A Historical Case of Uniqlo

【論 文】 How is a Retail Business Brand Embedded in Social Structures, Networks, and Territories? A Historical Case of Uniqlo

Akihiro KINOSHITA

1. Introduction

Retailers currently build entire retail businesses as brands (Tamura, 2001, p.270). This paper examines the birth and growth of Uniqlo, a popular Japanese retail business brand embedded in both institutions and networks. Retail branding has been primarily discussed relative to private label brands (PLB) and national label brands (NLB). Research has accumulated regarding the competitive and coexistent relationships between PLB and NLB, and their respective product assortments. Nemoto (1995) provides pioneering research on PLB in Japan. Ailawadi and Keller (2004), Hyman, Kopf and Lee (2010), and Oono (2010) describe and summarise the motivations and benefits of PLB development. Hyman, Kopf and Lee (2010) also summarise PLB success factors. Yahagi (2014) notes that some competitive and harmonious relationships exist between NLB and PLB; however, these are not in accordance with a PLB development framework from the perspective of retailers, but from a standpoint involving the strategies of both manufacturers and retailers. This is a potential future research direction. However, customers choose products as well as stores, both real and virtual. Further, retailers use various retail elements－such as access, store appearance, display, product assortment, pricing, and sales service─to attempt to build the entire retail business as a brand (Tamura, 2001). Moreover, Kinoshita (2016b) discusses the birth and growth of a retail business brand in a case study on Uniqlo. One primary research objective involves understanding the birth and growth of the retail business brand and the role of embeddedness. The activities of firms are conditioned and limited by political, economic, cultural, and regional institutions and relationships. Social structures play an important role in business actions, and embeddedness is regarded as the mutual conditioning process between societal environments and economic actions. These firms respond to and create an embedded process in time and space. The research perspective of this paper involves understanding the birth and growth of the retail business brand in the spatial-temporal relationships found within social structures. Retail branding actions face existing and uncontrollable social structures, networks, and

1 『流通』No. 41 territories, in which they are embedded and must newly integrate themselves. This paper examines the growth of Uniqlo, one of Japan’s largest apparel retailers, from its first store opening in 1984 to its established position in the home market in 2001. The dynamic disembedded and embedded processes relative to Uniqlo’s clothing, foreign trade structures, trade systems, and sourcing networks and regions are considered. The first section of the paper revisits a fundamental understanding of the retail business brand (Tamura, 2001). The retail business system concept as described by Yahagi (2011) forms the components of the retail business brand and its mutual relationships. The second section reviews the concept of embeddedness and its typology, as presented by Hess (2004). Some studies demonstrate the transfer of organisational capabilities and their localisation in the retail internationalisation field through the typology of embeddedness (Coe and Lee, 2006; Coe and Lee, 2013; Wood, Coe, and Wrigley, 2016; Dawson, 2015; Burt, Johansson, and Dawson, 2016). Existing studies of international retailers’ embeddedness do not necessarily clarify the relationships between embeddedness and the birth and growth of a retail business in the home market. Further, these studies fail to discuss how institutions and networks surround a retail business, function as influential and conditional factors, and shape the retail business in the home market. A key issue involves demonstrating a retail business brand’s birth and growth in the home market. The third section focuses on Uniqlo’s embedded processes in Japanese foreign trade structures for clothing, clothing trade systems in Japan, Uniqlo’s sourcing networks, and their primary production bases in China. Uniqlo’s business was mainly conditioned by the changing production structures in the Japanese apparel industry in the 1980s and 1990s. Uniqlo managed to detach from the existing structures, networks, and regions, and embed itself in new ones. The final section considers the significance of understanding retail business brands in terms of embeddedness. Uniqlo is primarily described through newspaper articles, published and online materials by its parent company, Fast Retailing Co., Ltd., and books written by its founder, Yanai.

2. The basic understanding of a retail business brand

Retail branding should be understood regarding its activities and relationships at the store, corporate, and product levels. For example, Burt and Sparks (2002) described customers who perceive the store as a brand based on in-store shopping experiences. Burt and Davies (2010) presented‘ a retailer as a brand’, ranging from the product as a brand via the store as a brand, to the organisation as a brand. Burt and Sparks (2016) captured retail branding from the perspective of retail product brands, the store as a brand, and the corporate brand as a concept. Burt and Carralero-Encinas (2000) demonstrated that a store’s image has various dimensions, such as its reliable brand, cleanliness, wide selection, good quality, and fair prices, among others, and that some similarities and differences exist in consumers’ perceptions of the store image attributes between the home market (the United Kingdom) and host market (Spain). Ailawadi and Keller (2004) classified the dimensions of a retailer’s image as: (1) access, or the location of and distance to the store; (2) store atmosphere, namely‘ physical features, like design, lighting, and

