Uniqlo sees worst overseas sales drop in decade on Asia political strife

Uniqlo's strategy is coming up against the political protests in Hong Kong as well as a trade spat between Japan and South Korea. PHOTO: REUTERS

TOKYO (BLOOMBERG) - Political flare-ups in Asia are putting the brakes on Fast Retailing's overseas momentum, as the Uniqlo operator reported the worst quarterly revenue decline in a decade for its international segment.

Asia's largest retailer has long counted on overseas expansion to power growth in the face of a weak Japanese market. Now that strategy is coming up against the political protests in Hong Kong as well as a trade spat between Japan and South Korea.

The shares of Fast Retailing fell after it reported a 3.6 per cent drop in first-quarter sales for Uniqlo's international segment, citing "significant declines" in those two trouble spots. Except for a minuscule decrease of 0.2 per cent in 2017, it's the first quarterly drop for the segment in 10 years, according to data compiled by Bloomberg. Operating profit for the international business fell 28 per cent, for the first quarterly earnings decline since 2016.

Fast Retailing, which also suffered from weak sales in Japan during the quarter, lowered its full-year outlook for operating profit by 11 per cent. For the guidance change, it pointed to the unrest overseas as well as depreciation in the yuan.

The company's shares dropped as much as 2.3 per cent in early Tokyo trading on Friday (Jan 10). The stock climbed 15 per cent last year, reaching an all-time high in July.

"The overseas growth comes with higher risk," Jefferies analyst Mike Allen wrote in a note to investors. "But risk is always difficult to weigh until it hits you in the face."

The months-long pro-democracy protests in Hong Kong, which have at times turned violent, have left the area's economy on the verge of its first annual contraction in a decade and caused retail sales to plunge 24 per cent in November. The unrest has rattled international brands from Levi Strauss to Tiffany.

While the situation in Hong Kong has had a broad impact on retailers, the damage Uniqlo is seeing from a trade spat between Tokyo and Seoul has been, well, more unique. Fast Retailing has become one of the biggest targets of a South Korean consumer boycott of Japanese products that began in July.

"The Korean business has continued to decline and there has been a bigger impact on sales," said chief financial officer Takeshi Okazaki at a briefing in Tokyo on Thursday. "Korea is a very important segment for us, and it's not clear how long this situation will continue."

The country has the second-largest number of Uniqlo stores overseas after China.

Other overseas markets are holding up. Mainland China - a key driver of growth in the past - performed well, as did South-east Asia, the company said.

Billionaire chairman Tadashi Yanai has focused expansion on Uniqlo's overseas locations as an aging population in Japan provides fewer opportunities for fast growth. In the last year, the company expanded to new markets including India, Vietnam and Italy.

Follow ST on LinkedIn and stay updated on the latest career news, insights and more.