Is Japanese clothing brand Uniqlo raising prices again? According to foreign media reports, Uniqlo parent company Fast Retailing said on the 13th that it would have to raise the prices of some products under the pressure of rising costs and the depreciation of the yen exchange rate. Outsiders believe that Fast Retailing’s move may mark a change for Japanese companies. In the past, Japanese companies did not dare to raise prices even in the face of soaring costs, but now they may be able to shake off the effects of decades of deflation and no longer “tighten their belts.”
Uniqlo can’t hold it anymore?
According to Bloomberg, Fast Retailing Chief Financial Officer Takeshi Okazaki said on the 13th that the company “has reached the point where it has no choice” and “it is time to re-evaluate and increase the prices of some products.”
Currently, the yen has fallen to a five-year low against the US dollar. The weak yen and the impact of the epidemic are further pushing up the raw material and transportation costs of Japanese companies.
However, as a fashion brand with low prices as its selling point, will Uniqlo lose its brand characteristics by increasing its prices?
In this regard, Okazaki emphasized that price increases are not easy for the company, especially since customers have strict expectations for Uniqlo’s price increases. The company’s bottom line is still to avoid price increases as much as possible, and price increase measures are expected to be “extremely limited.” Okazaki Ken revealed that at this stage, the prices of major raw materials such as cotton and chemical fiber are about 1.5 to 2 times higher than before, while the cost of shipping is 2.5 to 5 times higher than before. Moreover, the rising cost trend that has begun in 2021 shows no signs of stabilizing. In particular, rising prices for crude oil and raw materials have shaken the cost structure. Therefore, in order to cope with the long-term trend of high costs, Fast Retailing will take corresponding countermeasures as soon as possible. He said Fast Retailing will conduct a more comprehensive assessment of prices after autumn and winter.
Fast Retailing’s price increase may not be an isolated case. More and more Japanese companies have recently stated that they “can’t bear it any longer” and can no longer digest the soaring costs by “tightening their belts.”
A Reuters survey last November showed that while only 14% of Japanese companies passed on costs to consumers, another 40% said they planned to do the same.
Inflation expectations among Japanese consumers have also climbed to their highest point in more than two years.
A survey released by the Bank of Japan on the 11th showed that 78.8% of Japanese households expect the inflation rate to accelerate in one year, hitting the highest level since September 2019. This shows that the rising cost of living has begun to change the Japanese people’s views on future price trends.
It is reported that the Bank of Japan will study the relevant survey at its policy meeting next week. Bank of Japan Governor Haruhiko Kuroda previously stated that the Bank of Japan will maintain ultra-loose monetary policy until an inflation rate of 2% is achieved.
Will Japanese companies escape the deflationary trend?
In the past, Japanese companies did not dare to increase prices even in the face of soaring costs. Affected by global commodity inflation, wholesale prices in Japan rose 9% year-on-year in November last year, setting a historical record. However, Japan’s core consumer inflation rate in November last year was only 0.5%.
On the one hand, the average wage in Japan has remained stagnant for decades, and people have become accustomed to a life where wages and prices do not increase.
The Japan Times quoted data from the Organization for Economic Cooperation and Development (OECD) as saying that Japan’s average annual income has barely changed in more than 20 years, which is worrying. In 2000, the average annual income in Japan was US$38,365. In 2020, this number was US$38,515.
On the other hand, as Japan’s population ages and the total population continues to decline, the economic and social prospects are grim, and the purchasing power of the Japanese people continues to decline. As of September last year, Japan’s population aged 65 and over accounted for a record 29.1% of the total population, making Japan the “oldest” country in the world.
Under this circumstance, Japanese companies dare not increase prices even in the face of rising costs. They are worried that this will alienate consumers and lose market share. This led to deflation in Japan, which affected corporate profits and production, which in turn translated into layoffs and stagnant wage growth, forming a vicious cycle.
