(Bloomberg) -- Fast Retailing Co., home of the Uniqlo brand, wants to ramp up the presence of its other fashion label GU in the US and Europe, as Asia’s largest apparel maker accelerates efforts to become a global retailer with ¥10 trillion ($66.6 billion) in annual sales.

“GU has the same potential as Uniqlo,” Chief Financial Officer Takeshi Okazaki said in an interview. “We can generate as many GU stores as there are Uniqlo ones.”

The brand, pronounced as the letters G and U, sounds the same as the word jiyu, or “freedom,” in Japanese. While GU, with slightly lower prices than Uniqlo and clothes aimed at younger clientele, has a solid presence in Japan, it’s less known in other major markets. Building its presence abroad is part of Fast Retailing founder Tadashi Yanai’s push to “become a true global player,” by first doubling annual profit to ¥5 trillion within a few years.

That’s set to include about ¥700 billion from GU, Okazaki said. The brand has already made an initial foray into North America, opening its first pop-up store in New York City’s SoHo district in 2022.

“We want to make GU a store that’s overflowing with trendy products that are easily affordable, and that makes people feel like they want to enjoy fashion,” Okazaki said. “To achieve this, we can’t just stay within Japan.”

That’s the big hurdle, according to Dairo Murata, senior analyst at JPMorgan Securities Japan Co.

“Compared with Uniqlo, which sells the ultimate everyday wear to a wide age group, GU’s market will be limited by definition because it sells fashion to those aged 10 to 30,” Murata said. “To reach their mid-term goal of reaching ¥1 trillion in GU sales, they will have to break into overseas markets, which won’t be easy.” 

There’s a synergy between GU and Uniqlo that makes it easier to open GU stores by leveraging what Fast Retailing has already done with Uniqlo, according to the CFO. The company will make sure to cater to international preferences, while seeking to avoid an increase in the number of product types they sell, he said.

“If this was 10 years ago we couldn’t do this, but people’s information and the trends of clothes is becoming quite shared internationally,” Okazaki said. “Sometimes we have to add a certain thing, but for the most part, we control the overall number of products and make them globally applicable.”

Western competitors who are already well-established, such as H&M, Zara and Gap, also present an obstacle. Hennes & Mauritz AB already has more than 2,500 stores across the Nordics and Europe and more than 700 in North and South America through its various brands.

What Bloomberg Intelligence Says

“Fast Retailing needs to expand its flagship Uniqlo chain globally to boost revenue and profit, we believe, as its growth in Japan is threatened by a shrinking population. This could limit Uniqlo’s same-store-sales growth in the country even as local wages expand. Fast Retailing’s GU label, which focuses on low-priced casual wear, could become a second growth engine.”

— Catherine Lim and Trini Tan, analysts

So far, efforts to expand outside Japan and Asia are paying off, with sales in the US and Europe helping to deliver stronger-than-projected operating profit in the first fiscal quarter, which ended in November. Fast Retailing is planning on accelerating openings of new Uniqlo stores to 20 in North America and 10 in Europe each year, according to its fiscal year-end report.

“Globally, the places that have leadership in fashion are of course Europe and America,” Okazaki said. 

So far, the overseas push has delighted investors, with the shares outperforming 10 other clothing companies worldwide with a market value of more than $10 billion over the past year, according to data compiled by Bloomberg. The stock has already gained more than 20% this year. 

Uniqlo only has about 0.5% market share in the US and Europe, according to Okazaki. Although international sales made up more than half of Uniqlo’s revenue in the latest fiscal year, GU has mostly only flourished domestically. Even with its popularity in Japan, GU’s annual sales amounted to just ¥295 billion, compared with Uniqlo’s ¥2.33 trillion from more than 2,400 stores across the globe.

Fast Retailing isn’t giving up on ambitions in mainland China either, where it already has more than 900 stores. Despite the country’s gloomy economy, Okazaki said the apparel retailer is still bullish on the region over the medium-to-long term, and is now focusing on investing in the quality of stores, rather than boosting the quantity. 

“In the future, I see Uniqlo and GU creating a large market together of clothes made for all people,” Okazaki said. “We intend to aggressively make the necessary investments over the next few years to make GU big.”

©2024 Bloomberg L.P.