UNIQLO - Operations and Current Economic Environment - Case Study Example

Analyze the operations of UNIQLO. How is the company doing in this current economic environment? Is the world economy affecting the company? How? UNIQLO, a contracted name of ‘unique clothing,’ is a globally renowned clothing chain due to its success among retailers (Haghirian, 35). During the past decade, it has emerged as the largest retailer in clothing due to diversity in mass production of clothing such as jeans, socks and T-shirts. The clothing are not only affordable to the common citizen but also of good quality. The company credited with the birth of UNIQLO, Fast Retailing, is evidently the largest company dealing with clothing. In this regard, its forecast of sales per year are to the tune of $9 billion. Evidently, the current Japanese business market is struggling because of the immobile local economy. On the other hand, UNIQLO is doing quite well as evidenced by the growth of sales by 17%. This growth occurred irrespective of the recession. Evidently, the clothes are of good quality and at affordable prices. In this regard, the company is praised as a perfect case of novel and international competitiveness. Evidently, Tadashi Yanai, the CEO and founder of the company rose from a poor background to emerge as the richest man in Japan. His current net worth is estimated to be over $9 billion (Haghirian, 35). At the moment, UNIQLO is rated in the top ten as the most prized products. Some critics such as Interbrand consultancy firm blame the low prices of UNIQLO for catalyzing the deflation in Japan. UNIQLO’s success has seen it expanding in various cities around the globe such as Shanghai, Moscow and Paris. The opening of new branches have been met with much enthusiasm as customers’ line up the stores in huge numbers. According to the CEO, the company is targeting to have sales of over $50 billion by 2020 and a consequent profit of over $10 billion (Haghirian, 35). Currently, the overseas seas sales account for only 10% and there are expectations that revenue from the same should be above local sales by the year 2015. Currently, the company has approximately 140 stores abroad and 800 local stores in Japan. Its future plans entails the opening of over 500 new stores each year within a period of five years. Evidently, most of these stores are projected to be within the Asian continent in the country of China (Haghirian, 65). Moreover, UNIQLO’s policy is to achieve independent growth and it is also equal to acquisition for purposes of expansion in order to improve its existence in Europe or America. In the past years, UNIQLO has been successful in the acquisition of minor overseas women’s products such as Princesse Tam-Tam lingerie and Comptoir des Cotonniers from France (Haghirian, 55). UNIQLO, offers a variety of colors in its clothing line. For example the brand of socks comes in a variety of 50 hues. Consequently, this offers a wider appeal for customers when compared to competitors such as Gap, H&M and Inditex. Evidently, despite launching its pioneer store in 1984, the company began its path to success during the 1990s. Incidentally, this period coincided with economic depression in Japan. The company CEO devised an innovative idea of circumventing middlemen by buying straight from the suppliers. Furthermore, he opposed the assumption that Chinese manufactured clothing would be rejected in the Japanese market. It is important to point out that 90% of UNIQLO’s clothing is made in China. The reasons fuelling the local success of UNIQLO are of minimum advantage as it grows in the foreign market. The stringent environment in which the company has been successful is not in relation to the growing markets that are being explored. UNIQLO is largely dependent on the micro peripheral retail outlets in Japan and equally opening huge stores in high-class central areas in overseas regions. However, it is important to note that trials with suburban outlets in America and Britain have been a total failure. Evidently, by 2002, 21 stores were opened by the company in Britain (Ambler, Tim, and Witzel, 79). However, the number of operation stores was a paltry eight by 2006. This failure was largely attributed to a failure of creating a ‘brand identity’ in the region. Initially, UNIQLO’s success was largely spurred by basic brands of clothing but they are now diversifying into more stylish fashions. A perfect example is through their collaboration with a fashion designer from Germany known as Jil Sander. This diversification in brand will compel it to manage a multilingual and multicultural labor force. Furthermore, the goods will also need to be designed in a manner that appeals to international desires and needs. Consequently, this will present a challenge of scales. Footnote summarizing the accounting policies followed by the company (typically the first footnote to the financial statements) in the most recent annual re­ports. Identify any differences in the accounting princi­ples employed by the companies. What effect do these differences have on their financial position, results of operations, and cash flows? Is one company more conservative or liberal than the other in