Uniqlo is owned by the retail corporation Fast Retailing Co. in Japan. From its humble origins as a Men's clothing shop in the Yamaguchi Prefecture, it has now established itself as a global brand with 1700 stores around the world. Deemed a fast fashion company like its main competitors Gap, Zara and H&M, Uniqlo employs a similar SPA model to respond to the demands of fast fashion but still seeks to differentiate itself through innovation. It identifies itself more as a advocate of quality and value rather than a chaser of fashion runways.
The retail apparel industry is currently at its maturity phase, evidenced by increased competition, shrinking growth rates and relatively stable market shares. A promotion and discount culture has taken root in the industry, constricting margins and forcing firms to reign in profits through aggressive retail space expansion. Furthermore, changing consumer preferences and increased savinness, coupled with a migrating retail landscape towards e-commerce has forced an upheaval in retailers' approach to growth. We see many apparel firms turning to the concept of fast fashion to satisfy consumer demands, and also embrace the internet as another distribution channel in addition to traditional brick and mortar stores.
Porter's Five Fores
Threat of entry – Low
Barriers of entry are high as there is initial investment requirements in infrastructure, marketing, distribution chains and human resource. New entrants also lack the scale in terms of product offerings to challenge incumbents. The absence of economies of scale and significant reasearch and development capabilities further hinders any attempts to gain market share. Not to mention, the industry's emphasis on brand recognition means that significant investment in marketing and time would be required to build a brand that is capable of mounting a serious challenge.
Power of suppliers – Low
Supplier power in this industry is low as they are fragmented and in abundance, the the diverse supplier base restiricts the bargaining power of suppliers. Industry players are powerhouses that have an extensive network of suppliers. Uniqlo itself has an extensive list of 146 core manufacturing partners alone.
Power of buyers – Moderate
The bargaining power of buyers in this industry is moderate, especially in Uniqlo's target segment. These consumers seek affordability and value in their products and therefore are extremely sensitive to price changes. Additionally, the virtually non-existent switching costs allows customers to simply hop across to whichever brands that satisfy their demands.
Threat of substitutes – Moderate
The presence of many competitors offering similar products results in a high threat of substitutes. Since its products are targeted towads customers looking for affordable luxury fashion. Supposedly differentiation in this aspect is minimal, however, with Uniqlo's approach to develop functional fabrics such as Heattech and Airism, it has managed to differentiate itself with the functionality in its products.
Rivalry amongst competitors – High
Many competitors offering products that are similar in value and highly differentiated, which leaves only one avenue for competition – price. Little differentiation in the segment that Uniqlo is competing in, most brands are trying to offer fashion that borders on luxury yet is affordable for the masses. The industry is currently embroiled in a rat race to gain market share in the global market, rapidly opening stores in other countries.
Robust and Intimate partner relationships
Uniqlo's current chairman, Tadashi Yanai's business approach and strategy is reflected in how Unqilo focuses on building a relationship with its partners. Uniqlo sends its Takumi's down to partner manufacturing factories to impart knowledge on dying technology and sewing methods. Additionally, it also provides management expertise to partner factories, providing technical assistance, assist with process management and promote the cultivation of human resources on site. This has allowed it to ensure a consistently high level of quality within its products, adding value to its brand.
Besides its manufacturing partners, Uniqlo also maintains a close working relationship with its material suppliers, having worked with Kaihara since 1998 and also Toray industries (a synthetic fiber maufacturer) with since 2005. The partnership aims at enhancing business capabilities, including reduction of lead times, production optimization and global expansion especially in the Asian Pacific Region. The partnership with Toray has also been a source of innovation, with Heattech the birth child of the two firms. This is an indsutry that places a heavy emphasis on the relationship with suppliers, where significant competitve advantage can be derived from positive supplier relationships.
