UNIQLO vs ZARA 2014

Presentation of the book titled "UNIQLO vs ZARA" published from Nikkei in Japan (2014), translated in Taiwan,Hong Kong (2015), in China(2017). Comparing UNIQLO & ZARA which are positioned on the opposite ends of the spectrum in the global clothing market. This book was updated in Japan (2018).

1. DEMAND WORKS Inc. APR23/2015 UNIQLO ＺＡＲＡ VS TAKA 　 SAITO Fashion retail expert

2. Background of the Lecturer Taka Saito Background Demand Works Inc. Fashion retail consultant CEO of Demand Works Inc. since 2004. (Tokyo, Japan) See web site : www.dwks.jp 　　　　　 Fashion retail expert, independent contractor. Consultant, journalist, and lecturer. Specialized in Supply chain management, Inventory control, Store operation improvement, and Human resource development of HQ personnel for emerging fashion chains. Board member of a clothing chain (1999-2004, Tokyo) Asia export manager of fashion goods exporter (1997-1998, USA) Product and logistic manager of an Italian sports brand (1990-1991, Tokyo) Merchandiser of Tokyo apparel div. of a trading house (1988-1997, Tokyo) Bachelor of Commerce, Meiji University. 　

3. "UNIQLO vs ZARA" Nikkei publishing Inc. 　 JPY 1,620 incl. tax Published Nov.19, 2014 　　　 Comparing UNIQLO & ZARA which are positioned on the opposite ends of the spectrum in the global clothing market. UNIQLO ( Fast retailing) has improved the standard of the QUALITY per PRICE ratio in the basic wear market in Japan. It’s the No.1 revenue clothing chain in Japan and it aims to conquer the No.1 position in the world. ZARA (The Inditex Group) raised the standard of the DESIGN per PRICE ratio of European fashion in the world. The No.1 revenue fashion retail company in the world since 2009. UNIQLO & ZARA have upended the status quo in the clothing market .

4. Global top 10 of revenue ranking of the clothing fashion chain market Global top 10 of revenues ranking of the clothing fashion chain market (2013 ） 1 rank company revenue 　　　　　　　　　　　　　　 （ B JPY ） vs previous year Operating Profit 　 （ B JPY ）（ % ） vs previous year stores vs previous year Growth same stores 1 INDITEX （ Spain ； 2014.1 ） 2 , 331.3 5% 3% 4,280 (18.4%) -1 ％ 6,340 331 2 H&M 　 （ Sweden ； FY 2013.11 ） 2,031.2 6% 0% 3,502 (17.2%) 2 ％ 3,132 356 3 GAP 　 （ USA ； FY 2014.1 ） 1,660.0 3% 2% 2,207 (13.3%) 11% 3,539 132 4 FAST RETAILING （ JPN ； FY 2013.8 ） 1 , 143.0 23% 7.3% 1,329 (11.6%) 5% 2,449 227 5 L BRANDS * 　 （ USA ； FY 2014.1 ） 1,107.4 3% 2% 1,791 (16.2%) 11% 2,923 47 6 C&A （ GER ； FY 2012.2 ） 　 947.9 3% N/A N/A N/A 1,575 43 7 PRIMARK 　 （ UK ； FY 2013.9 ） 725.1 22% 5% 872 (12.0%) 44% 257 12 8 NEXT （ UK ； FY 2014.1 ） 634.6 5 ％ - 2 ％ 1,225 (19.3%) 11% 541 1 9 SHIMAMURA （ JPN ； FY 2014.2 ） 501.8 2% - 0.5 ％ 418 ( 8.3%) - 8 % 1,860 52 10 ARCADIA GROUP （ UK ； FY 2013.8 ） 464.1 2% - 3 ％ 373 (8%) - 2 % about 2,500 N/A No.1 4 UNIQLO

5. Positioning in the Global Fashion Chain Market 1 Price point in UK market 2014 （ women’s shirt & blouse ） Trendy Practical Price £39.99 £ 34.95 £29.99 £26.00 £19.99 £17.99 £14.99 £10.00 High Low

6. Historical top 5 change 2004-2013 2 From US “basic” to EUROPEAN “trendy fashion” Worldwide TOP 5 Revenue Transition INDITEX , SP H&M , SW L Brands , US Fast Retailing , JP GAP , US 0.5 1.0 1.5 2.0 2.5 2004 05 06 07 08 09 10 11 12 13 FY trillion yen Note: Compiled from each company‘s annual report, calculated at the exchange rate of the time in 2014 the end of January.

