Fast Retailing’s Push Into Western Markets Softens China Slump

A customer carries a bag at the new Uniqlo store, operated by Fast Retailing Co., in the Covent Garden district of London, UK, on Thursday, April 27, 2023. Japanese fashion chain Uniqlo is the latest brand to open at Covent Garden in fresh evidence that Londons premier retail space is expanding beyond the once vibrant Oxford Street. Photographer: Chris Ratcliffe/Bloomberg (Chris Ratcliffe/Bloomberg)

(Bloomberg) -- Fast Retailing Co.’s expansion into the US and Europe is paying off, with a strong performance in those markets helping to make up for a sharp deceleration in China.

The company behind popular brands Uniqlo and GU raised its full-year forecast for operating income to ¥475 billion yen ($2.9 billion) from ¥450 billion. Operating income for the three months ended May was ¥145 billion, exceeding analysts’ average estimate for ¥124 billion.

Fast Retailing has been pushing its oversea expansion beyond Japan and China as it seeks to become a global apparel retailer. Uniqlo reported big revenue and profit gains in North America and Europe while business across southeast Asia, India, Australia and South Korea continues to improve. Strong performance in its home market of Japan also helped lift profit in the latest period. 

New store openings across Europe has improved brand recognition in the region, while US and Canada operations saw a spike in same-store sales, according to Chief Financial Officer Takeshi Okazaki.

The outlook for full-year revenue was raised slightly to ¥3.07 trillion. For the quarter, sales climbed 14% to ¥767.5 billion. International revenue jumped 19% in the third quarter, while operating profit rose 16%. 

These have helped make up for weakness in Fast Retailing’s China business, which reported a sharp drop in profit due in part to a slowdown in consumer demand, the company said in a statement on Thursday.

Fast Retailing’s expansion in the world’s second largest economy has appeared to decelerate even as it remains one of the very few foreign apparel brands still favored by Chinese consumers at a time when Hennes & Mauritz AB, Inditex’s Zara and other rivals have struggled in the region. 

Still, consumers contending with a slowing economy and uncertainty in the job market are pulling back on discretionary spending, dealing a blow to retailers selling everything from clothes to food and prompting companies to dole out heavy promotions. 

There’s growing popularity among young Chinese shoppers over so-called “ping-ti” products made by local manufacturers that differ very little in quality with branded items, according to Ning Pan, the executive overseeing Uniqlo’s greater China operation. With a weak job market and concerns for dwindling income, many young Chinese consumers are increasingly shopping for cheaper alternatives for everything from Uniqlo clothes to Ikea furniture.

Despite the sluggish performance, years of expansion in China has helped nurture a legion of local talent that Fast Retailing is tapping for its expansion across US, Europe and the rest of Asia, according to Pan. Meanwhile, the company said it’s sticking to its goal to expand its greater China presence to 3,000 stores.

(Updated throughout.)

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