GU to open 50 stores a year, increase large stores to a third of total

Fast Retailing’s number two chain is set to expand rapidly in coming years, adding 50 stores a year and increasing average store size. GU provides Fast Retailing with a new route to growth at home given saturation of the Uniqlo brand, and it also allows room to adjust positioning between the two brands, moving Uniqlo further up-market while GU takes the low end mass market position.

GU, Fast Retailing’s rapidly growing sister brand to Uniqlo, is planning to add a minimum of 50 new domestic stores a year. It will also open more large format stores, some up to twice as big as the largest seen so far.

Right now GU has 315 stores across the country. With the opening of a new store in Wakayama this Autumn, the mass-market apparel brand will finally be represented in every one of Japan’s 47 prefectures. Positioning at the lower end of the market has worked remarkably well, allowing Fast Retailing to split its market between more premium ranges at Uniqlo and low price, fast turnaround apparel at GU itself. This positioning is reflected in store locations, with most GU stores near to residential areas, in suburban shopping malls and along major commuter lines and highways. The 300th GU was a case in point, a 1,500 sqm store on a major suburban artery leading into Nagasaki that opened in March.

The average GU is currently around 730 sqm, but Fast Retailing now plans to open many more stores around twice this size, with large stores accounting for a third of the chain in the long run. Larger stores allow for GU’s fast expanding range and the increasing frequency of limited edition lines which aid marketing.

Overseas GU also has two stores in Shanghai and three in Taipei and while it plans to continue to expand overseas, the domestic market will take precedence.

In FY2014 to August last year, GU sales were up 28% to ¥107.5 billion, with operating profit rising 11% to ¥6.8 billion.

Despite rapid organic expansion, last year’s sales increase was partly due to the success of a limited number of hit products, notably the brand’s ¥1,430 gaucho pants. Although GU’s smaller production runs and much wider range have helped offset the group’s perennial issue of over-reliance on a small number of SKUs, the problem is proving difficult to solve as Fast Retailing’s historical business model still emphasises volume above all else. As a result, Fast Retailing is cautious about GU’s growth forecasts for FY2015.

In the mid-term it plans to increase sales to ¥300 billion, mostly through volume expansion, but also through changes to product line-up and a larger range of limited edition product lines. Longer-term GU management sees potential to become a ¥1 trillion chain.