2 論文：How is a Retail Business Brand Embedded in Social Structures, Networks, and Territories? A Historical Case of Uniqlo（Akihiro KINOSHITA） layout; ambient features, like music and smell; and social features, like the type of clientele, employee availability and friendliness’ (Baker, Parsuraman, Grewal, and Voss, 2002); (3) price and promotion; (4) cross-category assortment; and (5) within-category assortment (pp.333-335). Retail branding refers to the branding of a retail business as a whole. According to Tamura (2001), an object of trade, or what the trader deals in, is a retail business brand when a trader is a retailer. The retail business brand contains all the elements that form the intersections between consumers and the retail business, such as differentiated assortment, store atmosphere, and service (p.273). Further, Tamura (2001) perceived retail branding as the scope that extends to all components constituting the encounter locations with consumers (p.273) and as a specific retail business altogether (p.270). Wileman and Jary (1997) considered the basis of retail brand differentiations, which lie in the vertical relationships with suppliers; lateral relationships, which allow the business to differentiate itself from its competitors; the retailer’s vision and culture; and customer relationships (p.33). Further, a retail brand is built through various economic relations (p.33). Retail branding is defined as the branding of a product, store, and retailer (Burt and Davies, 2010; Kinoshita, 2016a). A retail business brand must also prepare to implement a retail business system. Yahagi (2011) divides retail sales activities into two parts: market strategies, including the retail format and store opening strategies; and the store’s operational systems. He notes sourcing activities as the‘ procurement of goods’ (transaction), and the physical distribution activities as a supply of goods, and then establishes an analytical framework collectively for retail business systems as a whole (p.18). He summarises that organisational capabilities in retail businesses are composed of market strategy planning (retail format and store opening strategies) and the three components of operational systems: store operations, and the supply and procurement of goods (p.20). The organisational capabilities include the relationships within a firm’s structure and among other firm structures; further, some mutual relationships exist among the elements constituting organisational capabilities (p.20). A retail business brand is born from such retail business systems. The components of a retail business brand are embodied in store network front-end systems, or a store’s quantities and sizes, and its retail mix, or the location, assortment, price, customer service, sales promotion, and store atmosphere, among others (Tamura, 2001, pp.25-26). Retail business branding elements are then expressed through market strategies and store operations, while sourcing and physical distribution play a part by underpinning the retail business branding. A mission statement is imperative in order to create an influential retail business in the market, as it provides direction to the retail business systems expressed in market strategies and operational systems. Market strategies dictate operational systems; conversely, existing operational systems condition market strategies. A retail business brand grows relative to the mutual conditioning of its mission statement, market strategy, and operational system (Kinoshita, 2016b). This demonstrates how a retail business brand is born and grows in an embedded process.

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3. The concept of embeddedness

Hess (2004) asked‘ who is embedded in what?’ by drawing on Polanyi’s Great Transformation, business system approaches, new economic sociology, organisational and business studies, and economic geography (p.173). He noted that firms and their economic actions are embedded in networks, institutions, regulations, and social and cultural structures. Given its spatial scale, firms cannot necessarily manage this embedded process, as it conditions and restricts their economic actions. Polanyi (1957) originally presented the concept of embeddedness, and expressed that‘ man’s livelihood was embedded’ in‘ a great variety of institutions other than markets’ (p.245). Further,‘ the human economy is embedded and enmeshed in institutions, economic and noneconomic’ (p.250), and an analytical method for the market economy cannot clarify the human economy (p.245). Granovetter (1985) understood that‘ their [actors’] attempts at purposive action are instead embedded in concrete, ongoing systems of social relations’. Economic trade in a capitalist society is embedded in social relationships, which cannot be reduced to economic relationships. The author demonstrated the positive role of these social relationships within a capitalist society（ 1）. Hess (2004) interpreted Granovetter’s concept of embeddedness as‘ the analytical scales of actors and networks of interpersonal relationships’ (p.170). As shown in the Uniqlo case, a retailer can also be influenced by interpersonal relationships. Zukin and DiMaggio (1990) use embeddedness‘ to refer to the contingent nature of economic action with respect to cognition, culture, social structure, and political institutions’ (p.15). This classification is a useful tool when considering consumers’ cognitions and cultures, which are embedded in firms’ marketing actions. Hess (2004) criticised the concept of embeddedness as‘ spatial’, and asked‘ who is embedded in what, and what is so“ spatial” about it’ (p.166) based on questions raised by Pike, Lagendijk and Vale (2000). Further, Hess (2004) concluded that‘ embeddedness signifies the social relationships between both economic and non-economic actors…and economic action is grounded in“ societal” structures’ (p.176) and that embeddedness‘ has to be spatial-temporal, incorporating the formation and change of social structures in time and space’ (p.181). He also classified embeddedness into three types: societal, network, and territorial;‘ Societal embeddedness signifies the importance of where an actor comes from, considering the societal (i.e. cultural, political, etc.) background or [… ]“ genetic code”’ (p.176)‘; Network embeddedness describes the network of actors a person or organisation is involved in’ (p.177); and‘ Territorial embeddedness considers the extent to which an actor is“ anchored” in particular territories or places’ (p.177). At the point of embeddedness, which incorporates the formation of and change in social structures, Dawson and Mukoyama (2014) also posited that‘ embeddedness must be seen as a process and not as a state’, and that‘ the processes of embeddedness are influenced by the environment but also generate responses from that environment’ (p.48). If these embeddedness processes were applied to retailers, mutual interactions would occur between retailers and

