Fast Retailing : CEO Insights

CEO INSIGHTS

Ariake Project Begins to Bear Fruit

National, industrial, and corporate demarcations are disappearing, and intricate connections are forming between people, things, and information. As rapid IT development drives an information revolution, corporations are experiencing their own new industrial revolutions. To stay ahead, we need to transform our business by replacing our traditional supply chain with an information-driven one that links to the design, planning, production, distribution, and retail stages, and that is able to instantly create the products customers want. Our aim is to create an entirely new digital consumer retail industry.

Driving Digital Transformation

To kick-start this revolution, we moved our UNIQLO headquarters to the vast, open-plan UNIQLO CITY TOKYO office on the 6th floor of our Ariake warehouse in February 2017, and threw ourselves into our transformative Ariake Project. The project is now starting to bear fruit in multiple ways, as small, flat teams rapidly analyze our business, make decisions, and implement ideas. The Ariake Project has been running for two years, and it is now roughly 30% complete.

Eliminating Waste in Production, Transportation, and Sales

The ultimate aim of our digital consumer retail company is to eradicate waste by ensuring we make, transport, and sell only what is necessary. Pursuing our Ariake Project will help to achieve that aim by transforming our entire supply chain, from design and planning to production, distribution, and retail.

In summer 2018, we launched a joint project with Google under the Ariake Project umbrella. I am convinced we can gain a quicker understanding of what colors and silhouettes are in fashion by analyzing big data, including huge volumes of images, from around the world. And that's not all. We can also create a more efficient design process and ensure more accurate volume planning for the products that customers want by more effectively utilizing UNIQLO and GU's vast amounts of existing information.

Our UNIQLO UPDATE initiative is already proving extremely successful in terms of perfecting core UNIQLO ranges. I believe that repeatedly implementing meticulous improvements based on analysis of a vast pool of customer opinions is the surest way to achieve even better LifeWear.

UNIQLO and GU are mass-volume clothing operations, so we sometimes need to order additional production mid-season. Given the potentially huge impact on business performance, getting the timing right is crucial. Order additional production too late, and we risk losing precious sales. The Ariake Project is helping solve these problems by generating more accurate production volume predictions, reducing the time from design to production and production lead times, and overhauling our logistics systems. We intend to make the most of AI, algorithms, and other new technologies to continue accelerating the Ariake Project.

PRODUCT DESIGN & PLANNING

Current Initiatives

Establish automated warehouses worldwide, transport stock required for sales to warehouses in retail markets.

Gather vast amounts of useful global information and use it to improve product planningand sales volumes.

Current Initiatives

DISTRIBUTION

Advancing the Ariake Project with the Best Global Partners

Logistics reform is one area where the Ariake Project is already reaping great benefits. Our partnership with leading Japanese logistics firm Daifuku Co., Ltd. enabled us to equip our Ariake warehouse with the latest automated equipment and systems within two years of the project's launch. The opening of a fully operational automated Ariake warehouse dedicated exclusively to online sales in fall 2018 heralded sweeping future logistics reform across the Fast Retailing Group. Thanks to the introduction of radio-identification frequency (RFID) tags on all products, UNIQLO can automatically complete warehouse processes such as stock receipt, sorting, picking, and inspection. Around the clock operation eliminates delivery delays caused by labor shortages during busy periods.

Plans are now underway to use automatedwarehouses to make product delivery to UNIQLO stores more efficient as well. We are also looking to establish automated warehouses in Western Japan, China, the East and West Coasts of the United States, and Southeast Asia. Over the next three years, I want to invest ¥100 billion to accelerate the introduction of automated warehouses at all Fast Retailing global logistics centers.

In the IT field, we are building frameworks utilizing AI and other new technologies in cooperation with multinational firms such as Google and Accenture. On the production side, we are proud of our partnerships with Japanese firms Toray and Shima Seiki on developing unique products such as HEATTECH, Ultra Light Down, and 3D Knit items, respectively. We are also strengthening partnerships with factories in China and Southeast Asia.

