UNIQLO parent plans price hikes to counter rising US tariffs
What's the story
Fast Retailing, the Japanese parent company of popular clothing brand UNIQLO, has warned that rising US tariffs will have a major impact on its operations from later this year. The company plans to raise prices wherever possible to offset the costs. Concerns over inflation and economic slowdown due to President Donald Trump's unpredictable tariff policies have already affected consumer spending in the US and other key markets.
Tariff impact
Trump announced a new deadline for 'reciprocal' tariff rates
Earlier this week, Trump announced a new August 1 deadline for "reciprocal" tariff rates on nearly all trading partners. Fast Retailing's Financial Officer, Takeshi Okazaki, said at the company's quarterly earnings conference that they will be significantly affected from autumn and winter. He added that it would be hard to absorb all costs, and their strategy would be to raise prices where possible while focusing on building a sustainable business that generates profits securely.
Production details
Most UNIQLO products sold in US are manufactured in Asia
Most UNIQLO products sold in the US are manufactured in Southeast Asia and South Asia. In a letter on Wednesday, Trump announced that Sri Lanka, a major apparel exporter to the US, will face a 30% tariff from August 1. Vietnam will have a lower 20% US tariff, but trans-shipments from third countries through it will face a 40% levy, Trump said last week.
Profit forecast
Fast Retailing has maintained its operating profit forecast
For the current fiscal year ending in August, Fast Retailing has maintained its operating profit forecast at 545 billion yen. The company had expected a limited tariff impact due to early shipments to the US market. In an earnings statement, it said "FY2025 impact likely to be limited, whatever the tariff rate," adding that a large number of products have already been shipped to the US.
Profit analysis
Operating profit for the 3 months ending May
Fast Retailing's operating profit for the three months ending May 31 rose 1.4% to 146.7 billion yen ($1 billion). However, this was below a consensus forecast of 153.8 billion yen based on a poll of five analysts by LSEG. The company has expanded from one store in Hiroshima, western Japan, to over 2,500 locations globally in the past four decades, selling affordable fleeces and cotton shirts mostly manufactured in China and other Asian production hubs.
Business hurdles
It expects lower 4th-quarter sales and profit in China
Fast Retailing's business model has been challenged by widespread tariffs announced by Trump. Further, declining sales in China due to weak consumer demand have also affected profits. The company expects lower fourth-quarter sales and profit in China due to overall lackluster demand for apparel. To counter these challenges, it is looking at North America and Europe for growth amid a slowing economy in China, its largest overseas consumer market with over 900 UNIQLO stores on the mainland.