The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
TOKYO, Japan — In small black type, neatly packed onto clean, pocket-size white plastic cards are the "23 Management Principles" of Tadashi Yanai, Japan's richest man and the chairman, president and chief executive of Fast Retailing, parent company of Uniqlo. Today, the cards are carried by tens of thousands of his employees all over the world. But Yanai, 67, began writing the principles when he was in his 30s and the company — then called Ogōri Shōji — had not even reached 1 billion yen in annual sales.
Over the years, he has methodically added to the list, one by one. And, together, the principles reflect the underlying management philosophy that enabled the self-made entrepreneur to turn a single men's tailoring shop inherited from his father into a global casualwear giant with fiscal 2015 revenues of 1.68 trillion yen (about $15.5 billion). Yanai has called the principles the "soul" of his company. "They are the company's most important foundation, its judgment criteria and its spirit," he told professor Hirotaka Takeuchi for a 2012 Harvard Business School case on Fast Retailing. "A soul is the most precious thing we have in life. Without a soul, a company or a person is nothing more than an empty shell."
Yanai's path to success was anything but straight and his principles reflect the twists and turns of his journey. His father, Hitoshi Yanai, opened Ogōri Shōji in the industrial town of Ube, Yamaguchi, at the southern tip of Japan's Honshu Island in 1949. The business was incorporated in 1963. But as he came of age, the young Yanai had other things on his mind.
“When I was a university student, I was against the Vietnam War. You know the hippie movement? That's how I spent my youth,” Yanai reveals, speaking through a translator in his office on the 31st floor of the Tokyo Midtown Tower, home to Fast Retailing's global headquarters. “It was the first time in history that young people stood against the regime,” he continues. “Back in those days I was a very different person. 'How can I spend my life fooling around rather than working?' That was the single most important topic on my mind, because I didn't want to work.”
After university, however, Yanai soon faced the reality of having to make a living. He spent a year working for another retailer before landing at his father's tailoring business in 1972. But his arrival prompted the departure of six of the company's seven employees. “Back in those days I was so arrogant and they all thought I would become the CEO of the company, so six out of seven decided to leave,” he recalls.
Nobody can predict the future. So why don't you venture out and create one? Those who create the future will be blessed with luck.
Despite the exodus, Yanai put himself to the task of managing the business. “I needed to clean the store, brush the jackets, sourcing — I literally had to do everything myself because there was nobody else. It was a huge learning opportunity,” he remembers. Yanai quickly learnt to put customers first. “Without customers, a business is not able to sustain itself,” he says matter-of-factly. “I also realised that I alone can only do so little,” he continues. As the company grew, it began to open more stores and employ more people. “That made me think: ‘Why do we work? Who are we?’ We needed some common threads, some principles, so we started to distribute these plastic cards.”
At one point, Yanai had wondered if he would become a schoolteacher, but later gave up the idea. “I was not a good student in the first place, so I thought teaching might not be the right thing. But I do enjoy writing,” he says. “These principles are written down because I want them to resonate with employees; because we need to choose each other: companies need to choose employees and employees need to chose employers.”
Yanai wrote the first seven or eight principles when his father was still running the company. He added the remaining principles after 1984, when he took the reins as president, the same year the company opened its first Uniqlo store — then called “Unique Clothing Warehouse” — in the city of Hiroshima.
According to Takeuchi's case, Yanai's promotion marked the start of the company's rapid expansion. Inspired by his travels to Europe and the US, where he discovered large casual apparel chains like Benetton and Gap, Yanai saw tremendous potential for Japan's casualwear market and set about evolving the family business from suiting to casual clothing, buying merchandise in bulk at low cost. He also observed that most foreign fashion chains were vertically integrated, taking control of the entire business process from design to production to retail.
But it wasn’t until 1995 that Yanai began offering his first private label product. By then, the company had become a regional chain with a network of Uniqlo stores located in suburban areas, where rent was low, and Yanai had renamed the business Fast Retailing, reflecting his belief in responding to consumers and taking decisions faster than any other company. The transition from traditional reseller to SPA (Specialty retailer of Private label Apparel) wasn't easy, however, and Uniqlo was forced to shutter three of its new private label lines soon after they launched.
But this was only one of the many challenges Yanai faced. For more sophisticated consumers in and around Tokyo, Uniqlo was seen as undesirable: a discounter selling cheap clothing to the suburbs. Perception began to change with the 1998 launch of a three-storey store in the hip Tokyo neighbourhood of Harajuku and the blockbuster success of the company's fleece jackets, which Takeuchi credits with changing Uniqlo’s image from “cheap and shoddy to cheap but good quality.” Sales hit record highs. But it didn't last, as shoppers turned against the growing ubiquity of the brand. In fiscal 2002, the company posted its first sales decline in 18 years.
To make matters worse, Yanai's first venture outside Japan — a Uniqlo store opened in 2001 in the Knightsbridge area of London, followed by 20 more in and around the city — was a failure. Fast Retailing's first foray into China also failed to take off. But Yanai remained undeterred. Over time, he came to see failure as a learning opportunity and the seed of future success, embracing the kind of iterative approach and “fail fast, fail often” philosophy favoured by Silicon Valley. “The only solution is to keep changing yourself and keep challenging yourself,” he says.