Uniqlo has a dedicated inventory control department that maintains the store's optimal level of inventory by monitoring sales and stock on a weekly basis. Uniqlo offers a smaller selection of fabrics rather than constantly churning out runway imitations. Such basic designs not only require less frequent updates in design, it also allows it to buy in signifiant bulk, striking lower-priced, high-volume deals with suppliers resulting in cheaper inventory management. The lack of variety is compensated by an extensive colour selection. Towards season end, merchandisers and the marketing department finalize markdowns and limited-period sales to ensure sell out, preventing inventory pile up and reducing associated costs. This unique form of inventory management has allowed it to gain a competitive advantage in terms of cost. To demonstrate Uniqlo's success in its cost leadership, a pair of selvedge H&M's selvedge jean sells for US$65.95 while Uniqlo's is US$59.50.
Key value drivers
The Uniqlo brand synonymous with basic, chic and high quality clothing. It has successfully built an image around its brand through two avenues – its products and its stores.
Basic – But Trendy, Fashionable and Chic
Its mission is to provide customers with a product that is basic yet fashionable and high-quality at cheap prices. Partnerships with renowned individuals such as fashion editor Carine Roitfeld elevates its products from basic to trendy and chic. Collaborations with well known designers, such as Orla Kiely and Jill Sander, has also allowed the brand to retain some credibility in being a fashionable product. Leveraging on pop culture such as “Snoopy” and “Mickey Mouse” and producing “crossover” T-shirts has allowed the company to strengthen the public's perception of the brand as modern. In the current retail landscape, where consumers greatly value casual and universal apparel, yet still demand fashionable styles in their products, Uniqlo's products possess greater versatility and longevity due to their basic style. Compared to its competitors like Zara and H&M which rely on runway fashion, Uniqlo's products last over fashion seasons and are easier to mix and match, significantly increasing their willingness to pay.
Quality and Functionality
Besides its product image, the brand of Uniqlo is also associated with funtionality and quality. Uniqlo's LifeWear range targets the intersection of casual and sportswear, with innovations ranging from Ultra Stretch Jeans to self-warming HEATTECH. This puts Uniqlo in a position to capitalize on the changing consumer preferences driven by casualization, inclusivity and active lifestyles. Unqilo's significant innovative capabilties over its Zara and H&M allows it to employ an approach of selling “only the basics” with an emphasis on quality and functionality over style appealling to a wider audience.
Besides the image crafted around its products, Uniqlo's stores also reflects its vision. Customers are greeted with a congregation of mannequins on the ground floor of each of their flagship stores, symbolising the abundance that its seeks to provide for all demographics of consumers In the US, its collaboration with starbucks in its Fifth avenue flagship store further highlights its attempt to build its chic and trendy image. Their flagship stores provide a platform for it to raise its brand awareness in the international market, catalyzing its efforts for further global expansion.
Specific Retailer of Private Label Apparel (SPA)
Uniqlo employs a SPA business model. Through this model Uniqlo controls all phases of material procurement, concept desgin and retail and distribution, allowing scrutiny in its entire process. The participation in every phase of development has allowed it to significantly reduce costs while at the same time, more intimately monitor and providing its own inputs into each process. This has allowed it to perform research not only on its retail and distribution front, but also its design and procurement. Quality and production control is managed by Uniqlo's staff, which works closely with its partner factories with weekly visits to check quality, production progress, and provide technical instructions. Its unique employment of the SPA model to its strengths, leveraging on its strong partner relationships and singular approach to inventory management, allows it to sustain an advantage in terms of innovation and cost over its competitors.
In a typically Japanese fashion, the Uniqlo staff are trained to deliver customer service to perfection. Every activity undertaken by every employee, from folding technique, advisor customer interaction, is recorded, analyzed and improved upon. Uniqlo's emphasis on the in-store experience involves hiring, training, and micro-managing all touchpoints. Since many consumers still value the human touch in the personal shopping experience, this
Customer experience is not merely augmented by the presence of diligent staff; the entire store is meticulously designed in such a manner that provides a wholesome shopping journey for each customer. Detailed product explanations are set on display monitors for each product, and merchandising is done not only in an aesthetically pleasing manner through a gradient of colours, but also in a way that services to aid customers in their clothing selection. Since Uniqlo's clothing features heavily on functionality, educating the customers on the functionality of its product is vital for communicating its differntiating factors to improve their willingness to pay.
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