7. Profile of UNIQLO & ZARA 3 ZARA UNIQLO Spain Japan INDITEX FAST RETAILING 1975 1984 Design / Price ratio of trendy fashion in the world Quality / Price ratio of basic clothing in Japan The No.1 revenue chain group in the world The No.1 revenue chain in Japan vertical integrated clothing chain model (SPA) vertical integrated clothing chain model (SPA) JPY 1506 B （ Jan 2014 ） JPY 934.4B （ Aug 2013 ） 1,991 stores in 87 countries 90 stores in Japan From Group Founded What's changed? Status Business Model Global Earning Distributed Brand Briefing of UNIQLO as the No.1 in Japan and ZARA as the No.1 in the world Share in Domestic market Share of overseas market 5.5 % of JPY 11,243B （ 2012,JAPAN ） 10% of JPY 3,035 B （ 2012, SPAIN ） 80% （ Jan 2014 ） 27% （ Aug 2013 ） 1,299 stores in 14 countries 853 stores in Japan

8. Target Market 4 High quality basic with the lowest price in the market Half price of e ntry level product of department store BASIC and INNER WEAR FOR EVERYONE TRENDY FASHION and FASHION BASIC FOR WORKING WOMAN f rom weekday, weekend , and party UNI QLO INNER WEAR (NEW TIER) BASIC Fashion basic Trendy Fashion Concept TRENDY FASHION Basic FASHION BASIC ZARA

9. Consumer’s expectations 4 The timeless basic The latest trendy fashion M echanism STREET STYLE coordi -nation MEDIA THE LATEST TRENDY STYLE INPUT INPUT OUTPUT COLLECTION r unway trends INPUT HOT CONTENTS BASIC Separates QUALITY IMPROVEMENT IMPROVED BASIC INPUT INPUT OUTPUT

10. Promises to consumers 5 Improve product quality every year R elease the latest trendy fashion twice a week 6 months Traditional fashion business Designer Sell what designer wants Manufacture Stores Consumers 3 weeks Manufacture ZARA Consumer Stores Designers Manufacture what consumers wants lead time response time

11. Consumer behavior in store 5 Quick cash-out at “warehouse” 　 Impulse shopping on a whim at “closet” 　 visit with practical idea go straight to the corner find the shelf easily try quick cash out Don’t be short of inventory 　 compare and pick customers favorite product , color , size quickly Don’t make customers tired 　 check seasonal items on the rack try 3-6 pieces purchase 2-3 pieces among them visit to get new inspiration go to favorite zone find favorite theme color s approach the collections browse collections touch fashion basic on the table ♪

12. Pricing strategies: simple pricing Focus on a single or very limited “price-point” per each item item UNIQLO ZARA DEPARTMENT STORE PRICE RANGE PRICE POINT 　　　 PRICE RANGE PRICE POINT PRICE of ENTRY level products LOWEST HIGHEST LOWEST HIGHEST JACKET 3,990 5,990 5,990 6,990 17,990 9,990 21,389 BLOUSE 1,990 4,990 1,990 4,990 9,990 5,990 12,852 KNITWEAR 1,990 7,990 2,990 1,990 23,900 5,990 12,852 ONEPIECE 1,990 6,990 1,990 5,990 13,900 7,990 16,740 LONG PANTS 1,990 3,990 2,990 3,990 9,990 5,990 13,500 SKIRT 1,990 3,990 1,990 3,990 13,990 5,990 13,000 JEANS 2,990 3,990 3,990 4,990 7,990 5,990 14,580 PRICE RANGE and PRICE POINT of woman’s clothing Uniqlo : High quality with the lowest in the market ZARA: Half price of entry level product of department store Z 6

13. Promotion 7 4.6% of marketing cost. Invest into all marketing methods. Mainly 　 PAPER INSERT MEDIA （ FLYERS ） every Friday. Less than 0.3% of marketing cost. LANDMARK LOCATION, beautiful store, release NEW PRODUCTS TWICE a week. Prefers to “word of mouth” PUSH o r PULL? PULL Marketing PUSH Marketing Clock-worked operation without fail becomes the best promotion