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commercial environments (Dawson, 2015). This perspective applies to the case of Uniqlo. Some embeddedness studies have been performed in the retail internationalisation field based on this classification. Coe and Lee (2006) discussed Tesco’s international expansion to South Korea, where it was branded as Home Plus, and revealed its strategic localisation in property markets, consumer cultures, and supplier systems. Coe and Lee (2013) discussed Home Plus’ operations as embedded in South Korea, including its‘ product design, sourcing networks, and employees/ strategic decision making’ (p.328), as well as the strengthening of its strategic localisation. Wood, Coe, and Wrigley (2016) identified various capability transference elements from the home market (the United Kingdom) to the host market (South Korea), which include store building and design, assortment policies, and global sourcing networks. The authors also demonstrated localisation relative to customer-facing competencies, retail format diversities, corporate culture, and regulatory and institutional factors. Further, Burt, Johansson, and Dawson (2016) used the three types of embeddedness as noted by Hess (2004) and the Osterwalder and Pigneur business model framework to demonstrate how Ikea transferred, negotiated and adapted its business model when embedding itself in various institutional environments during its internationalisation（ 2）. These studies on embeddedness in retail internationalisation did not necessarily discuss how retail businesses in a home market were embedded in existing institutions, networks, and territories. The formation of and change to a retail business’ embedding process in its home market must be considered when it transfers, negotiates, and adapts its business model to host markets. This paper focuses on how a retail business brand is embedded in institutional environments, and how it again embeds itself within them. Although the retail business system concept discusses the interactions between each selling and sourcing activity under a given mission statement, the retail business brand concept includes a mission statement as a component of brand identity. A mission statement itself is also embedded in institutions, networks, and territories, and forms through the social relationships in time and space.

4. How is Uniqlo embedded in social structures, networks and territories?

4.1. Choosing a case A retail business brand does not merely involve the management of customer contact points, but is a brand proposition based on a mission statement, market strategies, and retail operational systems. Uniqlo is one of the fastest-growing retail business brands in Japan in regard to its sales size, profitability, speed of growth, and internationalisation. The‘ Uniqlo’ name originated from the phrase‘ Unique Clothing Warehouse’ (Yanai, 2006, pp.37-38). Uniqlo’s mission is simple: to provide basic casual clothing that appeals to men and women of all ages (Fast Retailing Co. Ltd., 1994, ‘Securities Report’ [in Japanese], p.11). Its market strategy is primarily based on in-store merchandise, self-service, roadside stores, and an operational system characterised by a commitment to production (Yanai, 2006). The relationships among its mission statement, market strategies, and operational systems are relatively easy to understand.

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This paper focuses on Uniqlo prior to August 2001, when it was one of the biggest apparel retailers in Japan. Fast Retailing Co., Ltd., which owned and operated Uniqlo, reached 418.5 billion yen in net sales, 102 billion yen in operating income, and 59.1 billion yen in net income in the fiscal year from September 2000 to August 2001. These figures were mainly a result of Uniqlo’s business; further, Uniqlo Japan attained 799.8 billion yen in revenue and Uniqlo International gained 655.4 billion yen in revenue for the fiscal year from September 2015 to August 2016, with a Japanese retail 3 apparel market amounting to 9.36 trillion yen in 2015（ ）. Consequently, Uniqlo’s market share in the 4 Japanese retail apparel market was roughly 8.5%（ ）. This paper is primarily focused on Uniqlo’s sourcing and selling activities embedded in its global production networks and product quality, as well as the interplays between its selling and sourcing activities.

4.2. The birth and growth of Uniqlo’s business brand Tadashi Yanai essentially started the Uniqlo business, although his father, Hitoshi Yanai, was the head of the company at its inception. Hitoshi founded Ogori Shoji as a men’s shop and private enterprise in Ube City, Yamaguchi Prefecture, in March 1949. Ogori Shoji Co. Ltd. opened its first Uniqlo store, specialising in casual clothing for men, in Hiroshima City in June 1984. The first roadside store in Yamaguchi Prefecture opened one year later. Uniqlo set the standard for roadside store chains (Fast Retailing Co. Ltd., 2001‘, Annual Report’, p.35; Yanai, 2006, pp.41-42). As the son of a business owner, Tadashi’s business relationship with his father is as the successor to a family-owned menswear retailer. On the one hand, Tadashi detached Uniqlo from conventional institutions and dynamically embedded it into new structures by completely changing the business structure. His father operated his own men’s clothing stores through face-to-face sales, but Tadashi based Uniqlo’s business on casual wear for men and women of all ages through self-service. He constructed Uniqlo by overcoming inefficiencies in the traditional menswear business, such as face-to-face sales and poor turnover (Yanai, 2006, p.32). It is noteworthy that Uniqlo was born from a family-owned menswear retailer, and grew to become a major national chain by denying traditional business practices, as will be discussed later in this paper. On the other hand, Uniqlo maintains characteristics of a family-owned business, as the Yanai family presently holds over 30% of the shares of Fast Retailing Co. Ltd., Uniqlo’s parent company (Fast Retailing Co. Ltd., 2016‘, Securities Report’ in Japanese). In 1986, when the yen was strong as a result of the 1985 Plaza Accord, Tadashi visited Hong Kong to search for vendors supplying lower-priced clothing. There he discovered a new product by Jiordano; high quality and inexpensive polo shirts. He met with Jiordano founder, Jimmy Lai, and learned that no barrier existed between selling and manufacturing. Tadashi wanted to start managing the manufacturing process, and initially attempted in-house merchandise production in 1987. His entrepreneurial spirit and interpersonal relationships encouraged in-house merchandising and production management throughout Uniqlo, which proved an important motivator for the business（ 5）. As previously mentioned, the Uniqlo brand was built on a simple mission: to provide basic casual clothing that appeals to men and women of all ages. By April 1994, Uniqlo’s sales network

