Many businesses exist and flourish because they are successful in satisfying a need in the market. These needs are determined by the consumers who are considered an important component of any business endeavour. The primary reason for a business existence is to continue identifying consumer needs and then come up with tangible responses to address these needs. This requirement makes business companies spend a considerable amount of effort and intellect in analysing the behaviour of the consumers in order to effectively formulate appropriate marketing strategies that would assist the firm in effective production and delivery. Smart, D. T., & Martin, C. L. (1992) argued that the study of consumers makes companies and organisations recognise and internalise consumer issues that would help strengthen their marketing strategies. In this paper several issues are discussed pertaining to fashion and clothing products and services offered by UNIQLO in Hong Kong.

UNIQLO Co., Ltd. was originated in Japan. The company’s business line is about clothing and fashion. But basically, the company is one of the leading clothing and fashion business in Japan that design, manufacture and retail casual wears. Initially, UNIQLO Co., Ltd. was only a division of Fast Retailing Co., Ltd. but by November 1, 2005, UNIQLO Co., Ltd. come into the picture through corporate restructuring and currently existing as a 100% consolidated subsidiary of Fast Retailing. UNIQLO was now listed at the Tokyo Stock Exchange.

In Japan, UNIQLO is the leading clothing retail chain in terms of both sales and profits. And as of 2010, the company are also operating in Hong Kong, China, United Kingdom, South Korea, France, Singapore and United States. UNIQLO formed the idea of blending of ‘unique’ and ‘clothing’ as an symbol of originality and uniqueness of the apparel industry in Japan. UNIQLO offers fashionable and high quality clothing at reasonable prices, and was seized as an opportunity to establish a brand position domestically and internationally, combining all the facets of the business from product design to final sales and the operation of the 790 stores around the globe. Primarily offing for a highly brand conscious consumer group, UNIQLO envisions itself as a leading global casual wear company targeting high sales and profitability growth. For UNIQLO, such aim could materialise based on the established strategies such as low cost management, cheapest manufacture and marketing schedules and prioritising customer requirements.

Nowadays, UNIQLO is described as the apparel giant Gap, Inc.’s counterpart based on the 4, 000% share price increase, making UNIQLO as Japan’s third largest clothing retailer. However, it is not always victory for UNIQLO; the subsidiary also has its own share of downturns especially on its international expansion. For instance, expansion programmes in the United Kingdom (UK) saw a tumultuous stumble in profits, forcing Fast Retailing to shut down 16 of the 21 UNIQLO stores opened, because of competition. Most recently, three UNIQLO stores in New Jersey were also closed because of economic slumps. Despite these facts, UNIQLO maintains the spirit and still believed that the brand has only but way forward. How UNIQLO will going to do such is central to this paper, focusing on the company’s strategic management. External, industry and competitor analysis as well as the internal environment will be addressed.

In fashion and clothing business in Hong Kong, the products and services offered by retailers that have strong brands are flourishing because they are easier to remember or they are already popular and are known for the quality. Companies like UNIQLO, H&M, and Giordano are giving their best to build their brand name or brand identities because it helps consumers easily identify the product as well as acquire a rich set of symbols and meanings embodied by products. For successfully developed and managed brand names, the connections that patrons make with the brand name creates value, or brand equity, that can be a highly valued asset to the firm that develops the brand (Meyers-Levy, Louie, & Curren, 1994).

Chapter 2. Literature Review

Environmental Analysis (PESTEL)

Ø Political Analysis –

In the context of UNOQLO, political factors have direct effect on business conducts and operations. Decisions made by the affects the decision-making of retailers and could come in the form of policy or legislation. In Hong Kong, the ‘one country, two systems’ is the prevalent governance philosophy which endows the special administrative region with a high degree of autonomy and its capitalist economic system. Within a capitalistic and free market-oriented economy, retail companies make the majority of microeconomic decisions but they have to conform to specific agreements. Mainland and HK Closer Partnership Economic Arrangement (CEPA) and the US-China Textile Memorandum of Understanding are two examples of this. The former provides UNIQLO with a tariff-free treatment, stating that products which have no existing CEPA rules of origin will enjoy tariff-free treatment upon applications by local manufacturers. The latter could provide UNIQLO with an opportunity for an annual growth of 8-17% in 21 categories of Chinese textiles and clothing exports to the US. Labor and customary regulations as well as code of conducts are also complied into including China Social Compliance 9000 and US and EU quotas (RSCA 2006; Doshi 2006).

