FOCUS: Apparel Retailing FY2014: making the best of it

Oct 07

Apparel retailers entered FY2014 with a good deal of worry about just how long consumers would stay away from stores after splurging before the consumption tax increase. The good news was that for many the second half of the year was positive, and by the end of the year, losses had been recouped. As a result the sector ended just ahead of FY2013, a very resilient performance in the face of tough challenges. The biggest 100 retailers increased their share yet again reaching nearly 66% of the entire apparel market, but growth also came from very promising chains only a few years old.


Apparel Market Size 2010-2014

Top 100 Retailers of Apparel FY2014

Market Share by Retail Format

Top 30 Fastest Growing Apparel Retailers, FY2014

Most Profitable Apparel Retailers FY2014

Leading Womenswear Retailers FY2014

Leading Menswear Retailers FY2014


Highlights for FY2014

Apparel retailing did a good job of marketing its way out of a potentially tough year. Steady consumer demand helped, as did the tourist dividend, but the more efficiently and effectively marketed chains achieved serious growth despite the twin problems of a tax increase and continued pressure on consumer spending from falls in wages.

Sales for apparel, accessories and footwear combined were flat, rising just 0.01%, with apparel alone rising 0.05%, the lowest rate of growth for three years. Given that FY2013 had the highest growth in more than fifteen years, this was a solid result.

The top 100 apparel retailers now account for 65.7% of total apparel sales, and provide a good insight into the mixed fortunes of the different formats last year. These were last year’s highlights:

Sales growth among the top 100 averaged 1%, down from 3.8% in FY2013 and 5.2% the year before, but still better than the market as a whole. Total sales for the top 100 rose 2.26% over FY2013, a major achievement.

While department stores increased sales in FY2013, last year sales patterns returned to the usual course seen in the last decade: growth for specialty and online, and contraction for the rest.

Specialty apparel retail increased 4.4%, the best performance by far among the competing formats. But this was a marked drop from 6.5% in FY2013 and 10% in FY2012 – 2012 is likely to come to be seen as the peak for specialty growth given the significant maturation in the format.

The 10 retailers with the highest sales growth were all specialty chains other than e-commerce firm Start Today, and indeed 24 of the top 30 fastest growing firms were specialty retailers.

GMS/supermarket apparel sales fell 4% after a fall of 3.7% in FY2013. Aeon and Ito-Yokado both saw apparel sales fall by around 5% again.

Department store apparel sales fell 2.3%, losing the ground made up in 2013 when sales rose 2%. On a calendar year basis, apparel sales for all department stores only fell 1.1%, showing the impact of the tax hike in fiscal year figures.

In FY2013 only two department store chains saw sales fall, but last year only four increased sales; i.e. despite the commendable overall sales achieved in FY2014 (see last month’s focus), apparel departments faced tougher trading after the tax increase.

Apparel market holds steady

The top 100 apparel retailers continue to grab more share, almost entirely thanks to the strength of specialty chains, a long-term trend. Mergers account for less and less of this; it is now more a function of rapid expansion by specialty chains both within their existing core markets but also a growing tendency to launch into competitor categories, as well as the ongoing expansion of online stores.

The size of the pure apparel market was ¥12.808 trillion* in FY2014, up just 0.05%, within an apparel, accessories and footwear market of ¥16.731 trillion*, up 0.01% (Chart 1).

Total sales for the top 100 reached ¥8.418 trillion, an increase of 2.26% over FY2013 giving the top 100 a share of 65.7% of the total apparel market (excluding accessories and footwear), up from 64.2% the year before, and 63% in 2012.

“In FY2006, the top 100 had sales of ¥7.450 trillion, giving them 53% share of the apparel market – in just eight years, their share has risen nearly 13 points.”

Even accounting for mergers, the consistently high performance of the top 100 over the last decade or more has caused the market to consolidate rapidly. In FY2006, the top 100 had sales of ¥7.450 trillion, giving them 53% share of the apparel market – in just eight years, their share has risen nearly 13 points.

