Uniqlo: Bridging the physical world of apparel with the digital world
Uniqlo plans to achieve aggressive sales targets by using digital tech to improve their supply chain and provide superior customer service.
Fast Fashion Means Fast
In the fashion industry, the ability to provide trendy products to customers quickly is essential to success. This topic keeps Tadashi Yanai up at night as he works to catapult Fast Retailing, and subsidiary Uniqlo, to the top of the fashion food chain.
Setting their sights on competitor Zara, Uniqlo has set aggressive growth targets and ambitious digital transformation plans [1]. The impetus for implementing a digital supply chain has become more intense as consumers demand customized products quickly, while companies work to maintain cost efficiencies [2]. Uniqlo has already begun this process of incorporating digital elements into their business model. In 2015, Uniqlo partnered with Accenture to create a cloud-based platform that would enhance the overall supply chain of Uniqlo and provide better service to customers [3]. While they have initiated this digital path, Uniqlo still has room for improvement to achieve their sales goals.
Another key concern for Uniqlo is the desire to grow their online presence and boost their revenues. Yanai set the ambitious target of growing online sales from 5% to 30%, creating the need to design tools that can provide the immediacy and customization that customers desire [4]. To implement Yanai’s vision of meshing the physical and digital components of Uniqlo’s business, he has created a vision for the next decade that will enable his company to adapt to the shifting preferences of its customers.
Plans to Digitize
One technology that Yanai finds fascinating is artificial intelligence, which he believes will decrease extra inventory in their warehouses by providing superior customer demand information [5]. Superior inventory management will allow them to eliminate the policy of discounting prices to get rid of unsold inventory [6].
The expectation is that gaining more profound insights on customer demands will allow Uniqlo to provide customized products while maintaining lean factories. In the short-term, Yanai is seeking the counsel of IT specialists who can help architect this type of change, recognizing that there is an inherent challenge in bringing the world’s best IT talent to an industry that they may not be as familiar with [5].
Another near-term strategy that they are employing is the use of radio frequency identification tags (RFID). This technology will allow the company to rapidly take note of what products need to be added into inventory, diminishing the labor burden on store personnel [6].
As recently as November of 2017, Yanai announced that integrated circuits (IC) would be implemented globally in all outlet stores, which would enable Uniqlo to improve checkout times and deliver the most desired goods to customers [7]. While the effort would improve the product inspection time by as much as ten times as current technologies and provide a wealth of data, the cost is estimated to be multiple billions of yen [7]. Uniqlo will have to regularly measure the effectiveness of the campaign in the following years to ensure that the return on investment is worthwhile.
Considerations Moving Forward
Seeing that Uniqlo has established digitization as a key pillar to its long-term growth, there are a few strategies that the company should consider:
- Ensure that the data is visible
As Uniqlo gears up to expand its RFID technology worldwide, they should make sure that they develop a unified platform that shares valuable product data across all supply chain constituents. PWC, in their Industry 4.0 analysis, elaborates on how a company’s visibility into its supply chain is essential in providing real-time data that can be acted upon, driving efficiencies in raw material and inventory management to improve financial performance and customer service [8].
- Use virtual technology to not only wow customers, but also empower designers
Uniqlo has already experimented with virtual technology to create unforgettable customer experiences. Dating back to 2013, Uniqlo utilized virtual technology to enable customers to look at Uniqlo products in the mirror and adjust the virtual image to show different color alterations [9]. To gain a competitive advantage and continue to improve their speed to delivery, Uniqlo should consider using virtual technology to empower fashion designers to iterate on fashion concepts.
In The State of Fashion Report from 2017, McKinsey highlights the added pressures that digital transformations place on designers in that they need to have tools, “from virtual design to virtual sampling” [10]. This industry pressure presents an opportunity for Uniqlo to invest further in virtual technologies that would empower creatives to iterate on fashion ideas more rapidly to improve speed to market while meeting consumer demands.
Key Questions
How might Zara, the world’s largest clothes retailer, respond to Uniqlo’s digital efforts to ensure that it remains dominant in the marketplace? As technological improvements increase exponentially, what steps can Uniqlo take to ensure that they remain at the frontier of digital technology innovations while maintaining low costs?
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Sources
[1] Huang, Grace and Takada, Kazunori. “Uniqlo thinks faster fashion can help it beat Zara.” Bloomberg, March 16, 2017. [https://www.bloomberg.com/news/articles/2017-03-16/uniqlo-turns-speed-demon-to-take-on-zara-for-global-sales-crown], accessed November 2017.
