Uniqlo and Forever 21: What Are They Smoking?

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\"RRI don’t know if “weed” is legal yet where CEO Tadashi Yanai, (Tokyo-based Fast Retailing Company, including the Uniqlo brand), or CEO Don Chang, (Los Angeles-based Forever 21) run their companies, but maybe they’re getting delusional on some other substance.

One thing their delusions have in common is Larry Meyer. He was CFO at Forever 21 from 2001 to 2012, and then left to become CEO of Uniqlo USA. Both of his bosses gave him his marching orders to “get big fast” (to steal the Jeff Bezos line), and focus mainly on the American market. Doesn’t everybody? And getting big fast apparently means bigger stores and lots more of them. I guess in their minds, this growth logic is supposed to result in bigger revenues as well.

Furthermore, and this is pure speculation on my part, perhaps Uniqlo observed Mr. Meyer’s performance at Forever 21, aggressively pushing for more and bigger stores, and believed they could use his real estate acumen to implement Mr. Tadashi’s mind-numbing growth objectives. However, Mr. Tadashi’s mind must have been a bit addled, not foreseeing that, in my opinion, Forever 21’s get big faster strategy would end up with being stuck with a ubiquitous number of stores that are bigger and less productive, resulting in a cool brand turned cold. Bye, bye young customers. Unfortunately, Mr. Tadashi and Mr. Meyer are now both racing down that same delusional growth-to-death path.

Sure guys, just open up more and bigger buildings, dump a bunch of stuff into them, and consumers will come — particularly in the world’s largest marketplace, the good old US of A. Oh my!!! Do I have to go through my rant once again, about how over-stored we are? And worse, there are hundreds of equally compelling competitors offering the same products these guys sell.

Forever 21

While Forever 21 is a closely held company and doesn’t report sales and profits, some analysts who closely watch the business say that their same store sales have been sliding lower, even into negative territory, throughout their race for more space.

The company disputes this and claims they are on track to do $4.5 billion in 2015, up 15% from 2014. They operate over 600 stores worldwide, with roughly 480 stores in the US, and they plan to open another 150 this year. Mr. Chang’s goal is to double the size of the business in three years. And I guess he continues to believe that doubling the number of stores will logically double the revenues. He sounds like Mr. Tadashi, (which I will get to in a minute), although on a much smaller scale.

Size started to matter in 2001 when Larry Meyer came on board and doubled and tripled the footprint of their original stores to over 24,000+ square feet. It was clear at the time that this was to be the beginning of a race for market share at the expense of the productivity of existing stores. In fact, as the world was beginning to fall apart in 2008, either Chang or Meyer (or both) made the insane decision to acquire 15 leases from the Mervyns who were liquidating their business. Each store was about 80,000 square feet, with a couple over 90,000. One in Las Vegas was a whopping 127,000 square feet!

While they probably made a great financial win in acquiring these properties, what were they going to stuff into them? Well…more stuff. So they waded into new product categories: footwear, lingerie, plus-sizes, cosmetics, and they also expanded into younger and older demographics, so the whole family could shop together. Their president was quoted: “People used to say we were a two-generation store; now we\’re a three-generation store.\”
Okay, well I’m here to repeat another part of my mantra: He who strives to be everything for everybody ends up being nothing for anybody.

And now they are rolling out a new branded F21 Red model, which sounds to me, a lot like their version of outlet stores in which their products will sell for less than the Forever 21 stores. Chang said the way in which they will accomplish this is by taking a page out of Walmart’s playbook by leveraging their economies of scale. Because of getting bigger (and needing more stuff to fill the space), they will be able to pressure vendors for lower prices, which they will pass on to the consumer. Chang was quoted: \”We are able to buy a deep volume of product, increasing our economies of scale while cutting our margins, so that we can pass the savings on to our customers.\”

I find it kind of difficult to wrap my mind around Walmart and Forever 21 in the same thought. Maybe he was smoking himself into a delusion again.
Okay, so if they are copying Walmart’s playbook on leverage, they certainly are not copying the downsizing part of their playbook. As Walmart, Target, Kohl’s and most brick-and-mortar retailers are opening smaller stores, Chang is sticking to his delusion that bigger and more is better, and that this will result in a doubling of his business in three years.

So, Mr. Chang, it’s “build em’ and they will come?” Remember the cartoon character, Wile E. Coyote, the “Road Runner,” and how he raced full speed ahead, with his legs still churning thin air as he went over the edge of a cliff that he didn’t see coming? If you don’t remember, just Google it. It’s iconic.


