UNIQLO’s Expansion into Canada

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UNIQLO Canada is a subsidiary of the Japanese parent company Fast Retailing Co., Ltd. The company now holds more than 1500 stores worldwide, just after opening its first store in Japan in 1984. The company is focusing on opening large-scare stores in some of the large cities across the globe. It already has stores in 17 markets worldwide including Japan, France, Germany, Australia, China, Hong Kong, Malaysia, Indonesia, Philippines, Russia, Singapore, South Korea, U.S., Canada, Taiwan, U.K., and Thailand. Uniqlo had planned to open its first two stores in Canada in the fall of 2016. This was a strategic move as the stores were located at Yorkdale shopping center which is one of the highest performing shopping malls in North America and Toronto Eaton Center, famous for its shopping destination tag.[i]

Where in the Canadian market, others have had a hard time surviving, Uniqlo Canada stores are said to be performing above the company’s expectations.  The clothing giant launched a mobile app and e-commerce on the mobile website in August 2018.[ii] Uniqlo did what companies like Sears Canada probably missed out which is to understand the needs of the Canadian people.[iii]

EXTERNAL ANALYSIS

PESTEL ANALYSIS

1. Political/ Legal

  • Corporate Taxes: With a number of tax incentives in federal and provincial corporate taxes, Canada attracts companies to set up their businesses in the country and be profitable. Uniqlo also benefits from Canada’s such approach for attracting corporate businesses.
  • Legal Compliance: Fast retailing plans for its tax operations by consulting with the Country’s specialist tax advisors. This ensures that they fulfill all the tax obligations and avoid any tax consequences from the Canada Revenue Agency. The company ensures timely payments of taxes such as GST/HST, Corporate Tax, Payroll deductions, etc. It also complies with international tax laws and the Organization for Economic Co-operation and Development transfer pricing guidelines. [iv]
  • Transparency: The area of tax management is on the rise in multinational corporations. Especially in an era where the accountants try to play in the gray area zone. Fast Retailing and Uniqlo understand the importance of brand image from a legal and political perspective, they ensure this by disclosing and following fair taxation and legal practices.[v]

2. Economic

  • Interest Rates: At the time of raising capital, debt becomes a crucial factor. Debt financing is available at a relatively lower rate in Canadian Banking System, but it comes with a number of qualifying requirements. The interest paid on debt is allowed for net profits calculation, whereas earnings on shares are paid after-tax calculations.
  • Expenditure on Clothing & Footwear: The sales of the apparel sector have been growing continuously over the years in the Canadian economy. With an increase in consumer spending of nearly $1,300 million from 2017 to 2018, the retail clothing industry is only expected to grow stronger over the coming years and Uniqlo is expected to gain benefit from it.[vi]
  • Inflation Rate: Inflation in Canada hit 2.2% in November 2019, as compared to 1.9% in October 2019. This rate remained stable in December. Energy prices rose by 5.5% and gasoline prices rose by 7.4% as compared to December 2018, thus affecting the inflation rate[vii]. A high inflation rate could affect consumers' spending patterns, thus affecting clothing retails like Uniqlo too.

3. Social Factors

  • Population Growth Rate: Canada’s population in 2019 increased by over a half-million as compared to the year before. More than 75% of this increase would represent non-permanent residents and Immigrants.[viii]                   This would bring more GDP to the economy and more consumer spending on retail and clothing.
  • Age Distribution: Canada ranks 1st amongst the G7 countries when it comes to the working population. Nearly 2/3rd of Canada’s population falls between the ages of 15-64. The working population definitely impacts the market and provide opportunities for Uniqlo’s expansion.[ix]
  • Cultural Diversity: Canada might be one of the most culturally diversified countries. Canadian culture has always been open and welcoming toward immigrants. Canadians believe that diversification strengthens the economy[x]. This diversification opens doors for corporations like Uniqlo as the markets keep expanding.

4. Technological Factors

  • Product Innovation: A lot of companies these days invest millions of dollars in innovating new products in order to gain a competitive advantage. Uniqlo is also not behind, it focuses on developing new clothing material which is better than what is available in the market. Uniqlo’s Heattech clothes focus on providing warmth with lightweight material and AIRism focuses on keeping the fabric breathing which assists in low dampness[xi]
  • Mobile Application: As the shopping experience keeps becoming more digital, it is vital for a business to provide its customers with e-shopping and mobile apps options. In August 2018, Uniqlo launched its mobile app and e-commerce on the mobile website. This ensured that customers from all around the country could access the retailer’s stores.[xii]
  • Production Process Advancement: With consumers becoming more and more aware of the production processes of the companies; the companies are now focusing more on ethical standards. In 2018 Uniqlo adopted a technology that helps in reducing water consumption by 99% in the jeans washing process. Such a tag on a brand’s image definitely attracts customers.[xiii]