This increasing dominance by big corporate retailing is more clearly demonstrated by the share of the top 50, top 20 and top 10; the top 50 have 55% of the apparel market and the top 20, 39%. The top 10 alone now own more than 27% of the entire market.

The gap between the best and rest is confirmed by Teikoku Databank’s survey of 5,690 firms in the apparel industry in 2014 (including data on smaller firms), which showed half posting lower sales and 20% posting losses – among firms with sales of less than ¥1 billion, 30% posted losses. However, sales overall (which is just for apparel businesses and does not include sales of apparel at large stores) rose 0.7% to ¥10.468 trillion.

Due to lower department store and GMS/Supermarket apparel sales, market share by format continued to concentrate (Chart 3): specialty share rose a fraction and non-store (effectively online) share rose one point to nearly 12%, while GMS/supermarkets fell to under 14% and department stores were down almost a point to 23.7%. At this rate online sales could supersede GMS/supermarket apparel sales next year or, at the latest, the year after.

Big winners led by Mash Holdings again, up 42%

While the sector consolidates, it is also constantly being replenished and infused with new growth, ideas and innovation from new entrants who are able to grow very fast. Powerful new players rising up the top 100 ranking now include Mash Holdings, GU, and Trinity Arts, not to mention H&M (see Chart 4 – other foreign chains are not included in our calculations due to lack of available data).

Mash Holdings was once again the fastest growing retailer in the top 100, rising 42.2% after a similarly whopping 48.3% surge the year before. Strong like for like growth and new stores for its key chains, Snidel, Gelato Pique and Fray I.D. all helped push the dynamic firm to just outside the top 50 with nearly ¥43 billion in sales. Strong levels of presentation, merchandising and marketing suggest plentiful growth in the year ahead too.

GU was again the second fastest growing retailer. Although up 28.4% from a net 66 stores, this was less than the 45% growth from just 33 stores the year before, a year when successful TV spots and strong social media campaigns drove young Japanese to the stores. GU’s ongoing commitment to improving product value through design and customer feedback suggest GU has considerable potential both in and outside Japan.

Third ranked Urban Research rose 28.1%, a fraction more than its 27.4% jump the year before. It opened a net 76 stores after 46 in 2013. Its Doors chain for the SC market has been a significant source of growth, but its newer SPA chain, Sense of Place, is proving a success, offering quality, original merchandise at competitive prices. Urban Research has also begun to diversify into what we like to call ‘Food Fashion’, non-fashion retail stores offering an eclectic mix of packaged foods combined with cafe/restaurants/juice bars such as its Tiny Garden Kitchen chain.

Wego has found fast growth again, rising 24.5% to ¥26 billion. Once a humble used clothing outlet, Wego has become a popular source of low cost, no-nonsense casual fashions. The recent growth is the result of a clever focus on the kind of regional shopping centres often spurned by the big chains but still the main source of shopping and entertainment for many locals. It has re-merchandised accordingly too, creating fashion basics for teens and 20s consumers at low prices – ¥2,000 and up for a dress for example.

H&M Japan jumped 21% on a Yen currency basis according to company reports, making it the fifth fastest growing fashion retailer. It opened 12 stores in FY2014 and looks set to maintain this pace. It opened the 50th H&M store in April and could have 120 stores for the H&M chain alone by 2020.

Adastria’s growth came almost entirely from Trinity Arts, which it merged into the holding company in 2013. Sales rose ’only’ 20%, half the 42% jump in FY2013. However, Adastria needed a net 143 new stores last year to make this happen, and as noted in JC before, the last three years following the exit of key executives have been difficult. Above all, efforts to shift from dependence on big trading firms for product planning and sourcing have not been as successful as hoped, and more work is needed to take the talents of Trinity Arts’ buying team and seed them in Point’s struggling chains like Global Work and Lowrys Farm.

