Japanese company Fast Retailing, which operates the clothing brand Uniqlo, is projected to surpass Sweden's H&M to become the world's second-largest apparel manufacturer and retailer. With rapid growth in its overseas Uniqlo business, particularly in Europe and North America, annual sales are expected to approach 4 trillion yen (approximately $37.2 billion) for the first time. The strategy of enhancing quality and functionality while raising prices has led to improved profitability.
The Nihon Keizai Shimbun (Nikkei) reported on July 10 that Fast Retailing has raised its sales forecast for the fiscal year 2026 (September 2025 to August 2026) by 70 billion yen to 3.97 trillion yen. This represents a 17% increase from the previous year and is about 8% higher than H&M's projected sales. The company also revised its net profit forecast upward by 20 billion yen to 500 billion yen, marking the third upward revision of its earnings outlook this fiscal year.
Among manufacturers and retailers that handle everything from clothing design to production and sales, the world's largest is Spain's Inditex, which operates Zara. Fast Retailing has been in third place since surpassing American apparel company Gap in 2016, trailing H&M.
From September of last year to May of this year, Fast Retailing's sales reached 3.065 trillion yen, a 17% increase compared to the same period last year. Quarterly sales have exceeded 1 trillion yen for three consecutive quarters, widening the gap with H&M, which has quarterly sales around 900 billion yen.
The driving force behind this performance is the overseas Uniqlo business, which has seen sales grow by around 20% compared to the previous year. This growth rate is faster than H&M, which has experienced declining sales in local currencies, and Inditex, which has seen single-digit growth.
Fast Retailing promotes Uniqlo's brand concept of 'LifeWear,' which emphasizes quality and functionality in everyday clothing. Unlike Zara and H&M, which focus on quickly adapting to fashion trends, Uniqlo's emphasis on durable, basic clothing is seen as a competitive advantage.
Daijiro Murata, a senior analyst at JP Morgan Securities, stated, "It is difficult to find large competitors with a similar concept to Uniqlo globally. There is significant room for growth, as its market share in the European and American apparel markets is still below 1%."
Uniqlo's strategy of opening large stores in key commercial areas of major cities in Europe and North America has also increased its visibility. As of the end of May, there were 95 stores in Europe and 120 in North America. Fast Retailing plans to open about 15 stores annually in Europe and 25 in North America going forward.
The pricing strategy has also changed. While Uniqlo was previously associated with low-cost clothing, it has recently raised prices to match the value of its products while enhancing quality and functionality. In Europe and the U.S., the same products are sold at prices about twice as high as in Japan. The price range is lower than Zara but similar to or higher than H&M.
For example, a women's short-sleeve T-shirt priced at 1,500 yen (approximately $13.90) in Japan is sold for 14.9 euros (about 2,700 yen) in Europe. Similarly, jeans that cost 4,990 yen in Japan are priced at 49.9 euros (about 9,200 yen) in Europe.
By restructuring its pricing system and strengthening order management, Fast Retailing has reduced discount sales, thereby increasing profitability. The operating profit margin, which was 10% in the fiscal year 2015, is expected to reach 18% this fiscal year. In contrast, H&M's operating profit margin is around 7% to 9%. H&M has begun closing less profitable stores to improve management amid rising competition from low-cost online retailers like Shein and Temu.
Expectations for Fast Retailing are high in the stock market as well. As of July 8, its price-to-earnings ratio (PER) was 56, significantly higher than Inditex's 25. Fast Retailing's market capitalization is approximately 27 trillion yen, narrowing the gap with Inditex's 31 trillion yen. Nikkei predicts that Fast Retailing could surpass Inditex in market capitalization depending on future performance.
However, Nikkei pointed out that the high dependence on Uniqlo is a challenge. Inditex not only has Zara but also other affiliated brands that generate a high profit margin of about 20%. In contrast, Fast Retailing's low-cost brand GU has not achieved an operating profit margin of 10% until the last fiscal year. Although there have been recent improvements, it has not yet established itself as a second growth pillar following Uniqlo. The global brand business, which operates mid-priced brands, also reported a loss in the last fiscal year.
The depreciation of the yen is another burden for the Japanese business. As the proportion of products sourced from overseas increases, the cost of procurement rises as the yen's value falls. Takeshi Okazaki, Fast Retailing's Chief Financial Officer, stated, "We are continuing to hedge against currency fluctuations, but the situation is becoming more challenging. We will have no choice but to raise prices on some fall and winter products," estimating an average price increase of just under 4% across all products.
Fast Retailing aims for long-term sales of 10 trillion yen. Sho Kawano, an investment research analyst at Goldman Sachs, commented, "Since Uniqlo's business focuses on basic clothing, it is unlikely to be a temporary trend. It has ample potential to become an industry leader in Europe and the U.S."
* This article has been translated by AI.
Copyright ⓒ Aju Press All rights reserved.