Fast Retailing’s move on Barneys: What sort of precedent will be set?

July 17, 2007
By Ken Worsley

Although Fast Retailing’s 110 billion yen proposed buyout of Barneys New York is still some ways from being approved, that hasn’t stopped a rash of speculation concerning whether or not the move would be good for the parent company of Uniqlo.

We’ve long held that Japanese firms, and especially retailers, will need to move into overseas markets in order to survive, as the potential market in Japan continues to shrink. Uniqlo hardly seems excited about the prospect of selling clothes for elderly people, yet they comprise some 25% of Japan’s population. If that market segment is to be ignored at home, moving abroad seems the only solution for firms such as Fast Retailing and brands such as Uniqlo.

However, Uniqlo’s move into the New York market looks stunted at best. There is still little brand recognition amongst Americans, and opening a single large ‘flagship’ shop in New York City hardly seems as effective as the tried-and-true move into the American mall retail space.

Why might the acquisition of Barneys be good for Uniqlo? A former executive at Isetan, which used to have a partnership with Barneys, gives a hint: “Through the partnership, we were able to increase Isetan’s name recognition among U.S. and European fashion companies and major retailers.”

This, of course, would be exactly the shot in the arm that Fast Retailing needs for it’s US-based Uniqlo operations.

Yet, the name “Fast Retailing” won’t fly with US luxury brand shoppers, so it might have to be kept in the background. Uniqlo’s image hardly seems like a good match, either.

Leave such issues to the marketing/branding people, who either work miracles or turds, often sculpting them from the same raw material. The real issue might be operations, where Fast Retailing would have to learn fast or die hard when it comes to operating a department store rather than a streamlined supply chain. They most likely can do it, but there is little margin for error, and lots of risk.

The big question for Fast Retailing is whether or not they will be able to prevent key personnel from leaving in the event of a buyout. Those with the talent to hop somewhere else may perceive a sale of the company as a vote of no-confidence by the existing management, and we wonder about Fast Retailing’s ability to calm the fears. Granted, they’ve done good things with their workforce in Japan, switching thousands of part-time contract workers to full-time status, recognizing the benefits for the company when workers feel more secure. Let’s see how this translates to HR abroad. Let’s see if they get the chance.

Filed Under Japan