Some analysts say that with the price increases of brands such as Uniqlo, this situation may show signs of loosening. According to Reuters, Uniqlo’s price increase may be a high-profile case that marks Japanese companies’ escape from decades of deflationary trends.
But some people believe that this wave of price increases may not last long.
Takayuki Tsuruga, an economist and professor at Osaka University, previously said that the price increase may be temporary: “Once supply catches up, the high cost of raw materials will fall.”
Overseas sales still hit new highs
Will Uniqlo’s local price increase spread overseas? It is still unknown, but according to foreign media reports, from September to November last year, Fast Retailing’s overseas sales were impressive and its net profit hit a new high.
The announcement shows that from September 1, 2021 to November 30, 2021, Fast Retailing’s revenue was 627.39 billion yen (approximately RMB 35.06 billion), a year-on-year increase of 1.2%; net profit attributable to the parent company was 93.59 billion yen (approximately RMB 35.06 billion) 5.23 billion yuan), a year-on-year increase of 33%.
During this period, from a market perspective, Fast Retailing’s main brand Uniqlo’s revenue and net profit both declined in Japan and Greater China. Among them, Greater China is the only sales market among all overseas markets that has experienced a decline in performance.
Specifically, Uniqlo’s revenue in Japan was 226.4 billion yen, a decrease of 10.8% from the same period last year; net profit was 48.7 billion yen, a decrease of 18.8% from the same period last year.
The financial report shows that Fast Retailing’s revenue in Greater China was 151.64 billion yen (approximately RMB 8.47 billion), a year-on-year decrease of 0.8%.
Uniqlo stated that the decline in performance was mainly due to the fact that mainland China continued to face strict epidemic prevention measures during the epidemic, which caused the overall consumption sentiment in the apparel industry to be sluggish, coupled with last year’s strong sales and a higher comparison benchmark.
In fiscal year 2021, Greater China will still be the main force in Fast Retailing’s performance growth. Data show that for the entire fiscal year 2021, Uniqlo’s revenue in Greater China was 532.2 billion yen, a year-on-year increase of 16.7%.
In terms of brands, in the first quarter of fiscal year 2022, UNIQLO’s overseas market once again accounted for the majority of UNIQLO’s revenue. During the period, Uniqlo’s revenue was 526.17 billion yen, accounting for 84%; net profit was 108.7 billion yen, accounting for 90.5%. Uniqlo’s overseas market revenue and net profit accounted for more than 50%, setting a new high from September to November.
Looking at different channels, the financial report shows that Japan’s Uniqlo’s online sales were 36.6 billion yen, a year-on-year decrease of 0.2%; net profit dropped slightly, but increased by about 50% compared to two years ago.
It is worth mentioning that the Chinese market, which has been the main driving force for sales and profit growth in the past, has also experienced revenue and profit reductions. Markets in South Asia, North America, and Europe, which previously had a weak presence, performed well.
In this regard, Nikkei News analyzed that in Europe, the United States and Southeast Asia, with the restart of economic activities, Uniqlo quickly seized people’s demand for travel and outing clothing.
In contrast, in Japan, the sales revenue of Uniqlo’s domestic business in Japan from September to November last year decreased by 11% to 226.4 billion yen. Operating profit fell 19% to 48.7 billion yen. The impact on the domestic market may also push Uniqlo to increase prices.
It is reported that Fast Retailing is Asia’s largest clothing retail company and owns two main brands: Uniqlo and GU (Excellent). In addition to the domestic market of Japan, Greater China is Fast Retailing’s second largest market and its largest overseas market.
In fact, in the clothing retail market in mainland China, Uniqlo, which is in the mid-range in terms of price and positioning, is under considerable pressure. In particular, the rise of new local consumer brands such as MJstyle and UR has intensified the competition faced by foreign brands such as Uniqlo. In addition, foreign fast fashion brands such as Zara and H&M have successively withdrawn from the Chinese market, which has also brought a new round of tests to Uniqlo’s brand positioning.
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