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Talk Asia

Interview with Businessman Tadashi Yanai.

Aired March 03, 2012 - 05:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

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ANDREW STEVENS, CNN ANCHOR (voiceover): This is Japan's biggest retailer. The motto, "Made for All". The aim, low-cost, quality clothing in classic designs that consumers can mix and match with more ostentatious labels.

It's a business model that catapulted Uniqlo founder, Tadashi Yanai, from inheriting one fashion outlet in Hiroshima in 1984, to ruling his own multi-billion dollar international clothing empire. With more than a thousand Uniqlo shops worldwide, the store's holding company, Fast Retailing, also controls six sister labels. Including Theory and Helmut Lang.

Already one of Japan's wealthiest men, this self-made billionaire now plans to continue expanding Uniqlo's reach with the aim of becoming the number one retailer in the world.

But, on March 11, 2011, business building was not on Yanai's agenda. A devastating earthquake and tsunami had rocked Japan, killing almost 16,000 and leaving hundreds of thousands traumatized and homeless.

TADASHI YANAI, PRESIDENT AND FOUNDER, FAST RETAILING (text translation): When I felt the strength of the earthquake, I thought it originated in Tokyo. But when I heard it was in Tohoku where the nuclear plants are, I thought, "This is going to be very bad".

STEVENS (voiceover): Within weeks of the disaster, Yanai had donated $12.2 million of his personal fortune, almost $5 million from his company, and more than $8 million worth of clothes towards relief efforts.

A year on, and Uniqlo still supports NGOs dedicated to rebuilding Japan. But disaster recovery is something Yanai feels is only one-step in getting the nation back on track.

YANAI (text translation): Japanese people also came to realize that the country must change.

STEVENS (voiceover): This week, on "Talk Asia", we're in Tokyo, to catch up with one of Japan's most respected business leaders to hear what he thinks it will take to rebuild Japan.

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STEVENS: Yanai-san, welcome to "Talk Asia".

YANAI: Thank you.

STEVENS: I'd like to turn to the events of March, last year. Japanese live under the threat of earthquakes, of tsunamis. It happened last year. We saw on television. What was your reaction when you saw it? What do you remember thinking?

YANAI (through translator): I was in this office working. I looked outside toward Chiba Prefecture and saw the petro-chemical complex on fire. And I thought, "This is serious". Also, when I felt the earthquake, I remembered the Kobe earthquake. Because we felt the strong earthquake, I thought the origin of the earthquake was actually in Tokyo. But later, I heard it was in the Tohoku region, where there were nuclear power plants. Then I thought, "This is going to be very bad".

Also, we had several employees from Tohoku who lost family members in the tsunami. I was overwhelmed with sadness for those employees. And I think all of us Japanese realized that human beings are vulnerable to natural disasters like tsunamis at any time. Japanese people also came to realize that the country must change.

STEVENS: Are you proud of the way that the Japanese responded?

YANAI (through translator): I think the Japanese attitude following the tsunami was incredible. However, the way it was handled by the government was horrendous. Last December, the government announced that all of the nuclear power plant problems have been solved. That's it. No details were released to the public. Their decision to lie, simply to assure citizens is shocking. They think citizens are fools. They should release more information and more details. They must accept global health, otherwise, it will be disastrous.

STEVENS: Yanai-san, I want to move on to the Japanese economy. Now, you have been a great success in a period where the Japanese economy and Japan Inc. has been in relative decline. What's happened to Japanese industry? Has it lost its way?

YANAI (through translator): I'm extremely disappointed in the current state of Japan. The Japanese economy hasn't grown much in the last 20-odd years. In fact, we're becoming poorer. But, since last year's earthquake, we've all realized that we can't continue on like this. We must have hope in the future and rebuild Japan.

To rebuild doesn't mean to go back to where Japan was before, but instead, to create a new future without depending on the government. Every citizen in every company must commit to rebuilding the country. Because we've been in stagnation for more than 20 years, we don't have time to waste thinking about how to rebuild the country. We must act immediately.

STEVENS: This is the country that, after the war, became the World's second-biggest economy - that produced Sony, that produced Toyota - why was there this stagnation? What happened?

YANAI (through translator): We were too successful. There was no innovation after the initial success. Also, we were in an illusion. The Japanese and Japanese companies became rich. We falsely believed that we could remain in that current state. However, during that same time, the world was changing. It continued to evolve.

STEVENS: But generally, how does Japan get back on its game again?

YANAI (through translator): First, Japan needs to open up its economy. I believe Japanese people and companies should go abroad. Also, we must make it easy for foreigners and foreign companies to do business here, in Japan. Japan's weakness is that it's homogenous.

STEVENS: Yanai-san, do you get a sense that Japan is changing? Has Japan, in your opinion, woken up to the fact that it needs to do something and is actually doing it?