[2] Alicke, K., D. Rexhausen, and A. Seyfert, “Supply Chain 4.0 in consumer goods.” McKinsey & Company
[3] Sile, Aza Wee. “Fast Retailing CEO: Go global if you want to succeed.” CNBC, November 27, 2015. [https://www.cnbc.com/2015/11/27/uniqlo-founder-tadashi-yanai-says-go-global-if-you-want-to-succeed.html], accessed November 2017
[4] Yanai, Tadashi. Interview with the CEO: Our Digital Transformation, interview by Uniqlo. February 24, 2017. [http://www.fastretailing.com/eng/ir/direction/interview.html], accessed November 2017
[5] Iwato, Hisashi. “Uniqlo’s retail empire embarks on a digital revolution.” Nikkei Asian Review, August 26, 2017. [https://asia.nikkei.com/Business/Companies/Uniqlo-s-retail-empire-embarks-on-a-digital-revolution?page=1], accessed November 2017
[6] Iwato, Hisashi. “Uniqlo maps out a way to dominate differently.” Nikkei Asian Review, July 11, 2017. [https://asia.nikkei.com/Business/Companies/Uniqlo-maps-out-a-way-to-dominate-differently], accessed November 2017
[7] Hara, Yoshihiro. “Uniqlo operator to use IC tags at all outlets worldwide.” Nikkei Asian Review, November 6, 2017. [https://asia.nikkei.com/Business/Companies/Uniqlo-operator-to-use-IC-tags-at-all-outlets-worldwide], accessed November 2017
[8] Schrauf, S. and P. Berttram, Industry 4.0: How Digitization Makes the Supply Chain More Efficient, Agile, and Customer Focused, PWC Strategy& (2016)
[9] Altschul, Serena. “The fast rise of Japanese retailer Uniqlo.” CBS News, June 23, 2013. [https://www.cbsnews.com/news/the-fast-rise-of-japanese-retailer-uniqlo/], accessed November 2017
[10] Amed, I., A. Berg, L. Brantberg, S. Hedrich, J. Leon, and R. Young. The State of Fashion 2017, The Business of Fashion and McKinsey & Company. [https://www.mckinsey.com/industries/retail/our-insights/the-state-of-fashion], accessed November 2017
Very interesting read. I always find the comparison between Uniqlo and Zara extremely valid from a supply chain point of view. However, from a product and customer insights perspectives, I struggle to position them. Zara is known for copying runway designs, whereas Uniqlo takes a strong stand at classic and high quality, high value products. How these two companies will use digital supply chains to fulfil their value propositions, not only from a design to shelf speed perspective, but also making sure it is exactly what their customers want, is for me the exciting question that lies ahead.
Interesting article. As pointed out by Michael, I am not entirely sure if the value proposition of both companies are very similar when it comes to their products and customer target. Moreover, customisation is generally accepted as a retail tendency overall but I wonder in how far it applies to Uniqlo, a basic wear supplier. The challenges of their supply chains are however similar in terms of increasing availability of products and shorter lead times. To your question, I would assume that Zara would eventually mimic the transformations of Uniqlo (if Zara is not already doing it). A final question that I am still puzzled about after reading the article is how Uniqlo expects to specifically increase Online sales with increasing supply chain digitalisation (specially if customisation is not part of their customer promise). Maybe someone else can help out.
One aspect of the article that interests me is the measurement of effectiveness and ROI. The campaign relates to both supply chain efficiencies and customer service improvement. As the post mentions, for such a big investment, results are critical, and competitors like Zara may only respond if it is clear that Uniqlo is earning a positive ROI. How exactly does Uniqlo intend to measure the efficacy of its various digital initiatives? Some components, such as inventory management, are easily measurable, but other objectives on the customer service side are harder to quantify.
Thanks for sharing! I think that Uniqlo has a key competitive advantage over Zara since their inventory is generally focused on fashion forward basics in limited color schemes. Theoretically, this should allow them to be even faster than Zara in getting products to market because it is fewer SKUs and less variation from year-to-year. Another option would be to implement ordering online with in-store pickup. Other retailers have found success in providing choice to consumers regarding how they receive products. This also reduces delivery costs, increasing funds available to invest in digitization technologies.
Uniqlo seems to be using its digital supply chain to its advantage. It’s clearly important for Uniqlo to be able to react quickly to changes in fashion and to their customers’ preferences. While Yanai is excited by artificial intelligence’s ability to “provide superior customer demand information,” I question how far that can go for Uniqlo. Of course, Uniqlo’s cloud-based platform has allowed their demand forecasts and supply chain to be proactive as opposed to entirely reactive. However, I wonder how “predictable” fashion really is, and therefore how predictable customer demand is. I’m not sure how much artificial intelligence would be useful to fashion designers. For example, if the red capri pants are rapidly being purchased, how would Uniqlo interpret this signal? Is the color red suddenly “in style,” or are capri pants riding a new wave of popularity? Having visibility into the supply chain can improve logistics, but I question how far it can go in terms of aiding designers.