I intend to secure more leading global technologies and capabilities to actively progress our supply-chain reform.

UNIQLO International Powers Ahead

UNIQLO International Revenue Surpasses UNIQLO JapanCustomers Worldwide Embrace UNIQLO LifeWear Concept

UNIQLO International's performance in FY2018 was spectacular, with a 26.6% rise to ¥896.3 billion, placing UNIQLO International revenue ahead of UNIQLO Japan revenue for the first time. Operating profit soared by 62.6% year on year to ¥118.8 billion, reaching the UNIQLO Japan level. I am certain UNIQLO operations in Greater China and Southeast Asia will continue to be key drivers of growth. I expect UNIQLO Europe's profitability to improve further, with new operations in Spain, Sweden, and the Netherlands all doing well. The halving of operating losses at UNIQLO USA was great news. I truly believe FY2019 will be when our United States operation moves into the black. We are in for an exciting year.

I put UNIQLO's comprehensive success down to a growing embrace of our LifeWear concept worldwide. LifeWear is clothing that offers true comfort, high quality, and fashionable touches at a price everyone can afford. Unlike trend-chasing apparel firms, the UNIQLO brand seeks to become an essential part of life. LifeWear is forged out of long-held Japanese respect for superior craftsmanship. LifeWear means bold new materials born from revolutionary technologies. LifeWear means simple, highly finished clothing that accentuates the wearer's style.

Multiple Store Openings in Greater China and SE AsiaInto the Fast-Growing Market of India

Greater China and Southeast Asia represent crucial pillars of future UNIQLO growth. Asia's middle-income population is expected to continue its rapid growth as economies advance. Journalists and investors often ask me about slowing Chinese consumption, but that's certainly not the case for UNIQLO. In fact, from our perspective, China is actually one of the most buoyant places we operate in. We view the region spanning China, Southeast Asia, and India as the growth center of the world economy, and we will continue to open stores there. UNIQLO has already established solid business platforms in these Asian markets, so it is perfectly positioned to leverage the region's blossoming business opportunities. Japan's population of 120 million is small compared to the several hundred million professionals in Greater China, and the estimated one billion professionals in Asia as a whole. This exciting market is 10 to 20 times the size of Japan, and I intend to secure solid growth for our business there.

UNIQLO Japan & International Revenue

FY2018:

We are on track to enter the Indian market in fall 2019. I think India harbors as much potential growth as China over the long term. India's textile industry is old, and we will need to work together with the people of India to revolutionize local industry practices-just as we did 20 years ago in China when we worked to create UNIQLO's renowned production framework. Different regions of India have different cultures and religious customs, and we will need to think about designing and selling traditional native clothing articles. We will also need to train employees in our exacting customer service and communication principles, and nurture a successful retail business from scratch.

Succeeding in India will make UNIQLO the first truly global clothing brand from Asia. We want to combine Japanese technological prowess with the strong production and purchasing power of India and other parts of Asia to further strengthen UNIQLO International.

UNIQLO International Revenue Overtakes UNIQLO Japan

UNIQLO International

UNIQLO Japan

(bln yen)

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CEO INSIGHTS

Brand Building in Europe: New Urban Store Offensive

We are raising UNIQLO's brand profile by opening large, standout stores, in prime locations across the major cities of Europe. A lot of the world's most successful global fashion brands have strong European roots. I would argue that you can't achieve worldwide success without building a strong brand in Europe, with its long history at the forefront of global fashion.

FY2018 UNIQLO Revenue & Online Sales Ratio

We opened the first Spain UNIQLO store in fall 2017, and the first stores in Sweden and the Netherlands in fall 2018. All these new stores are housed in traditional historic buildings in prime urban locations. We are keen to create stores that embrace and complement the buildings they are housed in, and that present an exquisite blend of European and Japanese culture. We find that these blended backdrops enhance UNIQLO's image as a fresh brand from Japan and create a buzz in the local community.

PARIS

BARCELONA