Ø Economic Analysis –

Domestically and globally, businesses are also being affected by economic factors whereby a strong economy indicates positive results and weak economy signifies the opposite, affecting both businesses and consumers. Hong Kong’s gross domestic product is estimated at US$206.7bn with the service sector that contributes 90% of the total GDP. The region is also named as the world’s eleventh largest trading entity. Almost 50% of the total population is employed full-time and the unemployment rate has a continuous average decline by 4.1%, making disposition of income a possibility, a lower cost of living that is (Monthly Digest 2008). Spending is generally devoted for food, housing, healthcare, transportation, amusement, services and apparel. People nowadays are very particular with ‘investing in quality’ clothing thereby resume spending with premium apparel finds (Doshi 2006). Realising this, the price and quality characteristics of UNIQLO has a strategic fit; UNIQLO makes people look fashionable and confident in world-class clothes at a reasonable price through the company-wide integration of the Specialty Store Retailer of Private Label Apparel (SPA) model, a low-cost but effective operation model.

Ø Social Analysis –

Demography or the population characteristics may determine buying patterns and that understanding demographic changes within a particular region or place facilitates determining whether products and services would appeal to customers as well as the number of potential customers (Barney and Hesterly 2006, p. 35). Hong Kong has a total of 6, 985, 300 population based on 2008 estimate and is continuously growing due to immigrant influx from Mainland. According to Doshi, people in HK and elsewhere have a growing interest in private labels. Consumers aspired for having private levels on everyday garments. Casual wear from HK which is known for good design and quality has a positive image on global consumers. Nevertheless, international brands are concentrated in high-end consumers while domestic brands are for low-end consumers (Doshi, 2006). In taking advantage of the wealth of the demography, UNIQLO makes effort on providing high-quality merchandise and generating values to the society by taxes. Further, UNIQLO is a company that is committed in creating positive reputation as manifested in its vision and mission, styles of management, ways of doing business and requirements to employees.

Ø Technological Analysis –

Technological innovations are a priority for the apparel retailing industry but it will remain as labor intensive as it is today. Boosting the industry’s productivity, increased in automation has been the recent trend but it is limited on specific functions, to which mostly require human intervention such as sewing and making patterns. Although there are computerised sewing machines that increase the productivity and reduce training time. Further, the uses of computer system software intended for the industry will be on making rough sketches, printing detailed designs and storing of information for easy retrieval. The customer orientation of UNIQLO was basically construed from its website in which customers can give feedbacks by email and discussion board. Hong Kong Productivity Council made a report disclosing that the apparel industry could make sense of information technology (IT) if utilise for order processing, costing analysis, order tracking, material management, reporting and connectivity (2004).

Ø Legal –

As with any other business industry of the world, there are rules and regulations that restrict or support the facilitation of the business in the clothing and fashion market in the areas where UNIQLO operates.

Ø Environmental –

There are currently no major environmental issues faced by the UNIQLO in Hong Kong, except for the ever-present textile and silk production issue which catch environmentalists’ attention die to the fact that some of its raw materials and from the skin of rare animals.

Industry Analysis (Porter’s Five Forces)

Ø Threat of Entry –

Barney & Hesterly (2006, p. 43) point out that new entrants are the firms which have either recently begun operations or those that threaten to begin operations within an industry soon. Notably, the apparel industry is a buyer-driven industry where producers are considering buyer’s decision-making especially when brand names enter the picture. These buyer-centric industries have low barriers to entry mainly because of intense competition. Utilising brands as a market power source; however, this is a challenge for every clothing company. In the clothing business, mass customisation has seen to be the most effective strategy. Putting strategises into action remains to be in resilience today (Culpan 2002). Therefore, the focus must be on minimising the costs without sacrificing quality and to do this, managerial know how is a must in order to understand interactions with suppliers and consumers, to facilitate creativity and innovation and to maintain mobility in adapting to new market demands (Kincade, Regan and Gibson 2007).

