Uniqlo and Muji expect record profits as pandemic boosts Asia online sales

Uniqlo and Muji, two of Japan’s biggest casual clothing brands, are expecting record profits for the year ahead, bucking a downturn in the global retail industry with a pandemic-driven boom in online sales across Asia. 

Fast Retailing and Ryohin Keikaku, the owners of the two brands, have been hit hard by the global shutdown in stores that has led to a spate of retail bankruptcies particularly in the US.

But the two groups are also recovering faster than global peers from the coronavirus crisis as stay-at-home consumers in Asia have turned to their affordable everyday, casual clothes. 

The key driver of the revival has been China where retail sales returned to growth for the first time in August since the outbreak of coronavirus.

For Fast Retailing, the company has also benefited from pre-pandemic efforts to strengthen its online presence and automate its warehouse operations. 

The Uniqlo owner’s revenue in China, Taiwan and Hong Kong fell 9.3 per cent in the year to the end of August. But online sales in China, which account for a quarter of the company’s revenues in the country, rose roughly 20 per cent from a year earlier during the period, while ecommerce sales jumped 70 per cent in Singapore, Malaysia, Thailand and Australia. 

“Coronavirus is a global crisis, but it was also a turning point,” Tadashi Yanai, chief executive of Fast Retailing, told a news conference on Thursday. “It was the case from before, but even more so now, the real engine of global growth is shifting to Asia.” 

Looking ahead, Asia’s largest clothing retailer said it expected net profit to increase 82 per cent from a year earlier to ¥165bn ($1.6bn) in the fiscal year ending in August 2021, topping an earlier all-time high of ¥162bn set in the 2018-19 year. The bullish forecast follows a 44 per cent decline in net profit for the year just ended.

It expects revenue to rise 9.5 per cent to ¥2.2tn as the group anticipates double-digit percentage growth in ecommerce sales in Japan and other parts of Asia led by China.

The company said the guidance was based on the premise that the pandemic will come under control by the March to August quarter.

Shares in Ryohin Keikaku have risen 11 per cent since it released guidance last Friday that far exceeded market expectations. The Muji owner has shifted its focus to its home market in Japan, China, Taiwan and Thailand after its US subsidiary filed for bankruptcy protection in July with $64m in liabilities.

Following heavy restructuring costs in the US, the group surprised investors with a projection for its operating profit to surge almost threefold to a record ¥49.2bn, compared with a market consensus of ¥31bn. It expects online Muji sales in Japan, which account for 11.5 per cent of domestic revenue, to rise 60 per cent from a year earlier.

The upbeat projections from Japanese retailers came as Swedish rival Hennes & Mauritz unveiled plans last month to close about 250 of its 5,000 stores next year and invest more in online growth. 

The world’s second-largest clothes retailer behind Inditex, the Spanish owner of Zara, has used Covid-19 to speed up changes following criticism from investors that it was slow to build up its online sales operation. 

“Both Uniqlo and Muji benefit from an increase in stay-at-home demand since they focus more on basic lifestyle wear and goods whereas Inditex and H&M are hit harder by people not going out,” said Dairo Murata, retail analyst at JPMorgan in Tokyo. 

Still, Mr Murata added that investors remained sceptical of the ambitious guidance set by Ryohin Keikaku, saying many expected the company’s recovery to take one to two years. “The company needs to establish credibility for its views and its plans,” he said.