Cross Company added a net 83 stores, but in return for just 8.1% growth, down from nearly 20% in FY2013 when, again, most growth came from heavy investment in new stores, up a net 108 that year. Cross recognises the need to improve product, value and store design and has been shifting production to ASEAN countries to reduce costs. It is also diversifying. It now has select shops like L’Atelier Fenêtre, fragrance stores, and even a new ice-cream chain. Its biggest bet is Koe (, a mass market chain launched this time last year, which is being built as a fair-trade alternative to fast fashion chains, and for which there are now 10 stores. Cross also bought Can in 2013, a retailer with sales of about ¥20 billion. Its three year plan calls for group sales of ¥160 billion through FY2017 up from ¥110 billion last year, and 1,700 stores, up from 685.

Baycrews, up 13.3%, is taking up the slack left by United Arrows in the select shop category, opening stores at a rapid pace, helped by the much greater diversity of chains, hedging the rapid shifts in consumer sentiment and fashions.

Ryohin Keikaku (Muji), is in the growth rankings for the second year, rising 12.9%, the same as last year, on the back of much improved apparel merchandise, particularly for women, with more emphasis on premium lines. It has now achieved the target set three years ago of garnering 40% of sales from apparel.

Foreign chains on a roll, mostly

One of the biggest themes in recent years is the expansion of its larger foreign competitors.

Gap Japan now has more than 250 stores, including 110 Gap stores, 25 Gap outlet stores and two Gap Factory stores. In addition it operates a chain unique to Japan called The Gap Generation launched in 2011, which offers price points in between Gap and Old Navy, and now has 17 stores. Banana Republic is a 27 store chain, but also has 21 outlet stores.

With Gap prices high and competition intense, Old Navy is the biggest growth driver. The first Old Navy store opened in July 2012 and from 2013 Gap began to accelerate store rollout thanks to a strong response from consumers for its lower prices and the backing of the Gap name. Since 2014 Gap Japan has begun opening Old Navy stores outside of SCs, including station building locations and roadside stores. While SC stores target families through large childrenswear sections, station-based stores in cities are smaller and target young women. With the launch of more small stores, Gap Japan began to accelerate store openings, with 11 in the last quarter of 2014 alone, and now has more than 40, of which 18 are in Kanto.

Forever 21’s Japan launch in 2009 was one of the most hyped, with expectations from management of a rapid expansion to 100 stores. After opening a few, however, it retreated and expanded much more slowly after 2010. Issues with merchandising meant initial footfall fell away, and the volumes needed to cover overhead costs on its slim margins just weren’t sufficient. From this year the US retailer is confident it is producing product more suited to local needs and is pushing ahead with store expansion again. In April it opened a critical new store in Lucua 1100, its first targeting women in their 30s, and another in Okinawa aimed at tourists. Analysts expect four to five new stores in 2016, all in SCs, but what Forever 21 really needs is a big marketing push to regain some of the allure and excitement lost during its retreat after 2010.

Inditex Japan by contrast is powering ahead, and will have opened 15 more stores by the end of 2015. In 2014 the Japanese arm opened 20 stores – as of April, Inditex operated 95 Zara stores in Japan, 21 Bershka stores, 11 Zara Home stores and 11 Stradivarius stores, a total of 138 stores. As well as new stores, Inditex plans to refurbish many existing stores during 2015-16 and has just introduced a new logistics system using RFID tags, which should be rolled out to all chains and stores by the end of this month. Backed by this next generation logistics system, Inditex is expected to continue to keep up the pace of store openings, especially for Zara Home and Stradivarius, and is looking at the possibility of opening other house chains in Japan too.

As already mentioned, H&M Japan continues to break records in terms of pace of foreign apparel retail expansion in Japan, opening its 50th H&M store in April, seven years after opening the first store here. As of the end of FY2014 in November, H&M operated 51 stores in Japan across the various chains. Although it closed the only Japanese store for the Weekday chain in Osaka in June, it has opened stores for the Monki and Cos chains, and is expected to bring back the Weekday chain at a later date.

