Uniqlo to boost prices as Japan battles deflation

Once the face of deflation, Uniqlo, the low-cost clothing retailer, has now positioned itself at the forefront of Japan's battle to contain a slide in prices.

Fast Retailing, the operator of Uniqlo stores, said Thursday it will raise prices for one-fifth of its autumn and winter products by an average 10 per cent, following an unprecedented 5 per cent across-the-board increase last year. It blamed the country's weaker currency, which pushes up the prices of raw materials bought overseas, and rising labour costs in China.

The move is also backed by confidence that higher prices will not drive away its consumers.

Fast Retailing also raised its annual operating profit forecast by 11 per cent to Y200bn ($1.7bn), which would be an all-time high. It also raised its sales projection from Y1.6tn to Y1.65tn for the fiscal year through August, citing strong sales in China, Taiwan and South Korea.

Uniqlo's bullish outlook comes as Japan is on the brink of falling back into deflation with price rises stuck at zero because of sliding oil prices and subdued demand. Household spending has also not fully recovered after last year's imposition of a 3 percentage point rise in Japan's national sales tax.

Fast Retailing's action may give the Bank of Japan a much-needed boost as it battles to keep expectations in line with its 2 per cent inflation objective.

Tadashi Yanai, chief executive of Fast Retailing, admitted the price hike is "bad news" for consumers but he said the move was needed to ensure high quality in the wake of rising prices of materials such as merino wool and cashmere.

"We don't want to compromise on quality even as the dollar moves from Y80 to Y120. Considering the currency rate, it's inevitable that we take this action," Mr Yanai said.

Now Asia's largest retailer and rival to Inditex and Gap, Mr Yanai is confident Uniqlo can thrive regardless of whether the Japanese economy is in deflation or not. "We didn't create or lead deflation," he said.

Much of Fast Retailing's growth will be driven by overseas sales, which generate 36 per cent of its total revenue. In five years, the company will aim to increase the number of stores in China, Taiwan and Hong Kong to 1,000 from the 415 currently open.

Fast Retailing, which accounts for nearly a tenth of Tokyo's benchmark Nikkei 225 average, posted net income of Y35.9bn last quarter, up 58 per cent from the same period a year ago. Operating profit in the three months through February rose to Y58.7bn, versus forecasts at Y43.1bn.

The company was slightly cautious about its outlook for the fiscal second half, saying it expects losses from its US business to expand and cost pressures from the weaker yen to hit its domestic operations.

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