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grew to more than 100 direct-run stores, establishing a basis for chain store operations. The company experienced a growth period from 1994 to the fiscal year end in August 2001, when Uniqlo became one of Japan’s biggest apparel retailers. Direct stores doubled to more than 200 in March 1996, and continued to increase to more than 300 in November 1997, more than 400 in April 2000, and more than 500 in April 2001. Simultaneously, net sales soared from 33.3 billion yen in August 1994 to 418.5 billion yen in August 2001 (2001 Annual Report, p.1, p.35, and Securities Report in Japanese). During this time, the company’s mission statement became reality when Uniqlo expanded its customer base and product assortment to include women and children. For the period ending in August 2001, the sales ratio in the clothing categories for women and children were 23.8% and 5.7%, respectively. Table 1 illustrates the financial highlights of Uniqlo’s business.

Table1 Financial Highlights of Uniqlo’s Business Sales Net Profit Net Profit to Sales

（Million Yen) （Million Yen） Ratio (%) 1990 5,157 42 0.8% 1991 7,179 144 2.0% 1992 14,339 414 2.9% 1993 25,037 948 3.8% 1994 33,336 1,333 4.0% 1995 48,692 2,108 4.3% 1996 59,959 2,326 3.9% 1997 75,020 2,703 3.6% 1998 83,120 2,924 3.5% 1999 111,081 6,816 6.1% 2000 228,985 34,514 15.1% 2001 418,561 59,192 14.1% Source: Fast Retailing Co., Ltd.,‘ Securities Report’ [in Japanese].

4.3. Embeddedness in Japan’s changing textile and apparel foreign trade structure The import value in Japanese textile and apparel foreign trade exceeded the export value in 1986, and Japan’s clothing purchases and consumption were supported by imported goods after the second half of the 1980s. Uniqlo expanded rapidly in the 1990s under the fundamental strategy of mass selling casual apparel. However, China also implemented a mass selling foundation and grew to become one of the most important places to mass produce low-cost apparel. Uniqlo exploited its primary Chinese production bases and managed to acquire reasonable quality apparel at low costs. The export value of textile and apparel foreign trade exceeded the import value until 1985, but the import value began exceeding the export value in 1986 and continued to do so thereafter (Ministry of Economy, Trade, and Industry in Japan,‘ White Paper on International Economy and Trade’). Moreover, the ratio of textile and apparel imported sales to Japan’s total domestic textile and apparel sales were approximately 65% in 1994 (Ministry of Finance,‘ Trade Statistics of Japan’, ‘Nikkei Ryutsu Newspaper’, 25th July 1996, p.1). Japan’s Textile Federation notes that the ratio of import quantities from China to the total import quantities of textile and apparel increased from 72.5% in 1998 to 77.7% in 2000（ 6）. Prominent

7 『流通』No. 41 general trade companies in Japan shifted their apparel production bases to China and Southeast Asia in the late 1980s（ 7）. China and Southeast Asia were then incorporated into the International Division of Labour and became one of the main labour-intensive production bases under China’s Reform and Open-Door Policies in the 1980s as well as the strong yen after the 1985 Plaza Accord. These situations enabled Uniqlo to gain a large supply by concentrating on a low, narrow price range, and then marketing clothes on a large scale. Uniqlo’s rapid expansion of mass-procurement and mass selling at low prices consequently became embedded in the reorganisation of the International Division of Labour for textile and apparel goods.

4.4. Embeddedness in trade institutions: From consignment trade to purchasing trade Consignment purchase systems were prevalent across Japan’s apparel industry in the 1980s, especially with major apparel wholesalers and a retail outlet of department stores (Kinoshita, 2004, Kinoshita, 2011). A consignment purchase system is a form of purchase whereby suppliers sell goods for a fixed period and receive unsold goods when they send new clothes to the outlets. As a result of the suppliers’ basic policies on retail price receiving sufficient considerations, the Japanese apparel industry in the 1980s became socially embedded in consignment trade systems. Alternatively, small and independent retailers could source inexpensive clothing through various apparel wholesalers in Japan, such as cash-and-carry and local wholesalers. Regarding Uniqlo’s procurement,‘ the goods in the first store were mainly sourced from the wholesalers in Gifu Prefecture, who were prosperous at that time. These clothes were cheap. The imported goods were loss leaders for Uniqlo […]. The goods sourced from the wholesalers were cheap, but were not of generally good quality’ (Yanai, 2006, pp.41-42). At that time, as the business was short of funds, Uniqlo bought goods that were easy to sell, and would sell immediately. The goods that were not easily sold were marked down in the middle of the season, but would sell out by season’s end. Uniqlo purchased all its products on a no-returns basis（ 8）. The sourcing activities of the business differed from those in department stores, as the latter dealt with vendors using a consignment trade system, whereas Uniqlo was aimed at goods that were inexpensive and lower quality. Generally, Japanese apparel trade systems in the 1980s consisted of two unique parts: (1) urban department stores, which sourced famous brands with superior quality and higher prices through consignment trade; and (2) general merchandise and small independent stores, which sourced unknown products with low quality and price through trade purchasing. Uniqlo, which was a small- to medium-sized casual apparel retailer in the 1980s, became embedded in production and sourcing structures in which they could not procure higher quality, low-cost items.