Store expansion slows but profits fall for specialty chains

The overall picture for Japanese specialty chains too has been positive. Those chains within the top 100 apparel retailers saw average growth of 4.4% in FY2014 compared to 6.5% the year before. This slightly exceeded the growth of specialty apparel retail chains overall (150 retailers with sales over ¥1 billion) which grew 4.2%, still an exceptional result.

Since only  the stronger chains can get away with higher prices, higher costs and the tax increase have increased the performance gap between Japan’s top class retailers and the rest.

While store expansion is normally the primary reason for growth, last year the rate of store growth was a mere 1.1%, much lower than in previous years. Larger chains took the opportunity to consolidate, with Uniqlo, for example, opening 54 stores, but closing 55, albeit most new stores being larger. Other chains also scrapped smaller stores in favour of larger ones, but overall specialty chains found ways to improve like for like sales in the face of some tough trading conditions. Gradually rising prices also helped.

The bulk of growth by sales volume came from larger retailers – among the top 150 specialty retailers, more than 75% of the sales growth came from the top 10 firms. With the exception of fast growing mid ranking firms like Urban Research and Mash Holdings, this has been the rule for the last few years and emphasises the consolidation of share among the leading firms.

While sales held up, profitability suffered due to rising import prices. Among the top 20 specialty retailers by operating profit, 14 posted lower profits and, on average, operating margins fell by 8.74%. Cost of sales rose for all specialty retailers, averaging an increase of around 1 point to 39.5%.

Although the stronger brands have been able to increase prices, many chains have been reluctant to pass on additional costs given uncertainty in demand. Since only  the stronger chains can get away with higher prices, higher costs and the tax increase have increased the performance gap between Japan’s top class retailers and the rest.

Despite these pressures, specialty chains actually managed to keep gross margins flat overall, but this was mostly due to the efforts of the big chains, notably Workman, which delivered an increase of almost six points to 59%, and Haruyama Shoji up two points.

Department stores retreat

As reported in last month’s focus, department stores had a resilient year on the back of sustained demand for luxury and premium accessories, but the sector’s apparel floors faced tougher trading. Of the department store firms within the top 100 apparel retailers, just four saw sales grow last year compared to 21 the year before. On average sales declined 2.3%.

Only Matsuya made it into the top 30 fastest growing retailers of apparel. Its clever shift to position itself as a fashion accessories mecca, along with ongoing refurbishment, has also helped push up apparel sales. The Ginza store has also been one of the biggest beneficiaries of the surge in tourism, all of which helped increase apparel sales by 8.1% in a tough year.

JR Takashimaya Nagoya remains the most consistent improver, showing its peers what can be done through constant updates to sales floors, and the shift in traffic to the Nagoya station area, away from the traditional city centre, is helping too.

Considering the tough trading conditions, and the number of drab stores still operating within department store chains, this is a very respectable result. The leading firms are all upgrading regional stores or converting them entirely or partially, which should help improve performance as long as consumer sentiment and tourism hold up.

GMS just can’t fix the problem but can Jean Paul Gaultier?

Only Izumi managed to improve apparel sales last year among the GMS chains and larger supermarkets, and this thanks to a smart focus on the Missus and Senior markets. Aeon and Ito-Yokado still garner a considerable percentage of sales from apparel, but the failure to fix the annual decline despite many new experiments is a real concern.

Seven & I remains a major force in apparel retailing thanks to Sogo Seibu and Ito-Yokado as well as specialty interests such as Barneys Japan and Akachan Honpo. Sogo Seibu is showing some promise thanks to the success of the Limited Edition private brand, but Ito-Yokado remains a drag. The industry will be watching closely this Autumn though with the launch of Seven & I’s group wide collaboration with Jean Paul Gaultier called Sept Premieres. Sales of ¥7.5 billion are expected in year one, and if it works could still transform the fortunes of both Ito-Yokado and Sogo Seibu.

