The November unveiling of Uniqlo's new global flagship store was audacious, even to the jaded habitu?s of Manhattan's SoHo. At 36,000 square feet, it's the area's second-largest retail showroom (after Bloomingdale's (FD)), dominating a block packed with rivals like H&M and Banana Republic (GPS). The cool Japanese retailer tried to build buzz by blanketing the city with ads featuring offbeat celebrities like Sonic Youth guitarist Kim Gordon. It worked: Holiday crowds flocked to the slick emporium that seemed to have popped out of nowhere.
The SoHo flagship is, in fact, just the latest outpost in a vast empire. Founded in Hiroshima in 1984 by Chairman and Chief Executive Tadashi Yanai, Uniqlo is Japan's largest casual apparel retailer, with 733 outlets in Asia, Britain, and the U.S. The retailer quietly ventured into the U.S. market in late 2005 with three small New Jersey stores. It's been an expensive gamble. Uniqlo forecasts a $6.5 million operating loss on sales of $28 million in the U.S. for 2006-2007. Its worldwide operations make up roughly 90% of parent company Fast Retailing Co.'s business; Fast Retailing expects to earn about $338 million on sales of $4.4 billion. Uniqlo predicts a profit in the U.S. in its next fiscal year, and its long-term goals are more ambitious: $1 billion in U.S. sales by 2011 and, eventually, bragging rights as the No. 1 clothing retailer globally. To succeed in an increasingly commoditized market, say analysts, it must keep innovating while striking a balance between being hip and having broad appeal.
Profits Have Been Elusive, But Observers Have Been Impressed With Uniqlo's Deft, Confident U.S. foray. The chain aims to sell J. Crew (JCG) quality at Gap (GPS) prices, says Uniqlo USA CEO Nobuo Domae. All three retailers offer casual, well-priced basics for all ages. But Uniqlo, whose name comes from the words "unique clothing," takes a slightly more fashion-forward approach in its merchandise and store design. "Before, our image was clean, organized, and simple," says Domae. "To compete globally, we realized we needed to add more fashion." The result is trendy items such as linen vests and brightly checked poplin shirts for men and ruched, sleeveless dresses and peasant-neck blouses for women. "A lot of brands have gone middle-of-the-road. Uniqlo is a little more exciting," says Schatzi Page, a 37-year-old artist.
The presentation is cosmopolitan and urban, so it's no wonder Manhattanites are drawn to it. Uniqlo's broader appeal, however, may lie with its prices. Nothing in the flagship costs more than $140, with most items, including cashmere sweaters, in the $40-to-$70 range. (At Gap, similar items cost between $50 and $100.) Uniqlo says it keeps costs down by tightly controlling the design, manufacture, and distribution of its clothes??etting discounts on cashmere by placing orders during the end-of-year "low season," for instance.
The flagship's design reflects the chain's brand philosophy, a kind of no-fuss individualism. It also helps sell clothing. A glass "aquarium" with revolving, Uniqlo-clad mannequins dominates the front of the space. A three-story staircase, on which customers can sit, mingle, and ogle each other, anchors the back. Surrounding these dramatic focal points is a spare interior of white walls and glass tables, designed to direct attention to the products themselves. The space feels stylish and airy, despite being stuffed with floor-to-ceiling shelves.
The design has other benefits. Mike Bills, a managing partner at retail design firm Fitch, says the clean canvas lets people project whatever they like onto the brand, similar to Apple Inc.'s (AAPL) use of white space in its shops and ads. At the same time, decorative elements, including a wall of TVs showing a Godzilla film, augment Uniqlo's image as a fun Japanese company. "It feels like a lifestyle experience," says retail expert Dana Telsey of New York's Telsey Advisory Group,"which is what a brand should be."
By Elizabeth Woyke