On a recent fall day in Manhattan's Soho district, fashionable New Yorkers mobbed the racks throughout Uniqlo's 36,000-square-foot, four-story flagship store. The must-have item for many of these shoppers: long underwear.
These aren't your typical lumberjack- and skier-style long johns. For one, they come in unexpected shades of raspberry, orange, turquoise, gold and chartreuse. The big draw, however, isn't what they look like but what they're made of: a fabric called HeatTech, which, according to Uniqlo, generates and retains heat, minimizes body odor, won't pick up static cling, and won't stretch out of shape. Oh, and prices start at $10.50.
The Uniqlo clothing store in Paris, France.
Uniqlo, which is Japan's largest clothing retailer, is on a tear — and HeatTech is a great example of why. With the company's bold innovative efforts, meticulous inventory control and flexible manufacturing model, Uniqlo operates more like Toyota than it does a fashion emporium. So in true Japanese manufacturing tradition, Uniqlo doesn't just make affordable clothes — it makes them better.
"We approach clothes as an industrial product," says Shin Odake, chief operating officer and acting CEO of Uniqlo USA. "We figured that since Japan is good at making things like cars and electronics, we should we use that knowledge."
Sure, the formula of style and budget-prices resonates with the cost-conscious shoppers visiting its 862 stores the world over. But lots of competitors, including The Gap, H&M, and Zara, also go after cheap chic, yet aren't doing as well during this rough economy. Uniqlo's parent company, Fast Retailing, which gets about 80 percent of its revenue from the chain, saw sales rise 17 percent over the past year to $7.1 billion.
Innovate with Outsiders
When Odake began working at Fast Retailing’s Tokyo headquarters in 2001, he was surprised to find that many of the executives there didn’t actually work for the company — or even in the retail industry. They came from technology, chemical, consulting and finance firms. Fast Retailing CEO Tadashi Yanai, who took over the business from his father in 1984, regularly brings in outside advisers to help shape product ideas.
Uniqlo CEO Tadashi Yanai
It was just such an approach that, in 2002, led to a brainstorming session about reinventing basic thermal underwear. Yanai brought in execs from the Japanese chemical giant, Toray Industries. Together, they tossed out ideas about how to differentiate long underwear, eventually deciding to develop a chemically treated “smart” fabric. The result was HeatTech, a fabric that uses air pockets to retain body warmth, milk protein for softness, and an antibacterial agent to minimize sweat odors.
The response has been strong. The company expects unit sales to climb more than 75 percent this year to 50 million. Such demand probably helps explain why Yanai has hinted at more partnerships to spur innovation. At an October press conference at which Yanai announced that Fast Retailing’s annual profits had climbed 24 percent to $1.2 billion, he remarked, “It is a real shame, but Japan’s leading fiber technology, the envy of the world, is not used in the making of clothes.” He said future projects might include making clothes with carbon fiber and liquid crystal.
Waste Not, Want Not
Of course, these strategic partnerships rarely come without friction. Working with Toray was an eye-opener on the production end of the chain, says Odake. As a manufacturer, Toray aims to keep its factories operating all year. That conflicts with the retail manufacturing model, in which companies cut orders if an item isn’t moving so that they’re not stuck with inventory they can’t sell.
The Uniqlo store in Soho.
So Fast Retailing modified its production schedule to accommodate manufacturers like Toray, and it’s paid off. By making year-round, not just seasonal, commitments with its suppliers and its production facilities, Fast Retailing can change its production plans on a dime. And it does. It often changes colors or cuts with just a few weeks’ warning — something it couldn’t do if it didn’t reserve a manufacturing plant for a year in advance.
To make this all work smoothly, Fast Retailing essentially uses Toyota-style, just-in-time inventory procurement. It monitors sales patterns weekly and orders garments just before the stores are likely to need them. This way, Uniqlo rarely has excess inventory. And if Uniqlo were to see a sharp dip in sales, it wouldn’t halt work. Instead, it would use the same fabric to make an entirely different product. So if sales of cashmere sweaters suddenly dip, it might turn that goat’s wool into scarves.
Even the tightest production system isn’t foolproof, of course, because it relies on forecasting, which no company gets right all the time. Demand for HeatTech was so high last year, for example, that Uniqlo stores ran out. To prevent that from occurring again, Toray built a new factory to accommodate Uniqlo orders.
The Try-Anything Approach to Product Launches
As with all the clothes it makes, Uniqlo did zero market research before launching HeatTech. Instead, it brings a product to market quickly, monitors sales closely, listens to customers’ reactions, and modifies production plans as needed. Some new products will sell well, while others will quickly disappear from the stores’ shelves.
HeatTech was launched in 2003 on a small scale — just in Japan in a handful of styles and colors. Store managers quickly realized some of the design wasn’t right; the men’s underwear was bulky, like traditional long johns. “We studied our customer comments and started making thin tights you can wear under jeans,” says Odake. Now the men’s and women’s lines of undershirts and leggings are cut to cling to the body. This year, the company added new high-tech flourishes: The fabric won’t lose shape or conduct static electricity.
Uniqlo isn’t the only retail chain that operates on a fast retailing model, but the company does it better than most, says Jon Wright, a retail analyst at Euromonitor in London. “Most retailers use a different business strategy,” he says. “Look at how most have Christmas merchandise out now, but they ordered it nine months ago.”
At Uniqlo, where production responds to demand in a matter of days, nine months amounts to years, at least on Yanai’s watch.