How realistic is Fast Retailing's 2020 goal?

There is no doubt that Fast Retailing is rapidly growing and expanding, largely due in part to the increasing demand for its top brand Uniqlo. The Japanese fashion conglomerate had a cool market value of 16.2 billion US dollars in 2010, when it first entered FashionUnited's Top 100 Index, which has grown 2.5 times in five years time to just under 40 billion US dollars.

As the company continues to grow, so did its ambitions, with Fast Retailing’s Chief Executive Officer Tadashi Yanai setting the business quite a goal in 2011: to become the world's largest fashion company, raking in a 5 trillion yen (close to 41.7 billion US dollars) by 2020. Although Fast Retailing has indeed increasingly been on the fashion scene’s radar, how realistic is this goal for the company? After being hit with a market slowdown in the US, which resulted in a losses of 135 million US dollars during fiscal year 2015, how attainable remains the company's earnest goal? FashionUnited takes a closer look.

Will Fast Retailing be able to achieve its big 2020 goal?

Although Uniqlo may not have been an overnight success in the US (and still has a ways to go), in its hometown Japan, the company has managed to develop a winning retailer concept. Uniqlo currently operates 811 directly run stores in Japan, as well as 30 franchise locations.

Back in 2013, Uniqlo ran 834 stores and 19 franchise locations, but Fast-Retailing made the conscious decision to implement a new store format which lead to larger, but ultimately less self-owned stores. A clever move, as Uniqlo's 834 stores generated 5.3 billion US dollars in sales in 2013, but it's 811 stores in Japan have brought in 6 billion US dollars in sales in 2015. This means that the average sales per store increased from 6.4 million US dollars in 2013 to 7.3 million US dollars per store in 2015.

Even though Uniqlo Japan sales have been increasing over the past year, fears of home market saturation has led Fast Retailing to set its sights set on international expansion. A smart move, as Uniqlo International is currently the strongest segment for growth among Fast Retailing’s three business divisions (Uniqlo Japan, Uniqlo International, Global Brands), as well as the key driver of the company's exponential growth for the fiscal year 2015. Therefore Fast Retailing has plans to open more stores internationally for Uniqlo than in Japan, starting next year.

2015: a total of 1,639 Uniqlo stores - 841 in Japan and 798 Internationally
2016: a total of 1,804 Uniqlo stores - 846 in Japan and 958 Internationally
2020: a total of 2,669 Uniqlo stores - 866 in Japan and 1,803 Internationally

Overall Fast Retailing expects all three of its business segments to deliver 'new record' performanced in 2016, but will it be enough to help the conglomerate achieve it 2020 target?

In 2015 Fast Retailing reported revenues of 1.6 trillion yen (13.8 billion US dollars) and the company expects this amount to reach 1.9 trillion yen (15.6 billion US dollars) in 2016. Back in 2010, Fast Retailing reported sales of 6.8 billion US dollars - 85 percent of which were directly from its Uniqlo label. For its financial year 2015 the company's total sales where 13.8 billion US dollars, an impressive 206.4 percent increase from its 2010 sales.

Therefore, based on Fast Retailing multiplier of the total sales, the Japanese fashion conglomerate would have an approximate revenue of 28.5 billion US dollars (3.4 trillion yen) by 2020. However, due to the company's exponential growth, minus its loss outside of the US, this expectation is far lower than its 5 trillion yen goal for 2020 and therefore sits at the lower end of FashionUnited's forecast for Fast-Retailing's 2020 revenue.

How likely is Fast Retailing to reach 5 trillion yen by 2020?​ UNIQLO-Institute-for-Global-Student-Success.jpg

But if FashionUnited studies Fast Retailing average divisional growth over the past five years, which includes all three business divisions, the company's total growth will develop exponentially between 12.2 percent and 24.9 percent in 2016 to between 16.8 percent and 39.8 percent in 2020.

This suggests that the company's 2020 sales may lie between 27 billion US dollars (3.2 trillion yen) and 56 billion US dollars (6.8 trillion yen). Therefore the average expected revenue of Fast Retailing will be 37 billion US dollars (4.5 trillion yen) by 2020, of which 32 billion US dollars (3.9 trillion yen) will come directly from Uniqlo's stores - which means Fast Retailing will be just 0.5 trillion yen short of its goal.

These calculations show that Fast Retailing goal of hitting 5 trillion yen in sales by 2020 is a bit optimistic, although there is still a fair chance that the fashion conglomerate may reach its goal. “It is an ambitious goal and we realise this,” said Takao Kuwahara, COO of Uniqlo Europe to FashionUnited NL at the opening of the retailer’s debut store in Belgium earlier this fall. Ambitious indeed.

If the international sales of Uniqlo continue growing and the company is able to maintain its average growth rate of 153 percent over the next five years, then the chance of reaching its 2020 target is one step closer.

This is the sixth episode of a new series based on FashionUnited's unique business intelligence Top 100 Index. Stay tuned next week's episode on October 30th, which focuses on TJX Companies.