Japan's richest man revisits lessons by Peter Drucker

TOKYO — Tadashi Yanai, Japan's richest man, used advice from management guru Peter Drucker to build his Uniqlo clothing empire. To pull out of a slump that's hammered profits and shares, the billionaire is revisiting the lessons.

Yanai, 61, founder and president of Fast Retailing, built his estimated $9.2 billion fortune over 26 years, turning his father's tailor shops into the Uniqlo chain of low-priced casual wear to become Asia's biggest clothing retailer. Yanai says his success was inspired by Drucker's management strategies and the idea of "customer creation" with a product that creates demand.

This year, something went wrong with Yanai's strategy. Fast Retailing's shares have plunged 26 percent in 2010, sales at stores open more than a year fell 25 percent in September, continuing to slide through November, and the company forecast its first profit decline in four years for the fiscal year ending in August.

"Fast Retailing lost focus on its core products," said Mikihiko Yamato, an analyst at Japaninvest KK in Tokyo. "The company tilted to fashion items that didn't sell well."

Second-half Uniqlo sales through August fell 6.4 percent in Japan, where Yamaguchi-based Fast Retailing gets more than 80 percent of revenue. Meanwhile, competitors such as the Zara brand from Spain's Inditex and Sweden's Hennes & Mauritz added stores.

Zara had 54 Japan outlets in July after opening its first in the country in 1998. H&M entered Japan's market in 2008 and had 10 outlets in November.

Got off track

Trying to match Zara and H&M may have been what took Uniqlo off track, analysts and investors said.

"The company followed trendy makers like Zara," said Yamato at Japaninvest. "Uniqlo needs some fashion items, but the company's strength is to mass-purchase fabrics to make large quantities of functional clothing." Yanai got the message. Fast Retailing will focus on functional designs after "superficial fashion" items eroded sales, he said at an Oct. 8 news conference in Tokyo.

Broadcaster NHK this year published a book titled "My Way of Management in The Drucker Style," from interviews with Yanai on the management consultant's influence.

"Drucker is not only my management professor, but he is like the compass to provide a path I should follow," he said in the book. Intel's co-founder Andrew Grove and Shoichiro Toyoda of Toyota consulted with Vienna-born Drucker, who died in 2005.

Drucker's "The Practice of Management" influenced Yanai "to first think what customers want and provide more value, rather than what a company wants to sell," he said. He declined to be interviewed for this article.

Masafumi Shoda, head of retail-industry research at Nomura Securities, said Yanai has been down and bounced back before.

Opened stores in Britain

He took Uniqlo to Britain in 2001, aiming for 50 stores in three years. He got to 21 outlets before shutting 16 in 2003 to stem losses and restructure.

"He makes quick decisions to withdraw from a failing business to avoid more losses," said Masamitsu Ohki, a fund manager at Tokyo-based Stats Investment Management, which holds Fast Retailing shares.

Yanai has also worked a sales floor at a supermarket in 1971, according to his book. He quit in 1972 to join his father's tailoring business, Ogori Shoji.

He became president in 1984, when he opened the first Uniqlo store, known at the time as Unique Clothing Warehouse.

To his admirers, Yanai's misses show astuteness, such as in 2007 when he walked away from a bidding war with Dubai investment firm Istithmar PJSC for Jones Apparel Group Inc.'s Barneys New York unit.

Even as growth has faltered this year, Yanai has doubled Fast Retailing's sales in the past five years and targets sixfold revenue growth to $60 billion by 2020 to overtake H&M and Inditex.

Yanai has said he wants 4,000 stores by 2020. Uniqlo has outlets in the U.S., Russia and France.

"Yanai should keep pursuing expansion abroad, as Japan is shrinking and offers little growth," said Daiwa SB Investments' Ogawa.