5. Global and Environmental Factors

  • Sustainable Production Process: On a global level, businesses are looking at sustainable business processes. From acquiring the raw material to delivering the final product to the customer, companies want to reduce their carbon footprint. Fast Retailing also addresses environmental issues and is working towards a healthier process. Improving energy efficiency, waste management, maximizing resource efficiency are the main concerns for the company.[xiv]  
  • Ethically Produced Material: The focus is now on having ethically production process. With corporations being linked with child labor and miserable working conditions, the consumer has become more conscious. Uniqlo received PETA award in 2016 for developing Heattech tech, which shifts its dependence from wool form animals to synthetically produced material,[xv]
  • Community Recycling Program: Recycling and reusing help to decrease global waste substantially. Consumer awareness plays a significant role in achieving such change. Uniqlo along with United Nations High Commissioner for Refugees (UNHCR) and other NGOs and partners, helps in distributing used wearable items for refugees, disaster victims and to others in need. The donating boxes are placed at Uniqlo stores and all Uniqlo items are accepted. By the end of the third quarter of 2018, more than 90 million items have been collected from 22 countries.[xvi]

Porter’s Five Forces

  • The threat of New Entrants: Overall Low Threat

Factors

Reasoning

Impact on Industry

Capital Requirement

Capital requirement for setting up stores on a scale at which the retail clothing operates is relatively high. So, it would be a challenge for new firms to invest such an amount.

Negative

Economies of Scale

Achieving economies of scale is not easy for small to medium-size businesses, especially for a new entrant in the market. Thus, an existing retailer can provide the same type of clothing product at substantially lower prices.

Negative

Legal Formalities

There are no legal barriers to opening a retail clothing store. One has to go through a few legal processes in setting up a store. Though, later there might be a number of legal complexities related to production, labor and tax regulations.

Positive

Government Policy

Governments around the globe, including the Canadian government, encourage people to set up their own small businesses by various tax policies and low-interest rates on borrowing.

Positive

  • Bargaining Power for Suppliers: Insignificant Supplier Power

Supplier Concentration

Manufacturing fabric does require technology and skills, but the resources are not rare. Hence, there are a number of suppliers available for standard fabric material.

Positive

Switching Costs

Most of the times businesses have contracts with suppliers, specifying product quality, prices and payment terms and obligation in breach of a contract. Thus, switching costs could be severe at such a large-scale business.

Negative

Buyers in Other Industries

The fabric industry might have buyers in other industries such as automobiles and furniture, but it is nothing as compared to demand in the clothing retail industry. Hence, suppliers have little to no control.

Positive

  • Bargaining Powers of Buyers: High Bargaining Power

Substitute Products

Finding a substitute clothing product is not tough. There is a number of retailers and brands in the market selling comparable products.

Negative

Switching Costs

Switching costs are almost negligible is the clothing retail industry. There is no stopping to the customer to move from one brand to another.

Negative

Number and Size of Sellers

With globalization, there is a number of sellers in the market, giving the power to the customer to choose among the number of options.

Negative

  • The threat of a Substitute Product: High threat of a Substitute

Price of Substitute Products

Almost endless substitutes are available for a brand in the market. There are a number of retailers in the market selling clothing products in the same retail price range or even lower.

Negative

Specialized Products

Although there are a number of retailers, a few have technology that others do not and hence have a competitive advantage. For example, Uniqlo’s Heattech and AIRism.

Positive

E-commerce

With the privilege of online shopping and mobile app shopping, customers may buy products that are easily available to them on a few clicks rather than going to store in person. Overall it promotes healthy competition in the industry.

Positive

  • Industry Rivalry: High Chances of Rivalry

Fixed Costs

There are tons of fixed costs related to the clothing retail industry. A few would be store rent/ lease, labor expense, and transportation. The rivalry firms are in a cut-throat competition to reduce the fixed costs and increase profits.

Negative

Exit Barriers

There are exit barriers in terms of legal compliance, but which are not so significant. A loss incurring firm may exit the industry over a period of a few weeks to a few months.

Positive

Industry Growth

The retail cloth industry has seen continuous growth over the years. With expanding markets, comes competition and the firms are likely to have a rivalry over the control of a market segment.

Positive

Competitive Analysis

Competitors

Zara: The clothing retailer was founded in 1974 in Spain. The headquarters is located in Arteixo, Spain. With over 3000 stores around the globe, the company is known for its reputation for developing a new product and bringing it to customers within a couple of weeks, as compared to over 6 months period for most of the other companies.[xvii]

Hennes & Mauritz: With over 11,900 employees in 2019, this giant retailer deals in clothing accessories, footwear, and cosmetics. There are hundreds of brands under the company such as COS, Weekday, Cheap Monday, Monki and H&M Home. The company was founded in 1947 in Sweden and the headquarters are located in Stockholm.[xviii]

GAP Inc.: The first store was opened with an idea that customers could easily find a pair of jeans. Since the opening of its first store in 1969, the company now owns over five brands including the Banana Republic, Old Navy, Intermix and Athleta. The products vary from baby clothing to sports clothing. [xix]

Competitors

Market Commonality

Resource Commonality

Zara

High

High

H&M

High

Medium

GAP Inc.

