Uniqlo owner’s results may be Chinese bellwether for global retailers

Tokyo — Uniqlo operator Fast Retailing’s earnings on Thursday may give an indication of how major global retailers are weathering Covid-19-related shutdowns in China, one of the biggest growth markets for many Western brands.

China is Fast Retailing’s biggest overseas market, with 863 stores on the mainland, almost 90 outlets in Shanghai, where stringent lockdown measures, introduced in late-March, remain in place to contain the country’s worst outbreak of the pandemic.

Fast Retailing is due to report six-month results to end-February, and Covid-19 conditions in China have only worsened since the first quarter, when the company said profits from China slid dramatically.

The restrictions affect global brands such as McDonald’s and Starbucks, which each have dozens of outlets in Shanghai, but also disrupt the production hubs of major clothing retailers including Fast Retailing, H&M, and Nike.

Retailers have tried to speed up transportation of goods out of Asian production hubs after log jams at ports in the US in 2021.

But now the same thing is happening in Asia, with container ships lined up outside ports waiting to get in, said Keith Jelinek, MD of performance improvement for the Berkeley Research Group.

“These lockdowns in China have shut down a lot of production for manufacturing, so there’s going to be this long time frame to build all that back up, and that’s a concern,” he said.

Fast Retailing has more Uniqlo stores in China than in its home market of Japan. The fast fashion retailer opened a flagship store in Beijing in November, its third megastore in mainland China, and plans to open 100 locations in the country annually. .

China makes up about 60% of Fast Retailing’s overseas revenue. The company decided to close about 50 stores in Russia after Moscow’s invasion of Ukraine.

“The Shanghai lockdowns will affect [the] current quarter more than last quarter,” said Mark Chadwick, a Japanese equity analyst who publishes on the Smartkarma platform.

“I wonder to what extent [Fast Retailing] saw these lockdowns coming and were able to adjust production. If not, expect to see markdowns and lower gross margins going forward,” he added. 

Reuters