YANAI (through translator): The current problem in Japan is that the government makes decisions without thinking what is best for Japan as a country. Politicians make decisions in favor of their interest groups or their supporters back in their hometowns. The members of the National Diet act as town leaders, not national leaders.

Also, looking at the ministries - like the Ministry of Health, Labor, and Welfare - the ministers are only concerned about their own department and interests. Until the government rebuilds the whole system and starts from new ground, they will not be able to restructure. I'm afraid Japan will collapse if the current state continues.

STEVENS: A new broom is needed. A new leadership is needed, as you say. Is that something that you're interested in? Would you run for political office?

YANAI (through translator): I hate politics. What they say and what they do is completely different. Rather than me vying for a government position, I'd like to see the current leaders reform the government. If they can't change, then the leaders should all quit. Only leaders who will work for the interests of Japan as a country should remain in office.

As a taxpayer, we should have the power to demand change. It's very disappointing, but the government is destroying our young people's future. In order to stop this, the government must reform completely. I have high hopes for the government to change. As a businessperson, I don't have the power to change the government. That is in the hands of the political leaders. However, as a taxpayer, we have the right to be critical of the government and demand change.

STEVENS: You mentioned earlier - you worry that, within a few years, Japan could collapse because of the lack of development. Can you explain - what do you mean by collapse?

YANAI (through translator): We spend double what we make. Our administrative structure is the most inefficient in the world. This cannot continue. Until now, Japan could depend on the Japanese people and Japanese company savings, with which they bought bonds. However, now Japan is 1,000 trillion yen in debt. 1,000 trillion yen. And there's no collateral. Pretty soon, there won't be anyone left to accept the bonds.

Even in the midst of this, we think we're rich because of the strong Japanese yen. However, there's no reason for the yen to remain strong. And one day, it may weaken. The Japanese yen is strong because we're a strong country. But if a household has no collateral and is spending double its income, how could it survive?

STEVENS: How does Japan Inc. deal with the strong yen?

YANAI (through translator): Well, the current strong yen doesn't reflect our economy. That's the problem. We must ensure that the level of the yen matches our market. In order to do so, we must first determine what the correct exchange rate is for Japan. Then we must communicate that rate to the global market.

There's an exporting game going on in the world market, right now. Where players compete for exports. Right now, Japan isn't participating in that game. We must increase our efforts financially and diplomatically. Japan as a whole must strive towards this.

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STEVENS: You are still a young man. Who do you see replacing you? Would you like to see the family involved in the business after you leave?

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STEVENS: Hello, sir. Good to see you again.

How would you describe Uniqlo? What - is it a parts company? Is it a fashion house? Is it a fabric company? What is it?

YANAI (through translator): We consolidate all of that. We are the manufacturer and also the retailer who sells the finished products.

STEVENS: Is it true that Uniqlo doesn't take much notice of fashions - of current trends - is that true?

YANAI (through translator): We don't take in all the fashion trends. Instead, we see our clothes as parts that make up fashion. We're reinterpreting what fashion is through our products.

STEVENS: So, it's all about mixing and matching - giving people a choice so they can create, in a way, their own fashion.

YANAI (through translator): Yes. That's right. We believe clothing doesn't have to have individuality. Instead, the consumers selecting the clothes should have the individuality. The mix-and-match concept is the new way to enjoy clothing.

STEVENS: These denim jeans here - so many styles, so many different colors. Why do you have to have so many? With polo shirts, for example, you have about 80 different colors.

YANAI (through translator): In may look like there's a lot of variety here, but there isn't, really. Compared to our competitors, the variety that we offer for our products is actually only about one tenth. However, each product is very neatly finished.

STEVENS: OK, "Very neatly finished" - that's what you sell. You've been in this industry all your life. Tell me, why is this well made? How do you know this is a well-made product?

YANAI (through translator): For example, jeans and, like, these pants - we bring the fabric and materials from Japan to China. And, in China, we advise them on every detail that goes into manufacturing the fabric and products. We don't buy fabric or materials. We, together with the factories, develop and manufacture the products.

STEVENS: What is the Japanese-ness of Uniqlo?

YANAI (through translator): It's the cleanliness. Japanese people like to be clean, orderly, organized, and pay great attention to detail. Our Japanese-ness is that our products in stores are very clean and detail- oriented.

STEVENS: You are still a young man. You have no thoughts, I guess, about retirement at the moment. But who do you see replacing you? I know you have two sons. Would you like to see the family involved in the business after you leave?

YANAI (through translator): I do want my family to be involved. But I think it'd be better if our top management isn't only my family. As shareholders, we must support and develop a capable management team.

STEVENS: That's quite unusual in Asian companies. Because, from my experience, the family is very important in taking over - the next generation taking over. But not you?

