The 2016 fiscal year report recently released by Fast Retailing, the parent company of Uniqlo, shows that the group’s annual operating income from September 1 last year to August 31 this year was 1.7846 trillion yen, a year-on-year increase of 6.2%. Consolidated operating profit fell 22.6% from last year to 127.2 billion yen. The owners of the parent company accounted for 48 billion yen in profit for the year, a year-on-year decrease of 56.3%. In this regard, Fast Retailing Group CEO Tadashi Yanai admitted that it was a mistake to adopt a price increase strategy, and said that he would continue to conduct price adjustments globally to boost performance.
From 2014 to 2015, due to the impact of the exchange rate, the depreciation of the yen led to an increase in raw material costs and an increase in labor production costs in OEM factories. Fast Retailing Group carried out two price increases of varying degrees. In July 2014, the average price increase of UNIQLO’s autumn and winter products was 5%. In 2015, the average price increase of UNIQLO products reached 10%.
Although Uniqlo’s price increase has made up for the depreciation of the yen and the increase in raw material costs, customer traffic has significantly decreased. In the first half of the fiscal year as of the end of February this year, the number of Uniqlo customers in Japan decreased by 6.3%, and same-store sales fell by 1.9%. It is worth mentioning that although the decline in operating profit in Greater China was much lower than that in other markets, it still reached 5.5%.
According to reports, Uniqlo’s price increase has led to a decline in customer traffic, forcing Uniqlo’s parent company Fast Retailing Group to re-adjust prices. The price reduction measures will cover the entire world, with a significant reduction of up to 30%.
In an interview with the media in March this year, Yanai said that the price increase strategy adopted by Uniqlo in the entire market in the past few years was wrong and that it would adopt a price reduction strategy for its products.
Kang Lanxin, general manager of Paishang Fashion Matching Institute, said that Uniqlo’s substantial price adjustment has a strong destructive effect on the brand, which is mainly affected by Uniqlo’s consumer groups. Uniqlo’s advantage is its high cost performance, its audience is highly price-sensitive, and its products are highly substitutable. After two price increases, product prices exceeded the psychological price range of UNIQLO’s original audience, so these consumers gradually turned to other brands. This kind of customer loss cannot be 100% restored by another price reduction by UNIQLO.
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