer demands quickly, turning a design from the runway into a product in 13 days [2]. As such, the consumer expectation is to find stores with high volume and variety of products that reflect the current trends. Given that pressure, Uniqlo’s slow development cycles run the risk of missing out on responding to customer demands and expectations, even if it’s about changes in fabric quality and fit rather than design.

Uniqlo’s New Offices

Spending on Speed

In March 2017, in the midst of slowing sales growth, CEO Tadashi Yanai announced that it plans to match Zara’s design to delivery time [2]. It opened a new 200,000 sq. ft office in an industrial area in Tokyo that will bring together design, production, and marketing resources in one facility, hoping that this increase in collaboration will increase speed to market [2]. In addition, the new facility will also help Uniqlo expand its e-commerce business and same-day delivery service in the Tokyo area [3]. In conjunction, Uniqlo is ramping up its hiring of tech talent who can help develop more sophisticated AI algorithms that could help factories, distributors and stores predict what the customer wants, and reduce excessive inventory [4].

 

 

Keeping Up With Competition

Without a doubt, given competition, speed needs to be a core element of Uniqlo’s operational strategy. Nevertheless, it must still maintain its competitive advantage as a destination for high-quality, low-cost basics. Though other retailers have had first mover advantage in retail’s “speed-to-market” evolution, there are several ways in which Uniqlo can catch up.

  1. Customized Basics: Although the “fast fashion” retailers have different value propositions to their customers – Zara and Forever 21 focus on disposable trends while Uniqlo focuses basics – there is an opportunity to focus on developing more “customized” basics. In particular, integrating AI and customer feedback, Uniqlo should offer a wider variety of sizing options for different body types.  This gives the customer that same sense of responsiveness and variety of a fast fashion retailer, without losing its core value proposition.
  2. Build a Stronger E-Commerce Presence: The condensed supply chain has changed a customer’s store experience. In particular, given the rapidly changing selection of styles, there is a sense of exciting exclusivity, prompting purchases on a whim [5]. Although Uniqlo’s core competency and strategic advantage is fashion basics, its lack of variety and product exclusivity decreases customer store visits. However, Uniqlo is strategically positioned to build a strong e-commerce channel given its emphasis on commoditized basics. Currently, Uniqlo’s brick and mortar locations are large and highly stocked, leading to an often overwhelming experience. The e-commerce channel currently represents only 5% of sales [6]. In line with other retailers, it should offer more convenient delivery services, leveraging its urban store network to create a “ship-from-store” model that decreases the shipping times. Given the commoditized nature of basic apparel, it can further emphasize convenience by offering a subscription service for items that customers regularly replenish, such as socks or undergarments.

Nevertheless, these suggestions are contingent on the continued viability of Uniqlo’s business model. Is their “basics-only” strategy still competitive in the current landscape, or does Uniqlo need to keep up with trends?

(790 Words)

Sources: 

[1] Uniqlo, “Uniqlo Business Model”, http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html, accessed November 2017

[2]  Kazunori Takada and Grace Huang, “Uniqlo Thinks Faster Fashion Can Help it Beat Zara”, Bloomberg Newsweek,  March 7, 2017, https://www.bloomberg.com/news/articles/2017-03-16/uniqlo-turns-speed-demon-to-take-on-zara-for-global-sales-crown, accessed November 2017

[3] George Anderson, “Will Uniqlo Beat Zara with Speed and Customer Focus”, Retailwire, March 17, 2017, http://www.retailwire.com/discussion/will-uniqlo-beat-zara-with-speed-and-customer-focus/, accessed November 2017

[4] Hishashi Awato, “Uniqlo’s Retail Empire Embarks on a Digital Revolution”,  Nikkei Asia Review, August 26, 2017, https://asia.nikkei.com/Business/Companies/Uniqlo-s-retail-empire-embarks-on-a-digital-revolution?page=1, accessed November 2017

[5] Kasra Ferdows, Michael A. Lewis and Jose A.D. Machuca, “Zara’s Secret for Fast Fashion”, HBS Working Knowledge, https://hbswk.hbs.edu/archive/zara-s-secret-for-fast-fashion , accessed November 2017

[6] Chloe Sorvino, “Inside Billionaire Uniqlo Founder Tadashi Yanai’s Quest To Build The World’s Biggest Retailer”, Forbes, April 5, 2017, https://www.forbes.com/sites/chloesorvino/2017/04/05/too-big-data-for-his-drawers/#3fb7fe432b8a, accessed November 2017

Figures: 

  1. http://www.fastretailing.com/eng/group/strategy/uniqlobusiness.html
  2. https://www.architecturaldigest.com/story/uniqlo-new-headquarters-japan-are-a-city-of-their-own

Previous:

Burden of Arabia

Next:

How to revolutionize a “dying” industry by attacking simultaneously top and bottom line – HP’s “instant ink” success of implementing IoT into supply chain and creating customer value

6 thoughts on “Uniqlo: Uniquely Capable of Beating Zara?

  1. Great read, Kiara. You have made a compelling case for reducing the time to market at Uniqlo in order to directly compete with numbers 1 & 2 in the world, H&M and Zara. As you mentioned, Uniqlo has thus far differentiated itself on high-quality basics, whereas H&M and Zara are disposable fashion. Uniqlo’s push to serve additional market segments reminded me of the GAP case in marketing whereby a push to serve a broader range of customers actually squeezed the brand from top and bottom. I agree with your recommended strategy so long as Uniqlo can clearly define how it will be able to continue to differentiate itself by faster, more desirable basics, while avoiding becoming like the firms that it is competing directly against.

