Fast Retailing CFO Reveals: 50 Underperforming Stores in China to Close This Year

3月 18, 2024

Japanese fashion giant Fast Retailing‘s Chief Financial Officer, Takeshi Okazaki, recently shared in an interview with Nikkei that adjustments will be made to the flagship brand Uniqlo‘s store opening strategy in the Chinese market.

Okazaki stated that the company aims to have the average sales per store in Uniqlo’s Greater China region equal to that of Japan within the next 10 years.

To achieve this, Fast Retailing plans to close unprofitable stores in the Greater China region over the next 2 to 3 years and will focus new store locations in areas with high foot traffic and prime locations, including carefully selected locations in smaller cities to open stores that can be profitable.

According to the current plan, by the fiscal year ending in August 2024, Uniqlo will open 80 stores in the Greater China market while closing 50 stores, resulting in a net increase of 30 stores. By the fiscal year ending in August 2025 and beyond, “a low growth in net store numbers is not ruled out.”

Moreover, e-commerce is another major entry point. E-commerce contributes 20% of the sales in the Chinese market, which is higher than Japan’s 15%. Fast Retailing fulfills e-commerce orders not only from warehouses but also from stores. “In the vast Chinese mainland market, stores acting as e-commerce warehouses will play a significant role. Opening stores in regions with a high number of e-commerce users can create a synergistic effect.”

Okazaki explained that the adjustment in the store opening strategy is mainly due to insufficient profitability of stores and “a considerable number of stores lacking the ability to showcase the brand’s strength.” The brand had initially planned to open 100 stores annually in China’s tier 3 and above cities. However, by the fiscal year ending in August 2023, including e-commerce, the average annual sales per store decreased by 3% compared to the same period in 2019.

Moving forward, the brand will shift from a “quantity-focused” model to a “quality-focused” one, closing unprofitable stores, opening stores in better locations, improving profitability per store, and stabilizing the growth base. Although Uniqlo has more than 1000 stores in China, making it the largest in the world, its sales still fall short of the domestic Japanese market.

As of the fiscal year ending on August 30, 2023, Uniqlo reported:

  • Sales in the Japanese market of 890.4 billion yen, operating profit of 117.8 billion yen, with 800 stores.
  • Sales in the Greater China market of 620.2 billion yen, operating profit of 104.3 billion yen, with 1031 stores, including 925 in mainland China.

Although the number of stores in the Greater China market has surpassed that in Japan, the total sales contribution from the Greater China market to the brand is 26.6%, while Japan’s is over 38%. Including e-commerce, the average annual sales per store in the Greater China market are 600 million yen, compared to Japan’s 1.1 billion yen.

Additionally, in October last year, Uniqlo implemented a salary increase plan in China, with the highest salary increase being 44% and an average increase of 28%.

As of the first quarter of the fiscal year 2024 ending in November 2023, Fast Retailing’s sales increased by 13% year-on-year to 810.8 billion yen, and net profit increased by 27% year-on-year to 107.8 billion yen. Benefiting from the recovery of the Chinese market, Uniqlo’s overseas market sales increased by 23% year-on-year.

Note: At time of writing, 100 JPY is approximately 0.67 USD

| Source: Nikkei, official financial reports

| Image Credit: Brand official social media accounts

| Editor: LeZhi