4.5. Embeddedness in sourcing networks: Commitment to product and quality management In 1987, Uniqlo wanted to sell original products, but as the company did not have designers or pattern-makers, the specifications for original designs were handwritten and slipshod. Uniqlo outsourced its manufacturing and because it could not independently manage production, the factories were instead managed by Uniqlo suppliers. The company paid low manufacturing costs to its suppliers, and the suppliers did not improve the quality of their inexpensive clothing. Due to low

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quality, Uniqlo’s product would not sell at original prices, and Uniqlo was often forced to reduce its prices（ 9）. In the 1980s, Uniqlo could not obtain high-quality products under a trade system based on ordering from retailers’ specifications, and the company’s procurement at that time was embedded in Japan’s societally-shaped production and trade system. Uniqlo aimed to enhance its product quality and build a route to source products from such countries as China. In March 1988, Uniqlo established a purchasing office in Hong Kong and founded a local subsidiary under joint management with Hong Kong staff (Yanai, 2006, p.45). Uniqlo hired apparel production management experts in January 1993 to upgrade its product quality (Yanai, 2006, p.46), and its method of sourcing in-house merchandise from manufacturers (Yanai, 2006, p.44) became its primary practice in the mid-1990s as a result of these activities. Fast Retailing’s ratio of imported brand sales to total sales was 15.8 % in August 1994‘ (Securities Report, August 1994’, p.11, in Japanese). Uniqlo had a‘ genetic code’ of continuous product quality improvement, but grappled with product quality and design upgrading, as well as cooperation with fibre, textile, and apparel manufacturers. Uniqlo demonstrated a case with both product quality and design upgrading; it did not compromise on the quality of its denim fabric, and ordered from a textile manufacturer in Okayama Prefecture, where many firms manufactured high-quality denim spinning and fabrics ‘(Nippon Keizai Newspaper, Morning Paper’, 18th September 1999, p.35). In the fall of 1999, Uniqlo sold clothing made of fleece that was 15% heavier than that previous year, and included additional processing that prevented easy pilling. These improvements resulted in consumers who appreciated the thickness of the fleece products, and Uniqlo became more confident in the quality and design of its fabrics and clothing‘ (Nikkei Ryutsu Newspaper’, 26th October 1999, p.27). Uniqlo realised the process of continuous product quality upgrading, aimed at product quality improvement and homogeneity, and strengthened its involvement in production management to reach its clothing specifications. To further enhance its production management operations, Uniqlo established offices in Shanghai in April 1999 and Guangzhou in September 1999 (Yanai, 2006, p.96). In March 2001, Uniqlo sent an Advisor Team composed of veteran experts to China, and strengthened its production system to enhance quality management and systematically train young experts. The team initially had 13 members and organised temporary skilled workers; team members were on average 60 years old and had more than 30 years of experience in each field: knitting, weaving, dyeing, and sewing. The sewing experts remained in China for several days, while the other experts travelled back and forth to China for approximately two weeks. Further, they played an important role in training successors and assistants（ 10）. Uniqlo entered its factories, outsourced its in-house merchandise, and managed both production and quality. Naturally, sales were supported by product and quality management. Uniqlo’s production and selling were detached from its former trade system to buy products, and became embedded in a new trade system to manage its products. Uniqlo entered into collaborative relationships with its suppliers to create high-quality clothing. This type of relationship between a retail business and its suppliers could be perceived as the creation of a network, which changed from simple product purchasing by contracting with manufacturers to the retailer’s commitment to

9 『流通』No. 41 product quality. The changing relationship included characteristics of market transactions, but Uniqlo and its suppliers became embedded with each other through product management activities.

4.6. Embeddedness in sourcing networks: Suppliers’ reconstruction As Uniqlo’s business continued to grow, supplier relationships changed. At the beginning, Uniqlo primarily sourced inexpensive merchandise from the wholesalers in Gifu Prefecture, and purchased a few imported brands (Yanai, 2006, p.41). Uniqlo established a New York design subsidiary in 1994 and transformed itself into a speciality store retailer of private-label apparel with planning and development functions. The company drastically restructured its sourcing network at that time, from domestic apparel wholesalers to general trade companies‘ (Nippon Keizai Newspaper, Morning Paper’, 19th May 1997, p.13). Uniqlo and these general trade companies decreased the number of factories manufacturing Uniqlo products in China from 140 to 40 in 1998‘ (Nikkei Ryutsu Newspaper’, 14th March 2000, p.1). Uniqlo contracted with three general trade companies─Mitsubushi-shouji, Marubeni, and Nichimen (or the Soujitz Corporation, as of 2017)─and began purchasing products from their respective factories. Depending on the trades company, the management of appointed delivery dates, settlement of accounts, and import affairs varied. The ratio of this deal with these trade companies accounted for 80% of Uniqlo’s product sourcing in 2001, while direct deals with factories that the general trade companies did not have relationships with rapidly increased to 20%. Including the substantial direct deals in which these trade companies only handled import affairs, 35% of all procurements were substantially close to direct deals with the factories. Uniqlo utilised the functions of each general trade company, but was conscious of each factory’s individual production data and product quality（ 11）. Uniqlo began to discontinue relationships with domestic manufacturers and wholesalers in the mid-1990s, and instead developed relationships with general trade companies and local manufacturers in China. This type of sourcing reconstruction closely connected to Uniqlo’s product assortment, such as its narrow arrangement of merchandise and mass selling of a single item. A supply of several million quantities per item was a result of intensive production in each factory. A guarantee of the same item’s homogeneity often requires a firm to manufacture in the same factory. Uniqlo demonstrated its basic policy of mass selling by reducing item quantities and increasing the volume per item, and per colour and size of each item‘ (Nikkei Ryutsu Newspaper’, 20th April 1999, p.24). In the years leading up to 2000, Uniqlo‘ abolished parallel importing and adopted a narrow arrangement of items on sale. We decreased from about 400 items to around 200 items’ (Yanai, 2006, p.125). Further, Uniqlo sold 8.5 million units of fleece jackets, mufflers, and gloves in the fall and winter of 1999 (Yanai, 2006, pp.125-126) and 26 million units of fleece were sold in the autumn and winter of 2000 (p.127). Large-scale factories are indispensable to mass selling, but there were no large factories in Japan. More than 1,000 employees were required in one factory, and they had to manufacture 0.1 million or 1 million pieces a month in order to place mass goods on the market, but this was possible only in China (the Nippon Keizai newspaper, local economy page, 18th January 2000, p.23).