Building brand awareness and consumer loyalty is a costly endeavor since it involves advertising needed not only to promote the brand but also on sustaining awareness and loyalty. Strengthening brand names also requires that there are ‘quick response’ programs to increase revenues and manage risks. One of UNIQLO’s major resources is its brand name, which is now synonymous with comfortable, high quality and cheap clothing merchandises. Although brand awareness outside the home country is a challenge, it is of intangible value to UNIQLO as a business asset. Brands are valuable and rare and reputable brands are acquired through the impressions one has of the company, and its products or services. Since a brand name is built overtime it becomes costly to imitate thereby providing a sustainable competitive advantage in the apparel industry (Groucutt, Lydley and Forsyth 2004, p. 285).

Ø Threat of Rivalry –

Either in home or host countries, apparels, accessories and merchandise will always have a competitor which usually fluctuates in size. The modern market trends for the apparel industry are globalisation and intensified competition, increasing price and lower profit margin pressures, small quantity with high complexity orders, shorter lead times, multiple location operation, changing customer requirements and liberalisation on textile and clothing quota that creates new market dynamics. Being responsive to these market trends shifts the focus of the apparel industry for more extensive product development and improvements at the least possible cost. Such condition forces companies to divert on product differentiation because of high switching cost. In an industry where products are deemed to be ‘equal’, the key sources of differentiation are brand image, reputation and prior existence (Byoungho 2004b). For UNIQLO, the products themselves are an important source of competitive edge. UNIQLO strives at developing products of high quality, in various collections to enable the company to reach the highest possible number of customers. As such, the rivals would be endangered when it comes to introducing innovative products. UNIQLO is positioned in the fashion capitals of the world for the purpose of taking advantage of the new information about fashion trends. UNIQLO’s ability to quickly adapt to trends and new markets has helped them develop product differentiation, something that is key to the company’s success in the apparel industry. According to Tokle (1990), product differentiation is what separates the top competitors from the rest, but it something that is not costly to imitate. This is why their product differentiation is only a temporary competitive advantage. Competitive advantage could be achieved once the organisation learns to manage its capabilities that the end consumers could appreciate and competitors would find difficulties imitating (Porter 1985; Roney 2004).

Ø Threat of Substitutes –

Casual wear is very particular with loose-fit, comfortable and relaxed fit. Athletic or active wear was perceived to be the closest substitute to casual wear as manifested by the booming athletic wear industry. Typically worn as casual fashion clothing, active attires could provide deterrence in the industry. Moreover, the blurring demarcation on the casual clothing family could be also seen as an opportunity for substitutes. Specialised stores offer semi-casual, smart casual and business casual lines. Semi-casual clothes are less presentational than informal but are not as loose as casual dresses. Smart casual purports conservative looks but with harmony on colors, fabrics, shoes and accessories. Business casual, on the other hand, varies in definition but the common element is the collar. Realising this, the bottomline now is the price. Moreover, based on the SPA business model, all the necessary functions at UNIQLO falls under a single umbrella especially the inbound logistics and the production. UNIQLO is an example of a cut-make-trim company in which in which the company purchase the fabric and retain ownership of the raw materials and work-in-process, and so making it hard for rivals to imitate or produce substitutes for UNQILO brands.

Ø Threat of Suppliers –

The prices and availability of commonly used fabrics such as cotton, blends, synthetics and wools might fluctuate significantly due to its dependence on demand, crop yields, weather, supply conditions, transportation costs, government regulations and economic condition among others (Byoungho 2004a). Quota is the major factor that affects the demand and supply of textile and fabrics. Even though the sale of raw materials is standardised, independent contractors, raw material suppliers, importers and apparel manufacturing firms could not isolate themselves from such scenario because of the prospective unsteadiness in the supply chain (Chetty 1999). As well, because of forward vertical integration, coupled with the low barrier to entry, suppliers could easily become rivals. In becoming threat of entry, suppliers could be also become a competitor to already established apparel manufacturers. In addition, contractors is also one of the threats when the demand of the labor increases, it will cause labor costs price inflation. Laszlo (2008) stress that there are five main parts of the apparel value chain including raw material supply, provision of components; production networks; export channels and marketing networks at the retail level. Through the process, UNIQLO has an ownership on production and thereby a complete control on the supplies procurement. UNIQLO insources its production and handles the majority of the operational details. Sourcing is a go-to in the apparel industry but it is not rare although it can add value to UNIQLO.

