Tokyo: When Tadashi Yanai, the Japanese billionaire who founded Fast Retailing, opened a flagship Uniqlo store on New York’s Fifth Avenue in 2011, he said it was “the happiest day” of his life.

He believed then that the chain’s arrival at that prime US shopping destination took it a big step closer toward overtaking its larger global rivals, Inditex of Spain, the parent of Zara, and Sweden’s H&M. But a decade after Fast Retailing’s first foray into the US market in 2005, Yanai’s dream of becoming the world’s top brand remains just that.

The owner of the Uniqlo casual clothing chain has lost $5 billion (Dh18.35 billion) in market capitalisation — a drop of more than 12 per cent — since it shocked investors with a rare miss in its annual profit targets. Executives blamed the expanding losses at its US operations on the brand’s low recognition in suburban America and on weak management.

But analysts say the problems in the US run deeper. “They need to do redo everything from products, branding, ecommerce to management,” says Sho Kawano, an analyst at Goldman Sachs. “There is a mountain of challenges ahead.”

Kawano estimates US losses tallied more than 10 billion yen ($84 million, or Dh304.38) for the fiscal year that ended in August, and anticipates the US business will remain loss-making. While the company does not disclose its US revenue, Yanai has said he wants sales to reach 100 billion yen in three years. Sales in China, Hong Kong and Taiwan have already topped 300 yen billion.

Having aggressively pursued a global expansion plan, a humbled Yanai said the retailer would be more selective about choosing store locations. In the year ahead, it plans to open only five new Uniqlo stores in the US compared with 17 for the 2014-15 fiscal year.

“We’re going to bring together and dispatch to the US our elites worldwide to rebuild our management,” Yanai said.

Fast Retailing is not alone in its difficulties in the world’s biggest clothing market. Earlier this month, American Apparel, the US retail chain that won fame with its ‘Made in America’ tag, filed for bankruptcy protection. Other teen retailers such as Abercrombie & Fitch and Aeropostale have also struggled.

Rival Japanese retailers are also facing hurdles in replicating their successes in Asia in western markets. Ryohin Keikaku, which operates Muji stores, logged an operating loss of 482 million yen in Europe and the US during the March to August period while profits in East Asia grew 95 per cent from a year earlier to 7.8 billion yen.

However European groups that specialise in so-called fast fashion, most notably Zara and H&M, have thrived in the current climate where US consumer spending is constrained.

Uniqlo’s efforts to crack the US market date back to 2005 when it opened stores in three malls in New Jersey. A year later, it shut the stores and instead opened a lavish flagship store in Soho, New York, shifting its focus to big cities. In the years since, the company has once again tried opening stores in suburban malls, with mixed success.

Yanai has publicly expressed interest in acquisitions to strengthen Fast Retailing’s overseas profile. But its attempt to gain a partner in the US unravelled following a failed $900 million bid to buy Barneys New York in 2007.

It has since carried out smaller acquisitions, taking full control of Theory in 2009 and buying J Brand, a US denim wear label, in 2012. There was much talk last year that Fast Retailing was interested in US chain J Crew but a bid did not materialise.

Even without success in the US, most investors expect that booming sales in Asia will keep Fast Retailing’s growth story intact.

Annual revenue reached an all-time high of Y1.68 trillion, propelled by a 46 per cent rise in sales in China, Hong Kong and Taiwan which offset its US setback. Same-store sales rose 6.2 per cent year-on-year at Uniqlo stores in Japan, although that growth rate is expected to slow to 4 per cent in the year ahead.

Fast Retailing, which operates more than 1,600 Uniqlo stores worldwide, expects the number of overseas stores to top the number of domestic outlets in the current financial year.

Still, both company executives and analysts admit the US business is pivotal to Fast Retailing’s aspiration to become a top global player — and potentially the only market left that could become a new growth driver for Uniqlo.

“It’s impossible without the US,” says Takahiro Kazahaya, a Deutsche analyst. “It should continue with the challenge and the company has earned the right to continue since it makes money.”

— Financial Times