Monday, June 17, 2024

Does America Need Another Fast-Fashion Brand? Uniqlo Thinks So

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Fast Retailing is making a counterintuitive bet in fashion — that shoppers want less choice, not more.

Uniqlo’s parent is launching its GU brand — pronounced ji-yu, which sounds like the Japanese word for freedom — in the US this year, targeting younger consumers with lower prices than its biggest brand. It’ll also offer the usual assortment of trendy staples, like wide-leg cargo pants and sheer tops, but fewer of them; the company says GU’s selection will be one-tenth is competitors.

The brand, which operates over 400 stores in Japan, currently operates a pop-up in New York’s SoHo. It plans to upgrade to a permanent, 10,000-square-foot flagship in the neighbourhood this fall, and will launch e-commerce in the US as well, Fast Retailing announced Monday. The expansion of GU is a part of a wider push for the Japanese apparel giant to expand outside of its home market, where an ageing population will likely hamper growth prospects. In Japan, Uniqlo posted a 2 percent dip in sales in the six months ending February 2024, the company reported last month, whereas Uniqlo international rose 17 percent to ¥884 billion ($5.65 billion) in the same period.

Fast Retailing is rolling out its sub-brand in the US at a particularly challenging time, analysts say, as consumers continue to pull back from spending on discretionary categories. The National Retail Federation predicts consumer spending to grow at a slower pace this year than last, forecasting between a 2.5 and 3.5 percent uptick.

Young American shoppers also have more choices than ever for affordable fashion. From mall staples like Abercrombie & Fitch and H&M to newcomers Primark and Temu, there’s no shortage of mesh tops, low-waist denim and other trend-driven pieces.

“GU will be another brand in a sea of apparel brands,” said Jessica Ramirez, senior analyst at Hali & Associates. “It’s not a category that’s performing well. The cash-strapped consumer is picky with where they are spending money and for the most part, it’s not in apparel.”

Even so, Uniqlo is in a position of strength to capture some momentum for its sister brand, experts say. Though it took the brand years to win over the US consumer — the first US Uniqlo store opened in 2005 — it has aggressively grown its market share in recent years. By 2027, the retailer wants to have 200 locations in North America, up from about 70 in the US and Canada in 2023.

Uniqlo is already popular with western Gen-Z shoppers; as GU sets out to find its place in a competitive landscape, it will benefit from the market knowledge of its sister brand, as well as initial findings from its New York pop-up store that opened in 2022. “We have applied what we learned from the pop-up store to establish a framework for product development and business operations at a global level,” GU CEO Osamu Yunoki said in a statement.

Beyond infrastructure, Uniqlo has existing customer data to leverage into sales for GU, according to Brian Ehrig, partner in the consumer practice at Kearney.

“There are occasional Uniqlo customers who can be easily converted to GU with its lower prices,” he said.

Last September, the company also opened a new product headquarters in New York to better serve the local customer.

“We established this headquarters to develop a corporate structure that can create mass-trend products that will be embraced globally,” the company said in a statement.

The GU Appeal

Whereas Uniqlo is focussed on “high-quality, functional basic apparel,” GU aims to “capture the mass trends of the times,” Fast Retailing told BoF.

What that looks like is $40 parachute pants — about $10 cheaper than Uniqlo’s version — and $10 sheer shirts. Items from the current summer selection mostly fall below $50 and are generally cheaper than H&M, Zara and Gap.

While it can’t compete with the affordability of Shein and Temu, GU’s simple selection seems to be higher quality and doesn’t lend itself to the disposable nature of overnight trends, the arena dominated by the Chinese behemoths, according to Ramirez.

“It’s at a sweet spot in terms of price and what you have are pieces that follow trends in design and silhouette, but it’s not extreme fashion that you wear once and throw away,” she said. Fewer products also makes for an easier shopping experience, especially in physical retail.

GU is already very popular with students, the company said, and sees its perspective and curation on trends as a key differentiating factor next to competitors. In the six months ending February, GU generated about $1 billion in sales, largely in its home market, where it has more than 400 stores.

As for the US consumer, a new option is always exciting, Ehrig said, especially when it’s a value-driven player.

“There is always room for new players,” he said. “That’s the essence of fast fashion.”

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