14. The Founders Tadashi Yanai Good at “ learning.” Aims to conquer No.1 position in the world. " Changing clothes. Changing conventional wisdom. Changing the world . " Stores exist for customers, thrive with shop staff, but go bankrupt by store owner. Amancio Ortega Good at “ listening.” Listens to the consumer demands carefully through the own stores and feedback to the consumers quickly .” “To have every woman in the world to dress well.” Design, manufacture, and distribute accurately and quickly. You need to have five fingers touching the factory and five touching the customer. Name Personality Motto What he likes Famous Words The Faith of the founders as entrepreneurs 8

15. Manufacturer Consumers Traditional Wholesalers Fabric supplier Stores Consumers Manufacturer Own stores Design Fabric supplier Internal management New model BEFORE AFTER Design Vertical integrated manufacturing and distribution model (SPA) 9 SPA : Specialty store of Private label Apparel

16. S tores Consumers Manufacturer Design Manufacturer SPA Consumers Design Manufacturer Own stores How they approached to the model ? the vertical integrated manufacturing & distribution model 9 SPA : Specialty store of Private label Apparel Manufacturer Retailer Manufacturer Consumers Retailer Design wholesalers Fabric supplier Own stores Consumers Manufacturer Own stores Design Fabric supplier Internal management SPA BEFORE AFTER Outsourcing vs In-house

17. Expansion 10 WIDTH How to expand DEPTH DEPTH WIDTH “BASIC” market is big enough in a single country. Hits key markets dominantly (Japan, China, Korea etc ) by manufacturing in low cost countries. “TRENDY FASHION” market for working woman is limited. Sells around the world (88 countries in 2014) while manufacturing in proximity to Spain(HQ)

18. Logistics strategies 1 What they promise to customers 11 　　 　 New products twice a week Basic products always in stock Consumer’s expectation Don’t be short of inventory 　 Don’t make customers tired 　 Consumers expect UNIQLO carry seasonal basic products anytime . Consumers expect ZARA always carry the latest trendy fashion. Release new products every Mon. and Fri. without fail . Stock plenty inventory at the local warehouses . Replenish the stores everyday.

19. Logistics strategies 2 Nature of the products 11 　　 　 Trendy fashion Basic products Nature of the products Harsh Competition of Quality/Price 　 balance Short self-life, while f ashion trend changes frequently Volume to manufacture h igh quality in low cost The cost control t hroughout supply chain are the principles Flexibilities and Speed are m ore important than low cost. Don’t miss the chance to sell. Leftovers lose the profit.

20. Logistics strategies 3 Key to success 11 　　 　 SPEED LOW COST How to distribute 2020 年、ファーストリテイリング はグループ年商 5 兆円、 2017 年年商 2 兆 5000 億円を目標として いる 目標が達成できたら世界アパレル専門店ランキングはどうなるか？ 年平均 22 ％の成長 UNIQLO brings all products in pre-assorted BOXES unit from factories to stores . Such BOXES are not unpacked at all during transportation. ZARA centralizes all products in Spain, then delivers from the warehouses to the stores worldwide within 48hours. No local warehouse outside Spain. consumers stores pre-assorted manufacture New items arrive at stores worldwide twice weekly

21. from ZARAGOZA 11 Z

22. Bottleneck of fashion business 12 Shelf life for a single season is just 8 weeks or less. More than 6-month-forecast is required in advance. Long term forecast, short shelf life S pring Summer Fall Winter More than 6 months preparation 8 weeks

23. Bottleneck of fashion business 12 Consumer demand and market trend tend to change in a season. Good sellers will be sold out soon , while slow sellers have a lot of leftover stock. Most traditional fashion companies have to sell all the merchandise with a huge discount during bargain sales at the end of the season . It's hard to control hit rates and the leftover. T he final profit is volatile every season. Fashion business is all about controlling shelf life of seasonal merchandise. 23 © 2015 Demand Works Inc. All Rights Reserved.

24. How they changed the game? 13 Sell all the products manufactured by PRICE CONTROL through out the season Manufacture SMALL BATCH and RESPONSE QUICKLY to what consumers want Consumers Manufacturer Own stores D esign Fabric supplier Control subcontractor Manufacturer ZARA Consumer Stores Designers 3 weeks Controls (stop and go) supply chain WEEKLY UNIQLO Manufactures what consumers want In-house response time

25. Initial retail price, Discount, and Average Gross Profit 14 Traditional retailer model Initial retail price Average Initial Gross margin 70 ％ Manufacturing cost 30 ％ COGS 45 ％ Ave. G ross margin 55 ％ D iscount 3 5 ％ 27 © 2015 Demand Works Inc. All Rights Reserved.