    As for using AI in inventory and consumer tastes, does this apply to fashion directly at shows and unveiling or does some lead time exist in trialing different lines and styles and then interpreting sales data? Are there additional opportunities for Uniqlo to maintain its differentiation while speeding up its delivery process?

  2. I was surprised to hear that Uniqlo has announced matching Zara’s product lifecycle – I view it as an unnecessary move. I am concerned that shortening the product cycle will reduce ongoing innovation and quality, two key elements that Uniqlo has built its brand on. As you point out, their current product development cycle takes a year, with extensive testing of new fabrics and textile “masters” driving their production process. How will they ensure the highest quality fabrics without the long sourcing and development process? To meet their goals, will they need to get rid of the textile “masters”? If so, will this shift from a people-centric to machine-centric process negatively impact their products?

    While I agree that all retailers should be evaluating ways to digitalize their supply chain, I think that Uniqlo’s goals are too extreme and put their customer value proposition at risk. At their core, they are a basic wear business, not a fast fashion business. They can afford to take the time to develop high-quality, timeless products. Ultimately, Uniqlo should look at how they can optimize their supply chain through digitization, but in a manner that aligns with their business model.

  3. To echo Anonymous’ comments above, I am surprised that Uniqlo is trying to match Zara and H&M. The issue that I personally have with Uniqlo is that they do not seem to have enough inventory on hand. I have found many instances where my particular size was out-of-stock. For example, across 4 Uniqlo stores in Japan, there was only 1 black polo in size medium while each store had close to 25 large and small sizes. It worries me that if Uniqlo cannot even properly manage its inventory in its home country, how does it plan to do so across a global geography of stores? I think Uniqlo should instead focus on its supply chain and operations to better predict customer demand.

    However, I agree that Uniqlo needs to work on its e-commerce capabilities. Its website is one of the more confusing retail websites with way too many categories names on the left-hand sidebar. Additionally, in this age of free shipping, Uniqlo also needs to optimize its supply chain so that it does not need to require $125 for free shipping. Given that value for quality is one of its customer value propositions, the $125 minimum would be quite a hurdle for most customers who are just beginning to experiment with Uniqlo.

  4. I enjoyed reading this article about a company and product I only first heard about 3 months ago, but has seemed ubiquitous since. I agree with the comments above that Uniqlo has so far been well saved from the fast fashion trend and it may make sense for them to continue with that strategy. However, I do feel, as suggested by Kiara that there is a huge opportunity in e-commerce, which is helped by the lack of product variety. For a recurring Uniqlo customer, there is very little value to be gained from actually visiting the store, as styles and designs don’t change much, compared to H&M and Zara where customers may actually wish to try out different styles and fashions to see how these look on them. So a lot of stores and associated costs can be done away with, if sales are shifted to their e-commerce platform, which would give Uniqlo a strong competitive advantage over brick and mortar dependent retailers.

  5. Thank you for an interesting view on Uniqlo, Kiara. I personally had not really thought about the company as fast fashion directly competing with Zara and always viewed its value proposition well differentiated from other clothing companies. As you mentioned, Uniqlo has had longer production cycles than fast fashion and has consistently catered for needs for high-quality basics at low prices. Because of the slower cycles, it faced difficulties matching current trends and produced lots of excess inventory. I do agree that speed will be a key for Uniqlo’s operational strategy in the era of digitalization, not necessarily to beat Zara, but mainly to resolve the excess inventory issues resulting from unmatched needs.

    I also read articles on this new project about Uniqlo’s attempts to shorten its production cycles, back in March 2017, and I found it quite intriguing. In addition to what you mentioned, Uniqlo planned to insert IC chips in all product tags and track inventory and sales on a daily basis. That way Uniqlo wanted to produce what customers wanted in real time eventually, further enhancing its existing just-in-time operational model. I think, if successful, this will revolutionize the way the fashion industry operates because all companies will have potential to operate in the fast fashion style. However, it will not be easy to make it successful as it will require changes in the mindsets of employees. Employees are currently assigned to work specifically in different departments, such as design or production, but to implement the real-time production cycle, everyone will be constantly required to think more on the strategic view of the entire production cycle.

  6. Great read!
    We definitely want to start first with Uniqlo’s competitive advantage. It has cemented itself as a leading player in quality fabrics and basics (think HeatTech and AIRism). I think their year-long fabric development cycle is central to delivering on this promise.
    Uniqlo is not a fast-fashion company. As far as new designs go, their T-shirts or capsule collections done in collaboration with big brands are the only ones that strike me every time I enter a store (and they don’t change all that often). However, it can still tap into fast-fashion as a basics brand by providing layering options with the latest trends, ensuring it always stays relevant even though fashion fads come and go. This will be tricky as they can only use their own designs in their branded images. Instead, they should leverage on social media influencers who can combine Uniqlo’s basics with more fashion-forward brands in their OOTD outfits.

    I love the idea of a ‘subscription service’ thru eCommerce. I use my basics to death and have to replace them every few months. Because of the quality and comfortable fit I find with Uniqlo products, this is definitely something I would use. It would just be like buying a new toothbrush or deodorant that I use every day. We have to be careful though, of how we execute the subscription service. As you mentioned, the nature of basics as a commodity is a threat – and we don’t want to depress prices.

Leave a comment