Ø Threat of Buyers –

Reaching more and diverse consuming group, the apparel industry is both a stable and unstable industry. Stable because quality price and quality products are the main element and unstable because there are many factors that affect both price and quality. In the point of consumption, for instance, there are ‘middle men’ such as the retail stores that offer an array of brands. In purchasing manufactured apparel, retail stores could have influence on making significant requirements and demands on their purchase, affecting prices. Though quality is inherent, prices would not be reasonable at all, and alternative clothing is readily available. This explains why apparel manufacturing companies are setting up their own stand along stores which will cater to their own produce. Important is that apparel stores must not fall dependent on s specific class of customer. Buyers are increasingly appearing to prefer above standard apparel with a much lower cost, making apparel less differentiated. When selling directly to consumers, buyers would incur a significant portion of their dispensable cash. Same goes with retail store, they purchase apparel at the least possible final cost, but adds up to prices of apparel. UNIQLO is involve in selling to the customers through specialty store marketing, with a minimalist strategy of ‘pile ’em high, sell’ em cheap’ concept that is. In addition, the unbranded fashion or the no-logo concept was perceived to be the main reasons for people’s warm attention (Williamson 2007; Parrish, Cassill and Oxenham 2006).

Competitors Analysis

a) Local Competitor: Giordano

According to company’s website, Giordano was established in 1981 as one of the most well-known and established apparel retailers in the Asia Pacific region. The company employs 11,000 staff with over 1,700 shops operating in 30 territories worldwide. The company’s vision aimed to be the best and the biggest world brand in apparel retailing with a remarkable mission i.e. “To make people feel good & look great”.

From the company’s website, they are stating that Giordano is committed to being a successful and responsible corporate citizen. Meaning, they are committed not only to delivering quality products and service to their customers and strong and sustained financial performance to their shareholders, but that are also committed in creating a positive impact in the communities where they do business. The current CEO since 1996 is Peter Lau, a Canadian Chinese. Basically, Giordano is based in Bermuda and trades on the Hong Kong Stock Exchange as 709.HK.

Giordano concentrates in creating and delivering economic quality clothes such as Long Sleeve Shirts, T-Shirts, and denim jeans. On the other hand, Giordano Ladies, a sub-brand was only established in 1996. It has been instrumental to upgrading the unisex brand from a budget image to a more fashion oriented apparel retailer similar to The Gap.

b) International Competitor: H&M

It is now a widely held view that the world economy has entered a much more complex phase where individual national economies have become inextricably linked. In this new world economy, resources and markets have ceased to have the indelible national identity of the past (Jones, 2002). Restricted resources and markets that were once legally isolated have become much more accessible to enterprises that have acquired a global strategic vision. To the more visionary global enterprises, the world is but a borderless environment with homogeneous consumers who have developed an unforgiving taste for the most sophisticated and high-quality products. In response to the needs of these global consumers, the enterprises have developed global products. How such homogenised consumers are served, however, is a question of the strategic orientation of the enterprises and their ability to exploit the ever-evolving global economic environment (Jones, 2002). With this regard, H&M, a company in Sweden engaged in clothing and a leader in fashion business shows significant impact to their consumers in accordance to their brand and branding strategies.

H&M is considered as one of the world’s favourite and preferred designer of apparels and clothing for man and women. In addition, H&M is also known not only for their fashion cosmetic but because of the quality of the clothes designed durability and the funkiness of its clothes. Through the online stores, H&M provides the US, UK and European Market exclusive clothing designs. The main goal of this company is to provide innovative designs of apparels and clothes for different types of people in different countries all over the world. The company has been known because of its strategy of providing clothing designs exclusively for each country’s preferences and needs.

H&M is considered as one of the world’s favourite and preferred designer of apparels and clothing for man and women. In addition, H&M is also known not only for their fashion but because of the quality of the clothes designed durability and the funkiness of its clothes (H&M, 2009). The H&M mission, “Fashion and Quality at its best price”. In addition, their handbags, shoes and accessories are also creating big sales and positive reactions from consumers. Through the online stores, H&M provides the US, UK European Market and Asian Market exclusive clothing and even handbag designs. H&M also offers perfumes and watches. The main aim of this company is to provide fast fashion goods (haute couture, ready-to-wear, handbags, perfumery, and cosmetics among others) in different countries all over the world (H&M, 2009). The company has been known because of its strategy of providing fashion designs exclusively for each country’s preferences and needs which was positively accepted and loved by consumers.

CPM Matrix

Table 1. CPM Matrix