2004 was a pivotal year for Fast Retailing. Not only did Yanai embark on what would become a series of overseas acquisitions, starting with Link International (now Link Theory Japan), the owner of Andrew Rosen's contemporary label Theory, but he also began to place greater emphasis on quality, placing ads in major newspapers that included the phrase: "quality comes first, then price." The same year, taking a cue from competitors like Zara and H&M, Yanai opened Uniqlo's first large-format store in Osaka, setting the template for a slew of successful flagships in global cities from New York to Shanghai.
Today, Fast Retailing is a global giant, whose future is inextricably linked to success beyond its home country of Japan, where Uniqlo, which accounts for about 82 percent of the company's revenue, operates over 840 stores and has saturated the market. Uniqlo has made considerable progress in Greater China, where it plans to grow its retail footprint to over 1,000 stores. But the brand's subsidiary in the US — the world's largest retail market — is underperforming. Yanai has vowed to “channel the expertise of the entire Fast Retailing group into making Uniqlo USA profitable and successful.” Yet to conquer the world outside Japan, Fast Retailing must evolve from a Japanese firm with global reach to a truly global enterprise with higher cultural intelligence.
Yanai has not added a new principle to his list for some years. But when asked whether he was considering an addition, he pauses and offers: “Connect yourself — because now everyone in the world is interconnected to each other.”
Tadashi Yanai's 23 management principles distilled to eight key themes.
1. Put Customers First
Yanai's number one management principle is: “Respond to customer needs and create new customers.” The sentiment is rooted in his deeply practical experience running a single store when he first began working for his father. “Only because we have customers are we able to have a business. Therefore, customers must be at the centre of what you do. This is very commonsensical to us,” he explains. “Always cater to the needs of customers. For me, Steve Jobs is the ultimate symbol of customer centricity and user-friendliness. Unless you deliver beyond their expectations, customers will never be satisfied.”
2. Contribute to Society
For Yanai, a company's value is intrinsically linked to the value it brings to society as a whole. Successful companies must serve society, while a company that does not exist in unity with society and only pursues its bottom line will not survive. To be accepted by employees, suppliers and consumers alike, a company must contribute to society. “As the business grew and we had many suppliers, many employees, different managers, I realised that we had to aspire to become a company that is contributing to society, otherwise we are not sustainable,” Yanai recalls. “Only after making a positive difference in society, are you able to run a healthy business.”
3. Embrace Optimism
Yanai believes great businesses must embrace “high hopes for the future” and encourages Fast Retailing's managers to think and invest positively and proactively. “There is nothing to gain from pessimism,” he says. “If you are waiting around for fortune or luck, they will not come. Don't be passive. Nobody can predict the future. So why don't you venture out and create one? Those who create the future will be blessed with luck.”
4. Learn From Failure
Yanai is no stranger to failure. But over the years, he has come to see failure as a key learning opportunity. One of his most important principles reads: “Thoroughly analyse information relating to successes and failures. Remember what you learn and put it into practice the next time around.” The principle captures his iterative approach to developing a business and the way he views failure as the seed of future success. “It may not work — you may not be successful overnight. The only solution is to keep changing yourself and keep challenging yourself.”
5. Focus on the Details
Yanai often says: “God is in the details.” The comment reflects his belief in executing relentlessly with a sharp focus on perfecting what he calls “the small things.” “A gap of one millimetre makes all the diference as it widens more as we move forward,” he told Takeuchi. “The secret to success is doing the basics day in and day out until you get tired of it,” he adds. Yanai once thought he would retire from day-to-day operations by the time he was 60, but at the age of 67, he still holds the company’s operational reins as chief executive.
6. Be Your Own Critic
The importance of self-critique is captured in another of Yanai’s key principles: “Review and rethink your actions and approach to improve and renew yourself.” He practices this principle by regularly putting himself in the shoes of a highly discerning customer. “The most demanding critic can be the customer of your business, so you have to put yourself in the most discriminating customer’s shoes, then look at the exterior of the store and evaluate if it looks attractive. Then, you come into the store and evaluate whether the presentation of the merchandise is attractive, whether the sales floor associates are good enough.”
7. Connect to the World
Fast Retailing’s future is inextricably linked to success beyond Japan and Yanai has long aimed to turn Fast Retailing into a truly global organisation, making English the firm’s official language and establishing management training and innovation centres in New York, Shanghai, Paris and Singapore. “Now, everyone in the world is interconnected,” he says. “You came to visit me in Japan and we’re interacting — there is no border in front of us,” he continues. “In particular, we should be conscious to connect with customers and cater to their specific needs.”
8. Disrupt Yourself
Adapting to change is a key theme for Yanai, who is fond of comparing Uniqlo to a technology company. “The world is changing so fast. This is a new industrial revolution,” observes Yanai. “Disruption was once limited to high tech, but now it’s happening to other industries. The prime examples are Amazon, Alibaba, Uber,” he continues. “So we must transform ourselves. The clothing industry — linked to the very inception of human beings — has become obsolete. There is an opportunity to revamp the entire industry. I keep telling our people: ‘Disrupt the current model.’ Even working for a large-scale company, you need to reinvent everything from scratch.”
Disclosure: Vikram Alexei Kansara travelled to Tokyo as a guest of Fast Retailing.
This article first appeared in The Business of Fashion's fourth annual BoF 500 special print edition, which includes stories on Kate Moss, Tory Burch and Matthew Moneypenny, as well as a collectible directory of the people shaping the global fashion industry in 2016. Click here to order your copy.