And then there’s Mr. Yanai Tadashi. In 1997, he decided to adopt strategies from The Gap, essentially to be a vertically integrated branded apparel specialty chain. At the time it was a great model, particularly for Uniqlo as it expanded to close to a 1000 stores in Japan. Currently, the enterprise consists of over 1400 stores in 16 markets, most in Japan, and 39 in the US. Certainly, Mr. Tadashi could not have foreseen Gap’s fate in the US and its unravelling due to its insanely rapid store expansion.

Well, he can be given a pass in 1997 for not foreseeing the meltdown. None of us saw it coming. But, hey! Now Tadashi’s plan for the US is following Gap’s ill-fated “open a store on every corner” and become as ubiquitous as fast as you can growth strategy. And he doesn’t even have Mickey Drexler at the helm. However, as mentioned, he does have Larry Meyer of Forever 21 fame who knows something about opening stores.

By the way, having just mentioned Mr. Drexler, a number of industry insiders believed that the unspoken intent of Mr. Tadashi’s pursuit of acquiring J. Crew a few years ago was, in fact, to hire….er, I mean acquire, Mickey Drexler to run the Uniqlo business in the US. Well too bad for Mr. Tadashi for not upping the ante at the time, because in my opinion, Drexler would have been one, if not the only one, to make Uniqlo an unqualified success.

However, this would only have happened if Drexler had been given free reign, which most who know Mr. Tadashi say would be impossible.

In 2009, and apparently well into fantasyland, Mr. Tadashi declared that Fast Retailing Co. Ltd. would become the biggest apparel retailer in the world by 2020, achieving total revenues of about $61 billion. Revenues in 2014 were just $13.6 billion. That means that over the next five years, they must grow at the rate of almost $10 billion a year.

And, here’s where the delusion, or perhaps the “weed” takes over.

Larry Meyer has been charged with delivering $10 billion in the US by 2020, one-fifth of the total roughly $61 billion goal in global revenues. And he’s expected to have about 1000 stores up and running by then, compared with today’s number of 39.

Say what? Are you kidding me? Larry!! Helloooooo!! Were you smoking the same thing when you decided to take this on?

I pinched myself to make sure I wasn’t asleep under some other substance, and I did the math.

One thousand stores by 2020 means he must open just under 200 stores a year. If the store size averages 25,000 square feet (which is gargantuan outside of big cities), that means the average sales per square foot across the enterprise would need to be around $400. And while that is the average among apparel specialty retailers, the average size of most specialty stores is between 3500 and 5000 square feet. First of all, are there enough locations in the US to support 1000 Uniqlo stores of that size with its existing merchandise mix? Take another hit of that cannabis.

If there were, Larry Meyer would have to turn himself into Wile E. Coyote to open 200 stores a year. Take yet another hit.

And even if they built them, would consumers come and shower them with $400 per square foot in an over-stored, over-stuffed and over-websited marketplace with thousands of other equally compelling choices, in an economy and industry that’s operating on fumes and giving stuff away? Take another big hit.

Oh, and there’s another thing. Yanai’s taking another chapter out of Forever 21’s playbook. To fill all this space and boost revenues, he’s acknowledged they need to expand their customer base by broadening the product offering. Enter LeAnne Nealz, the new Chief Creative Officer for Uniqlo Global Design, under Meyer. With a career trajectory from American Eagle Outfitters, Gap, Theory, Banana Republic, Calvin Klein and recently Juicy Couture, among other notable brands, her role is to bring trend knowledge and fashion sensitivity, and to generally infuse more breadth to expand the line beyond just the basics.

Her qualifications aside, there’s just a minor problem with this. Yanai “take another hit” Tadashi was reported to push back on some of her initial more fashionable style suggestions, sticking to Uniqlo’s positioning of not “following or dictating” trends.

Following is a comment I wrote in an earlier article for The Robin Report entitled: Uniqlo – A Gap Re-Run: “….Uniqlo intends to revolutionalize how people wear clothes, part of which is to revolutionize mass retailing in the US.” (I’m not sure how they’re defining mass retailing here. I certainly can’t imagine their New York stores stealing customers away from Walmart, regardless of how low their prices are.) So, I doubt if Ms. Nealz is going to have much influence in evolving Mr. Tadashi’s original positioning of the brand. Furthermore, I’m told that Fast Retailing’s business model is very top-down. Essentially all major decisions are made in Japan. This does not bode well for adapting to consumers’ varying fashion and style interests around the world.

A Revolutionary Idea

Take a final hit on this one. Uniqlo and Forever 21 do a merger and create an even faster Wile E. Coyote Road Runner, doubling their speed as they race over the edge into infinity and beyond…er, I mean ubiquity and antiquity.



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