Medium

Medium

 

ZARAA

 

H&M

Market Commonality

 

GAP Inc.

 

Resource Commonality

Primary Direct Competitor:Zara

Zara’s potential competitive move towards Uniqlo: The firm may indirectly make a competitive move in the market by way of introducing a customer loyalty program, discount coupons to registered customers, launching a new trendy range of products, marketing store discounts on weekends, etc. It would be done solely for the purpose of attracting potential customers.

Zara’s potential reaction to Uniqlo’s competitive move: Zara is known for its speedy process of developing new products and bringing them to the store. So, in a situation where Uniqlo might launch a differentiated product, Zara is highly likely to respond with an equivalent or better product in a noticeably brief time frame. Even towards marketing campaigns such as using Plus size models or signing a sports person, there are high chances of competitor reaction.


[i] Canada Newswire, 2015. “Uniqlo to Enter Canadian Market in Fall 2016 Opening First Stores in Yorkdale and Toronto Eaton Centre.” Canada Newswire, January 23, https://search-ebscohost com.ezproxy.langara.ca/login.aspx?direct=true&db=bwh&AN=201501260800CANADANWCANADAPR.C6452&site=ehost-live&scope=site.

[ii] Pearson, Natalie Obiko, 2017. “near- Record Crowds Spur Uniqlo Canada Sales Above Expectations.” Bloomberg.com, October, N.PAG

https://search-ebscohost-com.ezproxy.langara.ca/login.aspx?direct=true&db=mth&AN=140807408&site=ehost-live&scope=site

[iii]  ibid

[iv] Corporate Governance | FAST RETAILING CO., LTD, Accessed January 20,2020, https://www.fastretailing.com/eng/about/governance/corpgovenance.html

[v]  Ibid

[vi] "Library Web Proxy". 2020. Www-Portal-Euromonitor-Com.Ezproxy.Langara.Ca. Accessed January 21. https://www-portal-euromonitor-com.ezproxy.langara.ca/portal/analysis/tab.

[vii] December Inflation Holds Steady At 2.2% Despite Higher Gas Prices". 2020. Global News. https://globalnews.ca/news/6445597/canada-december-2019-inflation/.

"Ibid

[viii] Katherine Daw, Highest population increase ever recorded in Canada, while Manitoba's growth slows: StatCan, Published October 1, 2019, Accessed January 20, 2020 ht23 tps://winnipeg.ctvnews.ca/highest-population-increase-ever-recorded-in-canada-while-manitoba-s-growth-slows-statcan-1.46188

[ix] Statistics Canada, Analysis: Population by age and sex, Updated January 25, 2019, Accessed January 23, 2020, https://www150.statcan.gc.ca/n1/pub/91-215-x/2018002/sec2-eng.htm

[x] Global News, Canadians Love Diversity, just not the change comes with it: survey. Published June 21, 2018, Accessed January 23,2020, https://globalnews.ca/news/4288791/diversity-immigration-canada-mixed-feelings-survey/

[xi] Uniqlo Canada, Technology makes life better, Accessed January 23, 2020, https://www.uniqlo.com/lifewear/ca/en/

[xii] Newswire, Market Insider, Published August 7, 2018, Accessed January 23,2020, https://markets.businessinsider.com/news/stocks/uniqlo-canada-launches-mobile-e-commerce-1027438809

[xiii] Water Resource Management, Fast retailing, updated January 20, 2020, Accessed January 23, 2020,                                 https://www.fastretailing.com/eng/sustainability/environment/water.html

[xiv] Environmental Management, Fast Retailing, updated January 20, 2020, Accessed January 23, 2020,  https://www.fastretailing.com/eng/sustainability/environment/management.html

[xv]
PETA, Uniqlo Receives PETA’s Innovation Award for Animals Award, Updated July 19, 2019, Accessed January 23, 2020 https://www.peta.org/living/personal-care-fashion/uniqlo-receives-peta-innovator-for-animals-award/

[xvi] Uniqlo, Uniqlo Sustainability, Accessed January 25, 2020,

https://www.uniqlo.com/en/sustainability/recycle/

[xvii] Forbes, Zara, Accessed January 25,2020, https://www.forbes.com/companies/zara/#40a23a274877

[xviii]Forbes, H&M,  Accessed January 25, 2020, https://www.forbes.com/companies/hm-hennes-mauritz/#6d838331727b

[xix] Gap Inc., Be the world’s favorite for American style, Accessed January 29, 2020, https://www.gapinc.com/content/gapinc/html/aboutus.html

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