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Uniqlo increased its store sales until August 2001, as the company pursued the mass sourcing of narrowly arranged items as well as production and quality management. These processes were derived from Uniqlo’s mission, specifically, basic casual clothing that appeals to men and women of all ages. Consequently, Uniqlo constructed trade relationships with general trade companies, which had networks with foreign sewing plants primarily located in China. Uniqlo reconstructed its relationships with existent suppliers during this period of growth, and organised new supplier networks. Thus, the company’s sales and sourcing became embedded in its relationships with these new sourcing networks（ 12）.

4.7. Embeddedness in the main production centres in China As shown in the statement,‘ China where 90 % of all the goods in Uniqlo were manufactured’ ‘(Nikkei Ryutsu Newspaper’, 5th April 2001, p.1), the company’s Chinese production bases in 2001 satisfied its objectives for large-scale, low-cost apparel production and homogeneous item quality, as it primarily sourced commodities in China. Yanai explained that‘ [w]e manufacture in China because production in China lowers labour costs, and furthermore, there is no possibility of large- scale apparel manufacturing in Japan’ ‘( Nippon Keizai Newspaper, Local Economy Page’, 18th January 2000, p.23). Moreover, Japanese sewing companies are too small to respond to mass ordering and have no cost competitiveness ‘( Nippon Keizai Newspaper, Morning paper’, 19th November 2000, p.18). Further, 85 sewing factories within 60 firms were based in China in 2001; this includes an exclusive sewing factory that began operating in February 2001 and is located in Zhejiang Province’s Pínghú City, the manufacturing centre of the textile and apparel industry. Approximately 400 labourers were allocated to three workshops of 130 meters wide and 40 meters long with a production capacity of 0.6 million units of clothing per month, and the scale of production became three times greater than before（ 13）. Yanai notes that according to the company’s president,‘ The attractiveness of China as a manufacturing base lies in its high-quality products, as well as low costs. Furthermore, there are many young labourers in China; they are homogeneous in their work, and work very hard. They are suitable for the textile and sewing industry’‘ (Nikkei Ryutsu Newspaper’, 5th April 2001, p.3). As Uniqlo increased its number of stores and sales in the latter 1980s and 1990s, China’s position as a production base became stronger. Mass selling became possible through mass production and increased product quality homogeneity. Around 2000, the company’s apparel production and sourcing base, and consequently its apparel sales in Japan, became embedded in the Chinese production base. This embeddedness was not restricted to Uniqlo’s business. As indicated in the fibre, textile, and apparel foreign trade structures, China was incorporated into the division of labour in Japan’s apparel production, distribution, and consumption, and gained a production foothold. However, the process embedded in the existing manufacturing bases has progressed beyond this specific period, which is not necessarily long in duration.

