Leading Japanese Retailer Eyes Overseas Expansion

by: Steven Towns

In today's Wall Street Journal, Amy Chozick discusses Fast Retailing Co.'s (Tokyo: 9983) overseas expansion plans in HEARD ON THE STREET: Fast Retailing Designs Aggressive Expansion.

Japan's Fast Retailing Co. controls about 15% of the domestic apparel market by volume but faces a tough challenge in that not only is the market and its business model at a saturation point, but it must contend both with a potentially declining national population and hard to please consumers.

Fast said that over the weekend it approached Giordano International, based in Hong Kong, "to discuss the possibility of a combination" of their businesses. Giordano operates or franchises about 1,500 stores in China, Taiwan, Singapore, South Korea, Japan, Australia, Germany and the Middle East. Giordano confirmed Fast's statement but said, "No offer has been made and no firm intention to make an offer has been indicated by the potential investor."

So far Fast's forays into overseas markets such as Beijing and in the U.K. have been a disaster except for the success it has achieved at its Hong Kong store, opened last September. In the past year Fast has opened 3 stores in New Jersey and will open a 36,000 sq ft flagship in Manhattan in October. Fast has earmarked 300 to 400 billion yen for acquisitions.

In Japan, Fast plans to launch a new clothing store targeted at more cost conscious consumers and families. Some analyst are questioning this move, saying convenience and low cost aren't enough to lure discerning Japanese consumers.

For its fiscal-year ending August 31st, Fast expects net income to grow 18% to 40 billion yen ($348m) on sales of 445 billion yen ($3.9b) versus 384 billion for last fiscal year.

Comment: Fast seems to be moving in a better direction now with its overseas expansion strategy. At present its brand recognition is likely limited outside of Japan so it makes sense to team-up with brands that already have a local or regional foothold such as Giordano. I would be interested in learning how its stores in New Jersey are doing. The retail sector in the U.S. has had a tough year and Fast's so-called American equivalent, The Gap (NYSE:GPS), has been hit particularly hard. In terms of investing in Fast, one would have to purchase Fast's ordinary shares (see chart below) which trade on the Tokyo Stock Exchange and closed Friday at 9,620 yen ($84.08). It's expected Fast's shares will trade lower in the near-term but may benefit over time from its expansion strategy.

Fast Retailing Co. (Tokyo: 9983) 1-year chart: