Saturday, June 9, 2012

UNIQLO makes a difference by not pursuing operational agility

Hirokazu Kitahara

Donald Sull says that to survive in turbulent markets, organizational agility (“the capacity to identify and capture opportunities more quickly than rivals do”) is necessary. [1] Organizational agility consists of strategic, portfolio, and operational ones. Among them, operational agility is the ability to do business quickly, effectively, and consistently. As a successful case, the author introduces the Spanish retailer Zara’s ability to deliver new items to stores quickly. Likewise, a Reuters’s article observes that it is one of a key feature to succeed in the fast fashion industry; [2]

H&M and Inditex [owner of Zara] both trade at around 19 times this year's earnings according to StarMine data, roughly in line with expanding Uniqlo parent Fast Retailing Co and outshining Gap at 14 and Marks & Spencer and Next at around 10.

However, there is a retailer succeeding in the fast fashion industry by doing the opposite. It is UNIQLO. As above, their response to the market needs is not so frequent or speedy compared with H&M and Zara. But this does not derive from their inability to do so, but their strategy. UNIQLO has established a SPA (Specialty store retailer of Private label Apparel) business model and has succeeded by providing high-quality clothing at such reasonable prices. UNIQLO pursues practical quality, fashionability (not outstanding but high) and price competitiveness. Lessening the frequency to respond to the customers’ needs makes high-volume production at one time. Here, what we need to recognize is the fact that regardless of adopting such strategy, UNIQLO attains the above high trade frequency. Of course there is a risk that UNIQLO’s clothing does not meet customers’ latest needs, but by take a position in basic clothing compared with competitors, they mitigate such a risk.

The important point is to pursue organizational agility in accordance with the company’s strategy. And, we need to recognize that something like cost can be lost by pursuing operational agility.

[1] Donald Sull, “Competing through organizational agility,” McKinsey Quarterly, December 2009.
[2] Anna Ringstrom, “Analysis: H&M on quest for growth with new fashion chains,” Reuters, June 4, 2012.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.