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4.8. Conclusion Uniqlo’s sourcing activities were embedded in the foreign trade structures of the textiles and clothing industry in Japan, with its trade systems, specific sourcing network, and China as a manufacturing location. While Uniqlo was embedded in its societal structures, network, and territory, sourcing activities are generally conditioned by the changing foreign trade structures in the clothing industry. Uniqlo became embedded in the clothing industry’s specific foreign trade structures in the 1990s, from the point when its global production network was revealed through a Chinese production base. However, Uniqlo was not passive when faced with changing foreign trade structures, and instead utilised this change to source low-cost, mass-produced clothing from abroad. Japanese trade systems in the textiles and apparel industry were influenced by consignment trade, especially in the field of department and urban speciality store merchandising in the 1980s. When Uniqlo sought a no-returns purchase system and retail price discretions, sourcing availabilities were restricted regarding the width and depth of product assortments. Some Japanese apparel firms virtually held their own brands and maintained retail price discretions (Kinoshita, 2011), and Uniqlo was societally embedded in the trade system during that period. However, Uniqlo did not adopt conventional trade practices, and sourced low-cost goods on a no-returns basis. This paper traced the embedding process in Uniqlo’s sourcing network, which held the outsourcing of in-house merchandise as well as production and quality management. Uniqlo had to build a procurement system that enabled it to control the production and desired quality while attaining its target product quality and homogeneity. Some examples include the establishment offices in Shanghai and Guangzhou, and the Japanese employees stationed in China. Undoubtedly, Uniqlo selected suppliers that satisfied its required standards of production, quantity, and quality management. The company’s business growth was conditional on its supplier relationships, but it changed suppliers at the growth stage, from domestic apparel makers and wholesalers to the general trade companies in Japan and larger manufacturers in China, to gain the necessary sourcing performance. The production bases constructed in China convey the company’s territorial embeddedness. From the late 1980s to around 2000, China developed as a mass producer of fibres, textiles, and apparel, and by 2000 Uniqlo procured 90% of its products from China. Labour intensive, mass-scale factories were established in China, and came to realise Uniqlo’s required quality standards. Thus, China became an essential production location for Uniqlo. The company’s business became embedded in China because it was the manufacturing centre for textile and apparel, and its growth progressed harmoniously with Chinese growth as its manufacturing base. Uniqlo’s drastic growth from the late 1980s to around 2000 could not have been possible without China as its manufacturing base. Mass selling and mass production condition one another, as product quality and attractiveness increase sales quantities by expanding retail stores and arranging the conditions for high-quality in-house merchandise. Uniqlo’s mission was to supply‘ low-priced and good quality casual clothes based on a concept for all ages and both sexes’ (Fast Retailing Co. Ltd., Securities Report August

12 論文：How is a Retail Business Brand Embedded in Social Structures, Networks, and Territories? A Historical Case of Uniqlo（Akihiro KINOSHITA）

1994, p.14, in Japanese). The company’s business brand included mass selling based on mass production. The Uniqlo concept has become a reality through in-house merchandising, product and quality management, supplier reconstruction, and an established production centre in China. Thus, Uniqlo’s sales and sourcing were detached from the existing system, network and territory, and embedded in the new ones.

5. Implications of understanding a retail business brand in terms of embeddedness

The following theoretical implications have been extracted by examining the embeddedness in the Uniqlo retail brand. First, societal embeddedness is static for a fixed period, and limits and conditions economic actions. Firms must act under their existing production structures, present international divisions of labour, and trade systems, and adapt to the present embedded state. However, the societally embedded process is changing, and these changing social relationships allow a firm to reshape its own embeddedness. At this time, a firm can approach existing and changing environments, detach itself from existing social institutions, and create new relationships with others. Uniqlo transformed its sourcing network structure from buying clothes made in Japan to sourcing in China. As this paper demonstrates, embeddedness must be considered not as a state, but as a process (Dawson and Mukoyama, 2014). The environments surrounding firms are dynamic; this paper further revealed the changing apparel, production, and foreign trade structures that provided changing environments for Japanese apparel firms. A firm’s economic actions respond to changing environments, and utilise opportunities to rebuild its network with suppliers. Casual wear offerings by Uniqlo were supported by its global production network in the 1990s, and its mission of good quality, inexpensive apparel for men and women of all ages paralleled changing economic and social trends. A firm must understand its business environment, adapt its practices to this environment, and transform itself from a prior embedded situation to a newer state. The history of Uniqlo’s business brand demonstrates embeddedness is dynamic by nature. However, social institutions are not changeable during specific periods, and it is difficult for a retailer to drastically change its social relationships. This provides insight into why Uniqlo rapidly grew in the 1990s, and not in the 1980s, as the company developed its mass ability by forming multiple store chains in the 1990s. The rapid increase in imported clothes enabled Uniqlo to sell substantially more clothes than before. Further, a rapid increase in imported apparel production occurred in Japan in the late 1980s and 1990s, and Uniqlo utilised its own sales power and changes in its production structures to mass source its clothing, primarily from China. Second, the typology of societal, network, and territorial embeddedness is clarified through the case of Uniqlo, as societal embeddedness points to the broad environments beyond a firm’s control. Societal embeddedness was demonstrated in the company’s foreign trade structures, and its trade system involved both consignment and purchasing. It was impossible for Uniqlo to control either foreign trade structures or the trade system as a whole, but Uniqlo adapted to the changing environments surrounding Japan by using firms in Hong Kong and Japan’s general trade companies

