Photo: REUTERS file
business

Fast Retailing likely hit by S Korea boycott; succession plans in focus, say analysts

12 Comments
By Ritsuko Ando

A South Korean boycott of Japanese goods is seen dragging down sales at Fast Retailing Co Ltd’s Uniqlo stores, denting otherwise strong financial results due to be announced on Thursday by Asia’s biggest fashion group, analysts said.

But another focus will be on succession plans after founder Tadashi Yanai, Japan’s richest person according to Forbes, turned 70 earlier this year.

Analysts on average expect operating profit of 258.6 billion yen for the year ended August, up 9.5% from a year prior, Thomson Reuters data showed. They see a 14% rise in the current year, helped by strength in China and new markets.

Some have been marking down forecasts since Uniqlo and other Japanese businesses were targeted by South Korean boycotts amid a diplomatic spat - a reminder of risks that come with overseas expansion. The company opened its first store in India last week and is also expanding in markets such as Malaysia and Indonesia.

Sales in South Korea, which account for around 8% of sales in Fast Retailing’s flagship Uniqlo business, fell 40% year-on-year in July and more in August, the Nikkei reported.

J.P. Morgan analyst Dairo Murata recently lowered his Fast Retailing earnings forecast for the current year by 4.6% and cut his price target on the shares to 68,000 yen from 70,000 yen.

The shares last traded at around 61,300 yen, up 15% in the year to date.

“We foresee a double-digit decline in sales and a roughly 40% fall in operating profit for the South Korea business,” Murata said in a client note, adding that the yen’s appreciation against China’s yuan was another near-term negative factor.

Fast Retailing’s biggest growth market in recent years has been China, where it opened its first Uniqlo store in 2002 and now has over 700 locations. The company has said it expects Greater China revenue to grow to 1 trillion yen in fiscal 2022.

The Japan market, by contrast, has shown little growth. Uniqlo’s September same-store sales data showed a 4.2% decline from a year earlier, with analysts saying they had expected stronger sales ahead of a consumption tax hike this month.

SUCCESSION

Another key focus on Thursday will be succession planning. Previously, Yanai said he would retire at 65 but shelved such plans when the time approached.

He has said he does not want his two sons to take the top job, though both were promoted to the ranks of company directors last year.

The next leader will be tasked not only with maintaining growth in China but also addressing long-term problems, such as its struggle to establish its brand in the United States. Investors are also keen for more results from recent technology investments including automated checkout and state-of-the-art logistics systems.

Possible successors include finance chief Takeshi Okazaki, who joined Fast Retailing from McKinsey & Co in 2011, and Pan Ning, head of Uniqlo’s China operations.

Maki Akaida, head of Uniqlo’s Japan operations, is also considered a candidate after Bloomberg News reported Yanai as preferring a female leader.

© Thomson Reuters 2019.

©2019 GPlusMedia Inc.

12 Comments
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As a Kenyan born now American, I love observing the peculiarities of the big three East Asians.

The gold standard for those of us who observe Asia as outsiders, are clearly, the calm, meticulous, high-standard Japanese; synonymous with high-quality in all that they do. From Uni Qlo to top notch precision instruments; It's Japan that sets the standards for Asia and even the world at large.

Then, as in this example you have the emotional and bitter Koreans. A typical case of Koreans penchant of cutting their nose to spite their collective faces.

Korean youth are suffering from lack of jobs and penury. Good luck, Hanguk!

And, then there's China. Oh, boy! I think Japanese civilization in Manchukuo didn't go far enough.

0 ( +1 / -1 )

Cue the usual 'Japanese business is doomed without South Korea!'

Anyhow, Uniqlo and DHC are two Japanese brands marked by boycott activists for elimination from Korean market. DHC is all but gone, and Uniqlo is following DHC fast.

And yet:

Analysts on average expect operating profit of 258.6 billion yen for the year ended August, up 9.5% from a year prior, Thomson Reuters data showed. They see a 14% rise in the current year, helped by strength in China and new markets.