Aeon is also a major retailer of apparel but its power is shrinking. Including its subsidiaries, Aeon Kyushu, Aeon Hokkaido, Taka Q, Cox, and Laura Ashley, apparel sales come to some ¥500 billion, but this is down from around ¥750 billion a decade ago. This means Shimamura has now moved past it to become the third biggest apparel retailer. Aeon has some new ideas such as the F.T. specialty store, but there still seems to be little understanding at executive level about how to turnaround apparel sales. Unlike Seven & I, Aeon has no department store arm to build on either.

Top 10 retailers take 75% of womenswear market

Womenswear had a much stronger year than menswear. Overall the 105 womenswear specialty retailers with sales of ¥1 billion or more saw sales rise 6.2%, compared to 0.6% for menswear. However, like last year many more womenswear chains saw sales fall than increase (57 against 44), reflecting the ongoing shake out in the industry.

The top four alone managed growth of 11.3%, with the top 20 up 7.5% (Chart 5), but the average across the remaining 85 chains was a drop of nearly 1%. Given that the big players are buying up fast growth businesses as well as launching into new markets, further consolidation in womenswear can be expected in terms of both market share and performance.

“The top five womenswear retailers alone control 57% of the market. The top 10, 75%.”

The low to mid-priced young women’s market continues to be hit by competition from fast fashion and value chains, with Japan Imagination down 6.3%, Honeys down 5.6% and Egoist collapsing 33.5%. At the same time, the staid casual apparel retailers like Mac House and Cox are being hit by GU, Shimamura and others. Uniqlo’s womenswear sales rose an impressive 7% last year, now accounting for almost 50% of sales.

The dominance of the top five retailers, Uniqlo, Shimamura, Adastria, Pal Group and Cross Company at the top of the womenswear rankings is striking: among all womenswear specialty retailers with sales of more than ¥1 billion, these five retailers alone took 57% of sales. The top 10 took 75%.

In menswear, the picture is even more stark; the top three, Uniqlo, Aoyama and Aoki own 51% of the menswear specialty market and the top 10, 75%.

Hot new chains drive innovation

FY2014 was an impressive feat of resilience by many, including dazzling performances by some. Many large specialty retailers saw trading return to positive in the second half of the year, and while more than half the top 150 specialty chains saw sales fall for the full year – especially smaller retailers – the sales growth of the biggest helped lift the format overall. There was a similar picture in online stores.

Today there are fewer mid-ranking, super fast growth businesses compared to a decade ago, which might indicate declining innovation in the sector. Fortunately, as is usual in fashion, there are always interesting new prospects emerging. Firms such as Studious, Create, and Branshes to name a few, reflect the dynamism and optimism in the industry.

Studious jumped 44.2% in sales last year to ¥4.5 billion from its minimalist to a fault, sleek, almost monotone select shops of the same name, and sister chain, United Tokyo. Studious is just seven years old but achieved its IPO last month. It sells a plethora of designers but all are Japanese, presenting a showcase of talent in a store expressive of the younger generation’s confidence in its creativity. The retailer’s ambitions for overseas expansion longer term suggest a confidence in being able to compete globally. Its mission to support and save Japanese craftsmanship and design makes it almost a social enterprise in spirit.

At the opposite end of the spectrum in every sense is Branshes (, which sells funky fashions for children, and which grew 25% last year to ¥5.4 billion from 140 stores and a successful online store – it only launched five years ago. Its high levels of design and cost performance have made it hugely popular with young mums and their daughters alike, helping Branshes grab a share in the still surprisingly under-exploited childrenswear market, and a competitor for the still fast growing F.O. International.

Among the minnows too are retailers like Create (, with sales of just ¥2.3 billion, but growing by 40% last year thanks to low price original fashions at its chains, Esquino Blanco and Casa Mila.