13 『流通』No. 41 to access manufacturers in the Shanghai and Guangzhou areas. Moreover, the company formed a new network of suppliers by utilising purchasing sources in China. Network embeddedness relates to the task environments that a firm can influence, and this was expressed in the company’s vendor relationships. Uniqlo changed its suppliers from domestic vendors to general trade companies and large-scale Chinese manufacturers, then committed itself to partial product and quality management. Uniqlo’s sourcing activities led to superior product quality, homogeneity, and mass production, as it foresaw the potential in a global production network (GPN) for clothing in 1986, and used GPN as a concrete form of embeddedness ‘( Nikkei Ryutsu Newspaper’, 11th July 1996, p.24). Uniqlo exploited Chinese apparel manufacturers based on given apparel-manufacturing structures to manage their production and product quality, which supported Uniqlo’s brand. Territorial embeddedness as a spatial concept is observed in the company’s Chinese manufacturing base, as Uniqlo could only source large-scale, low-cost merchandise from China in the 1990s. The Uniqlo brand was established through this embedded process, and while this typology can be distinguished conceptually, the three types of embeddedness are closely intertwined in practice. This paper grasps societal embeddedness as the broad environment surrounding a firm, network embeddedness as a firm’s task environment, and territorial embeddedness as its spatial definition. The third point lies in the meaning of retail business branding, which is a holistic approach towards acquiring customers. A specific retail business mission statement dictates the relationships between the business and its environments, and forms the core of its branding. Uniqlo’s mission─to provide basic casual clothing appealing to men and women of all ages ─guided its sourcing activities. Further, market strategy and operational systems support and shape a specific retail business brand. Its focus involves how a firm recognises and realises a retail business brand through a specific embedded process. A firm must cope with this embedded process, which it cannot fully control. It must understand the past, present, and future embedded processes, and meld each activity into the retail business brand. Uniqlo presented one aspect of comprehensive retail branding through the transformation of its sourcing activities. This paper also contains some unsolved issues and limitations. First, a retail business brand is embedded in the business’ consumption structures and consumer perceptions. Further, Japanese clothing purchasing and consumption structures drastically changed in the 1990s because of the shrinking retail apparel market; shrinking household expenditures for apparel; fashion changes 14 expressed in item composition; and changes in households’ annual purchasing value for clothing（ ）. The relationships between the changing consumption structures in the 1990s and Uniqlo’s business growth are one point of focus. Moreover, this provides a compelling theme regarding how consumers’ perceptions changed toward clothing and Uniqlo (Yanai, 2006). This paper does not discuss the influences of societal structures or local characteristics on retail opening strategies and merchandise policy. For example, the Large-Scale Retail Store Law in the 1980s and 1990s limited and conditioned store opening strategies. Further, the possibility exists that Uniqlo’s basic casual merchandise may have been characterised by its origination in Western Japan; Japanese manufacturing methods may also be characterised in the Uniqlo brand concept.

14 論文：How is a Retail Business Brand Embedded in Social Structures, Networks, and Territories? A Historical Case of Uniqlo（Akihiro KINOSHITA）

These provide crucial points. According to Dawson (2015)‘, Cultural and social structures of consumers are ambidextrous in influencing and constraining the retailer, and also in being influenced and changed by the retailer’. These mutual relationships between consumption structures, consumer perceptions, and retail businesses are explained by considering the birth and growth of retail business in the home market. Second, further research will be required to investigate the specific factors involving a company’s mission, market strategy, and operations system that are embedded in social institutions, networks, and territories; how the embedding process has evolved to the next step; and how each factor relates to and interacts with one another under certain embedded situations. For example, Uniqlo’s mission─to provide basic casual clothing appealing to men and women of all ages─was attained through mass production systems in China. Its existing consumption structures and consumer perceptions might have changed during the proliferation of low-cost, higher-quality clothes. The created sourcing network enabled mass production, low costs, higher quality, and homogenisation across clothing items. This allowed Uniqlo to attempt intensive sales of one item, such as an item of fleece clothing; consequently, this particular trial contributed to changing consumers’ perceptions and cognitions regarding Uniqlo (Yanai, 2006, pp.112-116). However, the interrelations among these activities must be further clarified. Third, a retail business brand’s internationalisation provides an opportunity to understand the three types of embeddedness and their respective dynamics. For example, Uniqlo began its internationalisation by opening four stores in the United Kingdom in September 2001. Further studies on embeddedness in the retail internationalisation field during this period are required.

End notes

（1） Granovetter (2005) defined the economy’‘s social embeddedness’ as‘ the extent to which economic action is linked to or depends on action or institutions that are non-economic in content, goals, or

processes’ (p.35). （2） The business model, based on the work of Osterwalder and Pigneur (2010), is classified as (1) the key partners, key activities, and key resources as resource and infrastructure elements; (2) value propositions; (3) the customer relationships and channels as customer-facing elements; (4) customer segments; and (5) the cost structure and revenue stream as financial elements. （3） Yano Research Institute Ltd., https://www.yano.co.jp/press/press.php/001603, 7 January 2017. （4） The numerator, i.e. the revenue in Uniqlo Japan is based on the fiscal year of Sep. 2015 to Aug. 2016 and the denominator, i.e. Japanese apparel retail market is based on the calendar year 2015. （5） This paragraph is based on Yanai pp.44-45, and the Nikkei Ryutsu newspaper, 11th July 1996, p.24. （6） See the Nippon Keizai newspaper, morning paper, 21th January 2001, p.19. （7） See the Nikkei Sangyo newspaper, 12th March, p.4, 7th April 1987, p.18, 24th December 1992, p.14, and the Nippon Keizai newspaper, morning paper, 12th July, 1988, p.11. （8） These writings are based on Yanai (2006), p.43. （9） These writings are based on Yanai (2006), p.45. （10） This paragraph is based on the Nippon Keizai newspaper, evening paper, 22th February 2001, p.1.

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（11） This paragraph is based on the Nikkei Ryutsu newspaper, 5th April 2001, p.1. （12） Uzzi(1996, 1997) used interviews of executives from 23 apparel firms in New York, as well as data on superior dress apparel firms in New York, to demonstrate that apparel firms with both a market mechanism and specific relationships in their networks acquired high performance. （13） This paragraph is based on the Nikkei Ryutsu newspaper, 5th April 2001, p.1. （14）Ministry of Economy, Trade, and Industry, 'Census of Commerce, Volume by Items’, and Ministry of Internal Affairs and Communications,‘ Family Income and Expenditure Survey’.

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