They seem to be doing just fine without them.

0 ( +2 / -2 )

Sorry, but this news only shows that Japanese businesses need to focus less on a politically sensitive market like South Korea. They are doing the right thing trying to expand their business in more friendly or politically neutral places. If it isn't for one reason, the Koreans will find another one for boycotting Japan. Their sentiment is too volatile. This year Uniqlo opened its first store in Italy. I wonder if it will be successful, since here there are brands like Zara that are very strong and compete in the same segment of market. But many anime and manga fans are already happy to see merchandising related to their favourite series that you couldn't find here easily.

2 ( +3 / -1 )

@Madden

Who cares, close off all the stores if they're so upset about it, revenue in new countries will more than make up for it. I assume Korea is like other countries where Uniqlo is considered cool and reasonably priced and therefore popular, so all of the customers will soon realize the error of their ways as now their only option is to import the products at a premium price. Be careful what you wish for!

You obviously don't have work experience in international sales or marketing. Nothing is given in that part of the world. But as you have said: who cares? :)

-6 ( +0 / -6 )

Who cares, close off all the stores if they're so upset about it, revenue in new countries will more than make up for it. I assume Korea is like other countries where Uniqlo is considered cool and reasonably priced and therefore popular, so all of the customers will soon realize the error of their ways as now their only option is to import the products at a premium price. Be careful what you wish for!

5 ( +6 / -1 )

Samit basu:

*Korean Uniqlo employees are supporting the boycott**, since they can just move to Korean fast fashion brand retailers with Uniqlo experience.*

Anyhow, Uniqlo and DHC are two Japanese brands marked by boycott activists for elimination from Korean market. DHC is all but gone, and Uniqlo is following DHC fast.

According to you, the S.Koreans employees are happy to lose their jobs even with the high employment rate and the risk of not getting another in other to hurt Japan?

Isn’t this akin to drinking a poison and yet expecting another person to die?

The delusion must be real on the peninsula.

5 ( +7 / -2 )

Agree Hillclimber.

Japan will always come out on top in the end.

2 ( +6 / -4 )

Wallace FredToday  08:43 am JST

Deafening silence from the usual crowd. Must admit, 3/3 is at the moment. When I called out this inevitability, lots of denialism took place. Well, voilà!!

Article is posted today, you don't leave much time for people to respond.

How's this for breaking the silence:

Sales in South Korea, which account for around 8% of sales in Fast Retailing’s flagship Uniqlo business

Even if the 8% dropped to zero, it wouldn't hurt Fast Retailing. They are opening more stores in India and elsewhere, a far bigger market than South Korea. As Hachidori pointed out, South Koreans are only hurting themselves with the boycott.

-1 ( +7 / -8 )

@Hachidori

Uniqlo will reduce employees hours even fire some in order to deal with the conboycott.

Korean Uniqlo employees are supporting the boycott, since they can just move to Korean fast fashion brand retailers with Uniqlo experience.

Anyhow, Uniqlo and DHC are two Japanese brands marked by boycott activists for elimination from Korean market. DHC is all but gone, and Uniqlo is following DHC fast.

-4 ( +6 / -10 )

Fast Retailing likely hit by S Korea boycott

but

Analysts on average expect operating profit of 258.6 billion yen for the year ended August, up 9.5% from a year prior, Thomson Reuters data showed. They see a 14% rise in the current year,

Ok, so how important is South Korea if both profits and sales are both up?

-1 ( +7 / -8 )

Deafening silence from the usual crowd. Must admit, 3/3 is at the moment. When I called out this inevitability, lots of denialism took place. Well, voilà!!

0 ( +7 / -7 )

South Koreans are hurting themselves since Uniqlo will reduce employees hours even fire some in order to deal with the conboycott.

oh, it means also less consumers and income tax in South Korean coffers.

Unqlo will cut their losses and restructure for next year.

1 ( +8 / -7 )

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