UNIQLO’S EXPANSION STRATEGY TO INDIA
In responding to the expanding globalization and unexploited Indian Market, Uniqlo would like to export its services and products to India. This report on Uniqlo will investigate the key global trends affecting the current and future developments of Uniqlo. Ltd and relevant domestic factors in if Indian market for Uniqlo. India is the third biggest population majorly of average age between 29 and 31 which makes a ideal target market for Uniqlo. The internal and external investigation on India needs the efforts of an expertise in international marketing. This report emphasizes the guidelines on potential market entries and the potency that will maintain Uniqlo in India’s new market. The main issue at hand is whether India, as the international market of choice by Uniqlo is a wise idea for Uniqlo and growth in performance. A way out to this issue includes collecting information on imports, taxes, exports, demographics, locations and customers from a wide secondary study.
UNIQLO Co. Ltd started a separate outlet from Fast Retailing Co. Ltd in 2005. Its chief vision is to be a global leader before the year 2020, aiming at $50 billion as its annual revenue. Its major competitors are Inditex and H&M, nevertheless, UNIQLO, in its statement of mission affirms that Apple is its only competitor because it is a technological Company, not a fashion Company. Its mission is to consistently provide refined quality casual wear suitable for any person at a low price in any place. It is in consideration to this objective achievement of revenue of $50 billion annually which makes UNIQLO aspire to expand to the available Indian market.
Company Analysis Uniqlo is a Japanese casual clothing company, similar to stores such as H&M, Zara and The Gap. However, where stores like H&M and Zara aim to bring the latest fashion trends to the masses quickly, Uniqlo has their own business model that has proven unique and effective. Uniqlo mostly offers basic clothing options, such as T-shirts, sweatshirts, socks, etc. Uniqlo is able to keep these items on their shelves longer without having to discard “last season’s fashions.” This also provides for a lower overall deal they have with their suppliers. Uniqlo also offers their basic items in a myriad number of 3 colors to add some dimension to their somewhat narrow inventory. Uniqlo has found a way to compete with their bigger named rivals without sharing the same big costs. Uniqlo only sells about 1,000 fewer units of clothing than competitors like H&M, but they get their supply at a cheaper cost and their products have a longer shelf life. Uniqlo is now delving into trendier lines of seasonal clothing. Although maintaining their fresh take on basic clothing, they do not want to get boring so they have begun expanding the stores tastes. Uniqlo has stores in Manhattan, London and soon Los Angeles. Uniqlo has also just recently launched their first online store last week in an effort to rev up their international expansion. Uniqlo CEO, Tadashi Yanai, has declared his goal for Uniqlo by 2020 is to have $50 billion in sales and $10 billion in profits. Given Uniqlo’s rapid growth in sales over the past few years, they might meet Yanai’s goal. According to the Economist, Uniqlo has seen a 22% increase in annual sales growth percentage as of 2009.
The Uniqlo product concept is simple; keep it basic. Uniqlo is able to match their biggest competitors in sales because they offer an enormous variety of basic clothing in more colors than a Crayola box. They keep basic items longer because they do not have a “fashion shelf life” and through this management plan they are able to keep supplier costs low. Since expanding, Uniqlo has been delving deeper into the fashion trend scene so prevalent on their competitor’s shelves. Uniqlo manages to provide fashion forward clothing for all at an alarmingly affordable price. Uniqlo also specializes in warm clothing. Many of their articles of clothing come in a “heattech” option which means the article of 4 clothing was made and designed to keep you warm during the winter. Their specialized heat tech is exclusive to Uniqlo clothing, with it they’re able to design super lightweight fashionable coats, jackets and shirts that make the coldest winters feel warm. Uniqlo advertises through print ads mostly in New York City subways. They have two A list celebrities with massive broad appeal in Charlize Thereon and Orlando Bloom. They have also created a creative and clever way of advertising on their Pinterest page; they created over 100 fake Pinterest pages to create an animation effect with graphics they have on their sites. So when users scroll down, the images look like an animated film strip. It has garnered a lot of positive feedback as creative exposure for the expanding Uniqlo brand.
The chart above shows the market share demand that is controlled by Uniqlo. It is clear that in reference to other global brands, Uniqlo continues to enjoy a high return and market share of 5.4. billion in sales, while other brands control 2.7%. Uniqlo is therefore a recognized brand internationally although the same may not be true within the local market. As an international brand, Uniqlo must tailor its products to suit the local market. This is one of the most renowned facts about Uniqlo, the ability to read, analyze and restructure stores so that they are more suitable for the local market. The women’s apparel industry has been growing significantly in the past decade. Usui et al. (2017) states that in the year 2017, sales from women apparels made up at least 57.69% of the entire market share. In the next year, 2018 growth is estimated to reach an average of 63. 64%. Such projections are based on growth in the industry in the past decade. The market for women apparels is not only real, it is fast growing and brands that take advantage of this in the early years are set to make a handsome profit. However, unlike Zara and H&M who have made their name in the local Indian markets, Uniqlo is less known as a brand in the country. Despite offering higher quality goods at a better price, the stores are less recognized by individuals who are not avid travelers. This means that the store will need to invest heavily in marketing and displays that will allow for recognition. Although the demand for apparels and especially for local women apparels is high, the market also leans towards already recognized brands. India’s customers are more rigid in their traditional and customary purchases, often leaning towards stores that have served them over decades. However, the younger population which makes up, at least 56.7% of the market are seeking new alternatives and thrilling adventures in the name of shopping and this provides a unique niche which Uniqlo can take advantage of.
