Has UNIQLO Lost Its Touch Amid Covid-19?

Can Fast Retailing Co (TSE: 9983) (SEHK: 6288) emerge from the Covid-19 pandemic as a stronger business? – Clothing stock China

Warren Buffett’s Berkshire Hathaway made breaking news when it disclosed new investments. The Oracle of Omaha now owns US$6 billion worth of Japan’s trading companies in order to diversify beyond the US.

The investment holdings of Buffett have increasingly played a vital role in the Japanese economy and are becoming global players.

Does this signal a long term bullish view on Japan’s companies? The move was well received in the Japanese market.

But will it give Fast Retailing Co (TSE: 9983) (SEHK: 6288) a new edge given its efforts to sustain a portfolio of global brands?

Retail conglomerate with a global vision

Fast Retailing is a Japanese retail store that is listed on the Tokyo Stock Exchange, with a secondary listing in Hong Kong (since 2014).

Its flagship brands include Uniqlo and other global brands such as GU, Theory, Comptoir des Cotonniers and J Brand.

Uniqlo enjoys sales of US$20.93 billion as of May 2020, making it the third-largest global apparel manufacturer and retailer in the world.

Life wear strategy to change the world

Fast Retailing has introduced the concept of a light, unique type of causal clothing in 2015.

Think of Lululemon Inc (NASDAQ: LULU) being hailed as the next stylish sports casual. The two brands employ a similar strategy of featuring basic clothing combined with a unique product positioning.

Revival of GU

Underpinned by Fast Retailing’s vision to change the way people dress, Ariake project’s aim to create a new digital consumer retail industry has transformed the supply chain, from design, planning to production, distribution and retail.

With the use of cloud warehouses and big data, technology has helped the company generate more accurate production, sales forecasts, and logistics data.

While the Covid-19 situation has created a headwind, the group suffered a decline of revenue by 39.4% to US$3.16 billion as of the second quarter of 2020.

The significant decline was caused by all four business segments falling short of plans due to the need to close stores.

Although Uniqlo Japan had the largest decline in both revenue and profit, the other overseas businesses (GU and other global brands) are recovering relatively faster than its competitors.

With the use of an online-to-offline (O2O) sales strategy, there was a record high in household sales, particularly in second- and third-tier cities in China.

Turning to the US and Europe, store sales contracted heavily as all stores were closed with the widespread outbreak of Covid-19.

Against this backdrop, overall performance for the quarter has not shown a sign of recovery as Theory in the US and Comptoir des Cotonniers recorded a sharp drop in sales due to a high number of Covid-19 cases.

Foolish takeaway

Fast Retailing’s performance has been hit hard during the first two quarters in 2020 although the company is starting to show a resumption in operations under the contained situation.

However, this has reflected a weakness in Fast Retailing’s business model. Although it owns popular brands such as Uniqlo, heavy competition and change of shoppers’ preferences have put the company on the backfoot.

Thus, I do not see attractive investment value in the short term amid the current volatile situation.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Edmund R doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited( 2020

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