Just as at the top, in a saturated market where household budgets are seriously under pressure from lower real wages and the government’s efforts to raise inflation, competitive advantage lies largely in the strength of merchandising, originality and store appeal, not just access to capital to build new stores. These new chains show it is possible, and just how much capacity there is to create new benchmarks of cost performance.


Uniqlo: a price hike too far?

Uniqlo in Japan had a solid year, up 4.2%, after a 10.2% rise the year before. Almost all the focus for the Fast Retailing chain is on overseas expansion, preferring to consolidate its position at home by pruning its store portfolio of poorly performing stores and also adding new, larger stores.

Overseas it is adding more stores in China and the US, while in Europe continuing its policy of building flagship stores in key cities as a way to build brand awareness, prior to a wider roll out down the road. The next country to get a Uniqlo store will be Spain, where a 2,000 sqm store will open in March 2016 in Barcelona.

At home though, there has been a marked shift in sentiment towards the country’s largest apparel retailer by both analysts and business media. Phrases such as “Hitorimake” (the only loser), and “it’s like McDonald’s all over again” (referring to the decline in sales at the hamburger chain following a hike in prices similar to Uniqlo recently), or Toyo Keizai’s suggestion that Uniqlo’s appeal is waning fast, are all indicative of a concern with where the chain can now go. Observers point to the higher prices and the lack of big new hits like Fleece, Heat-tech and Airism, as a cause for concern.

But sales are doing ok. Between September and May, domestic sales rose a healthy 12.1%, then in June fell 11.7% like for like and 1.5% in July, rising again in August by 2.5% and 2.6% in September.

Drama sells magazines with many pundits zeroing in on the June dip, but Uniqlo’s only real issue is saturation at home, a problem it is fully aware of and is actually quite comfortable with. It has grown from sales of ¥7 billion and 30 stores in 1991 to ¥1.6 trillion and 1,650 stores today, a nice record to rest your laurels on.

The increase in prices is a rational move given the growing presence of GU in the company stable. GU is likely to become a major chain in its own right in the medium term, with close to 300 stores already. Fast Retailing has other fingers in the low price market too, notably its new joint venture with Seven & I which could mean Fast Retailing-developed private brands for Seven & I.

At the same time, many mass market chains have increased prices this year due to rising costs from Asian production and the low Yen, but Uniqlo’s shift is more strategic and tallies with efforts to raise the bar on fashion merchandising, particularly in womenswear. Uniqlo is also trying to wean itself off the rollercoaster of a few big hits followed by long lulls, in favour of incremental improvements.

All of which should provide a sensible, and really the only, way to continue to extract higher same store growth within Japanese stores for a few years.

This kind of repositioning isn’t easy and there are significant issues with Uniqlo’s execution. New merchandise styling still aims to appeal to young people, but the price points are more appropriate for older customers, while some regard the obsession with high function clothing as overdone – just how much warmth do you need from heat-tech in heated offices and metros?

At the same time, Uniqlo’s brand image within Japan is still fixed in most minds at the “pretty good quality given the price” end of the market, a position reflected in many of its outlying stores, and this clashes with its new higher pricing. Expanded fashion merchandising is clearly key to growth and there has been a lot of effort put into this, but while some collaborations have sold out fast, fashion styling overall remains hesitant.

The shift in positioning is a real challenge and is by necessity a long game, and indeed the long-term prize is not really Japan, with its declining population and Uniqlo saturation, but overseas – in China alone, Uniqlo opened 100 stores in the last year. Uniqlo began its overseas expansion with this slightly more premium positioning, offering quality, high function fashion basics at a reasonable price, and in a way the Japan positioning is being brought up to match it.

It is likely that Japanese Uniqlo stores will see a year or two of experiments, some successful and others failing. ‘Uniqlo Customize’, which lets you customise a shirt by colour and design for just ¥2,900 is just one of many ideas, as is the new relationship with Disney called ‘Magic For All’ selling Disney character apparel, and even a Uniqlo store in Disney World in Florida.