YANAI (through translator): I think that's the weakness of Asian companies. The companies are limited by the families' ownership. You need outside talent. It's more of a Western style. The family can have rights as a shareholder, but having a separate management team is better, in my opinion.

STEVENS: 28 years ago, you opened your first store. You said, at the time, it was a gold mine. What did you tap into that made it so successful immediately?

YANAI (through translator): Like you said, 28 years ago, when I opened the store, I definitely thought I'd found a gold mine. It's because we took a view that the casual clothing market had potential. There weren't many stores selling casual clothes back then. Clothing stores sold suits, like the one you're wearing, or formal wear. Casual clothes meant cheap clothing for young people.

What we did was change that image of casual clothing into practical and comfortable clothing. We discovered and created a completely new market.

STEVENS: So, basically, you hit a hole-in-one, if we're talking about a golf metaphor here. You got it right first time. Why do you think that is?

YANAI (through translator): Maybe it was a hole-in-one. However, Marks and Spencer and Next in the U.K. - Gap, Limited and Benetton in the U.S. - already had chain stores nation-wide. We already had these examples in front of us. And we thought we could do the same here in Japan.

STEVENS: When you started your first clothing store, I guess you didn't really have a choice, did you? You came from a family of clothing specialists. Your father had a clothing store. Did you want to follow in his footsteps?

YANAI (through translator): At the time, I didn't think I would be a good businessman, but it was a family business, so I entered it. As I started working, though, I realized that I might actually be good at it. If I looked at it differently, I was able to see great potential.

Most people think that the textile and retail industries are brick- and-mortar-type businesses. Japanese shopping arcades were not doing well and many stores were shutting down. Unless you believe that you could create a new type of business, it probably didn't seem like an attractive industry to enter back then. However, I believed that we could create something new by thinking in a different way.

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STEVENS: You're the biggest in Japan. You don't need the money. So what is driving you to be number one in the world?

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STEVENS: Virtually every story, every piece of research, I read about you focuses on your ambition to be the number one retailer in the world. You're the biggest in Japan. You don't need the money, so what is driving you to be number one in the world?

YANAI (through translator): There are no specific reasons. We're currently number four in the world, but we simply want to be number one. The number four player and the number one player are really different in several aspects. We finally entered the global area. And now we're aspiring to become number one in the world or number one in Asia. Just like how we became number one in Japan - that's our ambition.

STEVENS: You have set a very specific targets - 2020, you want to have revenues of $50 - $60 billion, $10- $12 billion in operating profits - which would make you the world's biggest. But, when you look at the stat of the global economy, do you think you can achieve it, still?

YANAI (through translator): Yes. Comfortably. People will not stop buying clothes just because we're in a global recession. Our products are fashionable, but they're still a necessity. We've been selling well all over the world. And I believe that this trend will continue. And that's why I believe we can comfortably reach our target.

STEVENS: Does that mean, do you think, Uniqlo is recession-proof?

YANAI (through translator): Yes. You can look at it that way. However, it's not as though everyone wants expensive clothes. Our mission is to provide high quality clothes to many people. Our slogan is, "Made for All". In other words, we want to provide good clothing to people all over the world. I do believe there is a recession now, but the bigger trend is that the source of wealth is moving from the United States and Europe to Asia.

STEVENS: How will you achieve your expansion goals?

YANAI (through translator): We now have to focus on Asia. Right now, we're focusing on China. But we want to expand, especially in Korea, the Philippines - where we're opening a store this year - as well as Singapore, Malaysia, Thailand, Vietnam, and Indonesia. There's huge potential in these markets. In the next 10 years, these markets will be similar to what the United States and European markets look like today.

STEVENS: If I may say so, your first attempt at international expansion, in 2001, into the U.K., 20 stores into the U.S., was a bit of a disaster. After 18 months or so, you had to close most of your stores overseas. What happened?

YANAI (through translator): We want to be a global brand. And for us to become a global brand, we have to have a presence in London, Paris, and New York. Or in major European and U.S. cities. We have to build a brand that sells in Europe and the U.S., not just Asia. However, in our previous attempt to branch out to the West, we had to close most of our stores due to a lack of experience. But now, we're entering those markets once again.

STEVENS: Fast forward to 2006 - you've re-launched in the U.S. In Soho, you have now a store 90,000 square feet in 5th Avenue - which are very successful. What's changed?

YANAI (through translator): The number one reason was our lack of brand recognition. Consumers did not understand our products and our mission. However, we were able to communicate who we are and what we do through our Soho store. And that's why our 5th Avenue store is successful as well. I believe that if a brand has extraordinary success in one country, that the same brand can succeed at the global level. Our goal has been to be able to sell all over the world. In the U.S., Europe and Asia, we're confident that we'll be successful anywhere in the world.

STEVENS: Yanai-san, thank you so much for your time.

YANAI: Yes. Thank you.

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