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Is Japan’s Uniqlo the Next Great American Retailer?

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The U.S. is becoming a retail wasteland. The Wall Street Journal reported last week that retailing executives fear the once-buoyant American consumer has entered a state of permanent frugality. The mall vacancy rate is at an 11-year high. With each passing month, a larger chunk of retail sales goes online. American retailers are increasingly staking their future overseas.

Uniqlo's Fifth Avenue Flagship

Somebody forgot to tell Uniqlo. The Japanese apparel retailer this week is opening a three-story, 89,000-square-foot flagship store on the corner of 5th Avenue and 53rd St. in Manhattan. The chain, which opened its first U.S. store in lower Manhattan in 2006, last year signed a $300 million, 15-year lease for the space, formerly the location of a Brooks Brothers store. It was reported to be the most expensive retail lease in New York's history.

And Uniqlo is likely coming to a mall near you in the near future. "We are looking at real estate in different cities throughout the United States, and our intention is to open stores in every major city," Shin Odake, Uniqlo's U.S. CEO tells me in the accompanying video. The company has spoken of its desire to open 200 stores in the U.S.

Taking on Gap and Zara

What does Uniqlo, which has 840 stores in Japan, see in the U.S. and that so few others do? "The U.S. is obviously an extremely important market for us, because it's the number one economy in the world," said Odake. "We'd like to grow our business to $50 billion by 2020, and in order to do that we have to gain market share in the United States." Company founder, Tadashi Yanai wants to beat out Gap and Spain's Zara as the biggest retailer in the world. Company officials have spoken of boosting U.S. sales alone to $12 billion by 2020. That means it will need to open a lot of stores — in Asia, in Europe, and in the U.S.

Uniqlo knows all about growing in a developed economy where the consumer is permanently chastened. Founded in 1984, it grew up during Japan's lost decade. "We also had an economic struggle in Japan, but during those difficult times we were able to grow," Odake said. The company is less focused on the economy's cyclicality and more "on the fact that the U.S. is the biggest market in the world."

It sure seems like an inauspicious time to enter the market. While it occupies a pride of place on 5th Avenue, a few blocks down from Bergdorf Goodman and Tiffany, hyper-luxury retailers whose sales have held up well, Uniqlo pitches its products at different customers. The clothes are affordable, but not necessarily cheap: cashmere sweaters for up to $149, a line designed by Jil Sander. For the opening there are sales on jeans for as little as $9.90. "We have great merchandise at great price. And we believe that, in large part, quality is decided by the quality of the fabric," Odake said. There's so much cashmere stacked from floor to ceiling that it makes one wonder if Uniqlo means "corner on the goat market" in Japanese. (In fact, it's an amalgam of the words "unique" and "clothing.") Uniqlo knows that people are spending money in the U.S., or at least in New York. Its SoHo store is the chain's highest grossing outlet.

Hiring 1500 People in New York Alone

Uniqlo's expansion in New York is a ray of sunshine for a battered employment market. Later this month, Uniqlo plans to open a third large store in Manhattan, about 20 blocks to the south, near Macy's. "We have hired more than 650 people for this store alone," and when the third store opens it will employ 1,500 people in the U.S., said Odake. The company regards sales associate and manager positions as careers, not as jobs. Last year, Uniqlo hired 50 U.C. college graduates in the U.S. and sent them to Japan for several months of management training.

Uniqlo expects large crowds at the multi-level store, in part because the New York locations are the only places in the U.S. where the merchandise is available. Online sales aren't particularly big in Japan, and Uniqlo doesn't offer e-commerce in the U.S. But this state of affairs won't last long. "As a brand, we want to be as ubiquitous in the U.S. as we are in Japan," said Odake. Between the advertisements in the subway, billboards, sidewalk greeters, and pop-up stores, it is certainly approaching ubiquity in Manhattan.

Uniqlo's splashy debut on 5th Avenue highlights a larger fact. Despite its woes, the U.S. is the richest, largest, and deepest consumer market in the world. New York, and the U.S. generally, are magnets for tourists and media. Establishing a major presence smack in the middle of Manhattan allows retailers to service the local market, and it gains them exposure to tens of millions of visitors. Said Odake: ""Fifth Avenue is the best shopping street in New York, and it was very important to us to have a great location here."

Daniel Gross is economics editor at Yahoo! Finance

Email him at grossdaniel11@yahoo.com; follow him on Twitter @grossdm

His most recent book is Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation

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