26. Initial retail price, Discount , and Average Gross Profit 14 Traditional retailer model Initial retail price Average Initial Gross margin 70 ％ Manufacturing cost 30 ％ COGS 45 ％ Ave. Gross margin 55 ％ Discount 35 ％ UNIQLO Initial retail price Average Initial Gross margin 60 ％ Manufacturing cost 4 ％ COGS 50 ％ Ave. Gross margin 50 ％ Discount 25 ％ 26 Mark down rate stays 10 pts lower than industry standard. U © 2015 Demand Works Inc. All Rights Reserved.

27. Initial retail price, Discount, and Average Gross Profit 14 ZARA （ Indetex ） Initial retail price Average Initial Gross margin 64 ％ manufacturing cost 36 ％ COGS 40 ％ Ave. Gross margin 60 ％ Traditional retailer model Initial retail price Average Initial Gross margin 70 ％ Manufacturing cost 30 ％ COGS 45 ％ Ave. Gross margin 55 ％ discount 35 ％ discount 10 ％ Z Mark down rate is much lower than traditional retail model: 10% vs. 35%. 29 © 2015 Demand Works Inc. All Rights Reserved.

28. Less Discount range generates Profit 14 UNIQLO control s the sales volume by the frequent price adjustment. ZARA keeps   their inventory   level always very low, so that not to discount a lot. They replenish the goods frequently and quickly even when the additional cost required to create an amount corresponding to sell. Result: lower price reduction than the traditional retail model, higher profitability. Consumers enjoy reasonable price with better quality, too. ZARA （ Inditex ） Initial retail price Average Initila Gross margin 64 ％ Manufacturing cost 36 ％ COGS 40 ％ Gross margin 60 ％ Discount 10 ％ Traditional model Initial retail price Average Initial Gross margin 70 ％ Manufacturing cost 30 ％ COGS 45 ％ Gross margin 55 ％ Discount 35 ％ UNIQLO Initial retail price Average Initila Gross margin 60 ％ Manufacturing cost 4 ％ COGS 50 ％ Gross margin 50 ％ Discount 25 ％ U Z

29. Potential for further global expansion 15 The key to success is the emerging working woman and passion for promotion in new market Continue sustainable 10% growth per year since 2005 . 　 Established their own platforms to manufacture the products in proximity and dispatch to stores worldwide within 48hours The company knows not low cost, but flexible and quick response generates profit. The key to success is the emerging middle class and demands for quality in developing countries. Planning high growth more than 20% per year. Huge opportunities in Asian countries including China, India. Harsh competitions in the mature countries like US, EU, UK where strong competitors exist already. Low labor cost manufacturing, distribution to emerging countries type of business model will last?

30. Key lessons from UNIQLO and ZARA 15 Flexibility Design and manufacture flexibly according to consumer demand in season Operation to invite Frequent Shoppers Accessible store location Reasonable price of trendy fashion New products twice a week Investment into SPEED IN HOUSE policy (from Design to Logistic) realize sustainable small batch manufacturing and quick delivery. Focus Basic products, Price Point , Quality to win in the competitive market Precise Inventory Control Manufacturing to take longer time to improve quality. While, tight weekly management of sales target and inventory control in season. Delegation to Store Managers Not to miss the daily sales opportunities, store managers are educated and delegated to manage the store promotion and store inventory control.

31. Competition in Asia 15 Total # of stores of Uniqlo, ZARA and Inditex in 2014. UNIQLO UNIQLO UNIQLO UNIQLO INDITEX INDITEX INDITEX Asia Indonesia Philippines Taiwan India Thailand Malaysia Singapore China (PRC) (incl. Hong Kong ) Korea Japan Uniqlo 47 INDITEX 9 ZARA 6 Uniqlo 16 INDITEX 15 ZARA 7 Uniqlo 46 INDITEX 13 ZARA 4 Uniqlo 22 INDITEX 20 ZARA 10 Uniqlo 22 INDITEX 20 ZARA 9 Uniqlo 23 INDITEX 19 ZARA 8 INDITEX 15 ZARA 15 Uniqlo 1449 777 ZARA 3 52 112 855 ZARA 3 52 133 49 40 456 333 152 ZARA INDITEX

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