In the past, Uniqlo has fallen short in maintenance of stable sales. Nam et al. (2015) highlight that during the first year customers are treated o unique offers which keep the sales high, however once the hype of the “newest store” in town is dead, the sales plummet leaving the stores struggling to get customers are meet targets that are set at an all time high. In this era, the focus for the store is not just on gaining new customers but rather on ensuring customer loyalty. The Indian market is unique in that, customers are often loyal to a singular store making the bulk of their purchases from these stores. With more than 1100, flagship stores across the globe, Uniqlo has gathered some unique experiences. Among these experiences, the most viable lesson gathered is on market segmentation. Market segmentation allows the company to address the needs of each individual customer. When a customer’s needs are individualized and customized so that they do not have to go seeking for alternatives, the store is able to create easily a loyal customer. This customer is often so impressed that they are willing to engage in word of mouth marketing, sharing with friends and co-workers the advantages of the store.
From the graph above it can be seen that the number of flagship shops under Uniqlo has been increasing on an annual basis. Just a decade ago, Uniqlo controlled only 39 flagship shops around the globe, however as indicated before at the end of the year 2017, the stores had growth to a maximium of 1104 shops. It is suggested and estimated that growth in the next few years will continue at the same pace or even higher for two reasons: first, Uniqlo as a brand is being recgnosied across the globe and therefore demand at local markets is higher and second, the fashion industry continues to show great potential for growth.
Competition in the Indian and in fact global fashion markets has been quite fierce in the past decade. Liou (2018) indicates that even though the industry has been growing at the astonishing rate of more than 15% each year, and even more in the national markets; there has been an increase on new entrants into the market decreasing the potential market share for fashion retailers. The large retailer operating within borders may not be many, however they face even more competition from the small scale entrepreneurs who in themselves may not be able to offer high quality products at cheap prices but tend to have a higher customer satisfaction rate especially when it comes to unique and customized products.
The Indian market has shown an increase in the revenue collected from retail shops. The Graph above is a clear indicator of the potential and growth rate of the retail industry. What is to be noted is that a good percentage of the income from the years showing high growth such as 2014, from 52.3 billion to 59.76 billion have also shown an increase in small business entrepreneurs. India as a country has revitalized policies to allow for growth of small business, and such growth has been so tremendous that it has had a serious impact on the operation and income of large retail stores.
By offering high quality clothing, the company has already segregated itself to the urban consumer. This consumer is often willing to spend on quality clothing and understands the need for variety. In specific, Uniqlo needs to refocus attention on the professional woman. According to Anwar (2017), the average professional woman is not only an income earner but also seeks to impress through the clothes they wear. They are more willing to spend and purchase apparels if they so address their social class. This woman provides a non-exhaustive alternative to the one in a while customer. She seeks to meet the renown and established trends in order to impress not just in her social circle but also in the professional field. While in the past, the store has focused on the young and mature woman, this middle aged professional provides a unique aspect of the brand, where affordability though an issue may not be a deciding factor in the purchase.
When we consider the Indian market, it has been seen that the small scale entrepreneurs are plentiful and have saturated the market. In 2016, the fashion industry in india showed growth of more than 2.3%, 3.67% in 2017 and projected growth of more than 5% in the year 2018, as shown in the graph below:
In 2017, more than 9.12 blllion rupees were spent on fashion in india. This is characterized by new investment and entrepreneurial projects in the industry. Each individual wants to have their own “tailor” and designer, an aspect which allows them to feel even more unique and enjoy a higher social class. Purchasing items at stores is seen as lacking taste and a form of backwardness which speaks to the lack of resources of the purchaser despite the quality of the store. Uniqlo is therefore not positioning itself to fight against the growing popularity of large stores (which in themselves are much fewer) but rather the small scale stores which offer a unique customer experience.
The market that Uniqlo plans to enter into, high end fashion wear has shown tremendous growth at the rate of more than 5% each year, between 2016 the market stood at a growth rate of 52.3% and in 2017 57.6. Even with the saturation of new entrepreneurs, there remains a very high potential for growth. There are more than 30 million potential customers within the main cities only. With this in mind, the company needs to create a unique customer structure that addresses customer satisfaction. A high index of customer satisfaction is likely to draw in new customers who then remain loyal and allow for a steady income. This means focusing on areas which customers find only at the small fashion stores, which include unique and customized products for customers, so that they are willing to pay more for the same since they will be unique in their social circle.
