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Japan's UNIQLO plans to take over the world (of retailing)

Jeff Macke
Daily Ticker

There's a spot test for the health of a retail chain in 2014. All you have to do is find a top executive and ask him about macroeconomics, mall traffic and the weather. If his answer takes less than 10 seconds buy shares of his company.

Case in point: UNIQLO USA CEO Larry Meyer. In an era of retailers obsessed with economic growth, Meyer has almost nothing to say on the topic. As I toured UNIQLO’s flagship store in midtown Manhattan with Meyer, he was refreshingly obsessed with every aspect of his business except all the macro “headwinds” merchants have been complaining about for the last 12 months.

Like all good salesmen, Meyer sees opportunity where others see problems. “There’s always change in retail regardless of whether the economy is going up or the economy is going down. I believe in the quality of our offering and I believe the U.S. consumer will come to love it.”

It's an attitude that starts at the top of UNIQLO, the growth arm of Japan’s Fast Retailing. Run by Tadashi Yanai, Fast is 100% concentrated on expansion around the world. Though it still does more than two-thirds of its business in Japan, UNIQLO recently announced plans to expand its U.S. footprint by a minimum of 20 stores a year.

Basics in Every Color

UNIQLO is trying to become the biggest specialty retailer in the world by 2020 by selling basic goods with a slight fashion tweak. The company uses deep relationships with textile suppliers to keep costs down on product sourcing then tweaks fashions on the edges. That means a limited number of category choices but outrageous depth within those offerings.

Related: The U.S. should encourage more manufacturing here at home: New Balance CEO

As an example consider the men’s sock. Nordstrom (JWN) carries socks that range from hand-washable blended fabric for over $50 a pair to ankle-length sports socks. The Gap (GPS) offers crew and thin dress socks in traditional grey, brown or navy and sold in 3-packs for $18.

UNIQLO carries a few different styles but focuses on a Supima cotton, mid-length sock that it sells in a pack of 4 for $12.95. That sounds boring until you realize you can choose from 50 different colors.

UNIQLO's business model for socks is part of the same mold as the rest of the company. The stores are neatly but tightly packed with endless permutations of the same basic items in different sizes and colors.

It’s all about fabrics and colors. Once the company gets customers to buy into the quality premise there’s no reason for them to shop anywhere else.

Bidding war for front-line retail talent

The key for the company will be execution. All those colors look great in Manhattan but basics is a business that can go off the rails fast without the proper maintenance. That means Meyer and UNIQLO are going to need to start hunting for talent to fold, arrange and protect the company’s image.

Meyer tells me UNIQLO is looking to recruit workers into retail careers as opposed to just jobs. UNIQLO has low prices but what will distinguish it from the pack is the story of its quality fabrics and fresh stores. That requires associates able to sell product benefits while maintaining store displays.

With 2,000 US locations corporation-wide and just under $16 billion in revenues, Gap is next up on Fast Retailing’s hit-list as the company expands in America. Earlier this year Gap announced that it was going to start phasing in higher wages for its workers as part of an effort to improve the customer experience. By 2015 Gap said its starting wage in stores will be $10 an hour, well above the national minimum wage of $7.25.

Related: Gap raises its minimum wage, Walmart waits for D.C.

Gap employs 136,000 people worldwide, the majority of whom live in America. UNIQLO is not only competing for talent with the Gap; Sweden’s $22.9 billion H&M and Spain’s $22.4 billion Fast Fashion juggernaut Inditex are veritable rivals. None of these foreign newcomers have a big presence in the states yet but that’s changing fast.

Related: These two women are out to destroy H&M's business model

Meyer thinks UNIQLO is up to the challenge and the retailer better be. After years of lagging sales and whining about the weather, the U.S. retail store climate is about to heat up in a hurry.

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