Fast Retailing, Asia’s largest clothing retailer and owner of the Uniqlo fashion brand, has said it expects a significant drop in profits in China this year as it warned on the impact of the country’s Covid-19 restrictions.
“We are very much in trouble with China’s zero Covid policy, in terms of profit and the livelihoods of our employees,” Tadashi Yanai, chief executive of the Japanese group that is seen as a bellwether for multinationals’ performance in China, told reporters on Thursday.
“Shanghai has been forced to suspend operations and shipping from the port has become difficult,” he added.
Yanai’s blunt remarks come as a series of lockdowns in cities across Chinese adds pressure on transport and logistics in the country, exacerbating the economic fallout from the government’s coronavirus containment policies.
Fast Retailing’s Greater China business, which includes Hong Kong and Taiwan, accounts for 55 per cent of its international operating profit, which on Thursday the company said had hit Y100.3bn ($801mn) for this six months to February.
Mainland China is the company’s largest market with 863 stores, compared with 802 in its home market. In March, 133 of its Chinese shops, including those in Shanghai where strict lockdown measures are in place, were forced to close.
International clothing brands including H&M and Nike, already suffering from the impact of a consumer boycott after distancing themselves from Xinjiang cotton, have also warned that the lockdowns will drag on their businesses in China.
Despite the setbacks, Fast Retailing raised its full-year net profit forecast for the year to the end of August, to Y190bn ($1.5bn). That is up 9 per cent from the previous forecast of Y175bn in January, as Europe, North America and the rest of Asia are expected to boost profit.
Yanai also warned on the impact of the weakening yen, which this week plunged to its lowest level against the US dollar in nearly two decades, against the backdrop of rising shipping and raw material costs.
“The weak yen has no merit whatsoever. From the perspective of Japan as a whole, there are only disadvantages,” said Yanai.
“Japan is engaged in the business of importing raw materials from all over the world, processing them, adding value to them, and selling them. In this context, there is no advantage if the value of a country’s currency weakens.”