Economic development in the country has been steady, even the recent global downturn in economic growth has yet to have a significant impact in the country. There has been an increase in income earning, and a focus on investment in employment reducing inflation rates to 3.8%. The government has also developed new policies and structures that are designed to entice new investors and employers into the county such as Uniqlo.
An increase in the inflation rates simply translates to an erosion of purchasing power and potential of the consumer. The company could therefore invest in advertisement and marketing and despite the willingness of the consumer to buy the product, they cannot afford it. Further, with an increase in inflation clothing apparels become a luxury for the average consumer. Despite their desire to purchase new clothes, they are forced to contend with what they already have. However, it is important to note that increased inflation has forced the Indian government to seek out international investment opportunities for businesses such as Uniqlo. The result is that such business do not need much resources in the way of licensing and wages which are subsidized. The margin for profit is therefore much higher in India than in other stores across the globe.
The global international Uniqlo brand is renowned for its high quality products, which in themselves are high end. This is a brand that not only services the average citizen but also high end customers such as A listers. This makes the pricing strategy one of the riskiest and most delicate decisions that the brand has to make in each market. Products which can be purchased by renowned bollywoood actresses are considered in themselves quite costly. The average high end customer, who has high income and is able to afford high quality goods often, seeks higher prices as a way of recognizing and acknowledging their own social class. On the other hand, the average citizen offers a much higher return in terms of constant purchases in bulk, but for this consumer income has decreased in the past year, in 2015 average income decresased by 1.7%, in 2016 it decreased further by 1.97% and in 2017 decrease stood at 1.12% . Even though the Indian market inflation stands at an all time low 0f 3.8%, according to Chen and Fan (2017) such progressions are expected to increase in the next year and the years to come, projections for 2018 stand at 4.7 with an expected increase to 4.95% in 2020. Unemployment is expected to be on the rise and despite continued efforts by the government to encourage investors, income is expected to lower and costs of living increase as the markets adjust globally. This means that the company has to address the possibility of lower customer demand and unstable income during the first years. A combination of factors are likely to make the situation worse. On the one hand consumers have to deal with lower income and therefore decreased purchasing power while on the other hand, there is also the likelihood of increased competition through lower priced products as entrepreneurs attempt to take advantage of the need for cheaper products.
The above graph shows a possible increase in pricing of apparels, which has not gone down in the past decade and is expected to rise in the next decade. However, even with this in mind there is also another issue to put into consideration and this is competition. There are several large retail companies operating within the Indian market and competition for the past decade has centered on cheap prices. With increased unemployment, consumers are willing to spend only what they can afford. The purchasing power of the local consumer has decreased significantly, a fact that has led to aggressive pricing competitions. What has steadily increased in the price per garment for both men and women. However, the demand for these lines is much lower and often unsteady.
Since its inception, Uniqlo operates more than 1000 successful flagship stores. However, with each new store the company faces unique competition as well as customary and cultural risk which reduces the potential for growth and success. Ci et al. (2017) gives an example of the Norwegian market where customer tastes and trends were hard to master for the store, focusing a complete change in the operation and products that were being offered in the market. It is due to this that the company almost shut done its own stores. The same risk is faced with each new store especially where culture and traditions still have a strong root.
In this country the store faces even larger competitors who are equipped with large marketing resources and have mastered the weakness of Uniqlo. These include readymade clothes which come at a much cheaper price from stores such as KPR mill which controls the largest share of the market earning more than 19.2 billion rupees annually, pearl Global earning 7.68 billion rupees and even smaller stores such as Poddar housing earning 1.29 billion rupees annually creating forceful competition for the new company .Failure in this market is likely to lead to a decrease in the quality of the brand not just in the country but also globally. Customers are likely to experiment and seek out alternatives from competition following such failure.
- Uniqlo needs to stay away from oversaturation, a fact that has affected the quality of the brand in Japan where it was founded. Products that are unique and highly marketable should not be overproduced simply because the consumer demand is at an all time high. This is especially the case, where the competition has developed the product. Oversaturation lowers prices and leaves the store with unwanted stock when consumer tastes shift.
- Aggressive marketing is a character of Uniqlo globally. However, lessons have been learnt from the same where aggressive marketing has brought in new clientele who in turn shift to the next newcomer within a short period. The focus should now shift from the desire to generate a large market share and more towards a steady income and clientele. Once the brand is established in the new market with an already reliable customer base, aggressive marketing can begin. It is important to note that aggressive marketing always takes away much needed resources for growth and the only result to show for is an influx of short term income that cannot be relied upon to support growth and development of the store.
- There are several, new and upcoming designers not just globally but also within the country. These designers offer a fresh insight into what maybe an already highly saturated market. Collaboration with such designers is likely to bear fruit in terms of unique products that appeal to customers and consumers. Furthermore, the company will be seen as investing and encouraging the growth of the local talent thus drawing in more faithful and loyal clientele. Further, the company could employ services of local legends and celebrities to advertise and market the new products.
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