selecting its accounting principles? Why do you think the difference(s) exist? Also discuss any accounting principle change that occurred during the period covered by the financial statements. Was it a mandatory or elective change? There was a change in the accounting principle by the Fast Retailing Group from JGAAP (Japanese Generally Accepted Accounting) to IFRS (International Financial Reporting Standards). In this regard, recalculation of figures for 31st August 2013 have been done via the IFRS standard so as to enable the relative analysis of financial status and Group performance. Evidently, the flash statement of announcement of the Fast Retailing Group only provides data from the IFRS standard. As a measure of preserving uniformity with past figures and also to ensure informal comparisons with the already stated business approximations, the summary of the results majorly elaborates on figures that have been calculated via the JGAAP accounting principle standards. Evidently, the performance of the Fast Retailing Group under JGAAP revealed that it achieved sales and income gains during the fiscal year 2014. Moreover, there was a 21% rise in net sales of upto Japanese Yen 1.3829 trillion (http://www.fastretailing.com/eng/ir/library/pdf/ar2013_en.pdf). There was equally an expansion of operating income by 11.8% translating to Japanese Yen. 148.6 billion. There were reported additions in income and sales of UNIQLO Japan due to its expansion in sales from same-stores and also better profit margin. UNIQLO International attained substantial sales and income additions after multiple opening of new stores. On the other hand, the section on Global Brands exhibited an increase in sales but a reduction in income. This arose after the increase in sales but diminishing income within its Theory and GU operations (http://www.fastretailing.com/eng/ir/library/pdf/ar2013_en.pdf). Furthermore, when compared to results from the past years, there was a decrease in gains from foreign exchange that was indicated as non-operating income by Japanese Yen 7.3 billion. Consequently, there was an increase in the ordinary income by 5.3% indicated as Japanese Yen 156.8 billion (http://www.fastretailing.com/eng/ir/library/pdf/ar2013_en.pdf). In addition, there was a decrease in the net by 13.6%. This was majorly triggered by the damage losses indicated at J Brand. In relation to the gross profit margin under JGAAP standard for UNIQLO Japan, there was an evident improvement translating to better sales and income. Evidently, the sales of essential goods was continuously resilient in the entire year. Furthermore, the sales from same-stores increased by 1.9% annually. Consequently, a better gross margin and resilient sales resulted to increased operating income to the tune of 14.2% (http://www.fastretailing.com/eng/ir/library/pdf/ar2013_en.pdf). In relation to UNIQLO International, it attained resilient gains in income and sales. In particular, there was a greater gain in income and sales from same sale stores operating in Europe, South Korea and Greater China. For example, UNIQLO Greater China exhibited an increase in sales of upto 208.1 billion Japanese Yen. Furthermore, it had an annual increase of 66.5% with a 24.8 billion Japanese Yen operating income. There are several inherent differences of operating under the JGAAP and IFRS accounting principles standards. Foremost, under JGAAP accounting principle, the operating income for the group totaled 148.6 billion Japanese Yen. Evidently, when compared to the IFRS standard with a figure of 130.4 billion Japanese Yen, this marked an increase of 18.2 billion Japanese Yen. Incidentally there are several reasons for the variations, foremost according to the rules by JGAAP, the damage loss of 12.7 billion incurred by J Brand and the damage losses of 4.6 billion Yen incurred from stores are indicated as special loss (http://www.fastretailing.com/eng/ir/library/pdf/ar2013_en.pdf). On the other hand, according to the IFRS accounting principle the damages losses are subtracted from the total operating income. Furthermore, in relation to the IFRS accounting principle, the goodwill of 6.6 billion Yen under J Brand and intangible assets are indicated as extra damage loss. These are then finally subtracted from total operating income (http://www.fastretailing.com/eng/ir/library/pdf/ar2013_en.pdf). In the case of JGAAP standards, the portion of 3.9 billion Yen as part of the gains from foreign exchange that is indicated as non-operation income, is included to the total income under IFRS. Furthermore, the deduction of the goodwill depreciation of 5.9 billion Yen aided in the boosting of the total operating income under IFRS. Consequently, in relation to the Fast Retailing Group, the net result of these factors when compiled together translates to an annual rise of operating income under the JGAAP accounting standards but an annual contraction when using the IFRS accounting standards. References Web. 17 Nov. 2014. . Haghirian, Parissa. J-management: Fresh Perspectives on the Japanese Firm in the 21st Century. New York: IUniverse, 2009. Print. Ambler, Tim, and Morgen Witzel. Doing Business in China. London: Routledge, 2000. Print. Read More