What They’ll Wear to the Revolution

The strangeness of Tadashi Yanai is best appreciated in his natural element. Among the gray suits of corporate Japan, the head of Uniqlo stands out like beefsteak on a plate of sushi. In a business culture where senior executives tend to speak in soft monotones, stick to carefully vetted talking points and shuffle uncomfortably at personal questions, Yanai, 64, is as colorful as the T-shirts and sweaters in his stores. Talking so loudly that he drowns out his translator, Yanai is bracingly blunt on subjects ranging from the state of the Japanese economy (“We are on the edge of a cliff”) to the lackadaisical attitude of the country’s youth (“The younger generation relies too much on their parents”). He dresses casually in a plaid shirt and brown pants–his own label, natch–and underlines his brand loyalty by unbuttoning himself mid-interview to show his Uniqlo underwear.

The personal exposure is part of his shtick: Yanai has displayed his underwear to journalists before. But his idiosyncrasy is genuine, and it is key to understanding how Yanai has transformed his family’s tiny clothing stores into an international colossus with outlets from London’s Oxford Street to Shanghai’s West Nanjing Road to New York City’s Fifth Avenue. Fast Retailing, Uniqlo’s parent company, isn’t as big as some of its competitors, such as the Gap and Spain’s Inditex, which owns Zara, but it is catching up. While sales at the Gap have remained almost unchanged over the past decade, Fast Retailing’s have tripled to $11.8 billion, propelling Yanai into the ranks of Asia’s richest people.

How has Uniqlo managed to sneak up on long-established rivals during a global economic slowdown? It’s not just about low prices and marquee stores: walk a block or so to either side of its Fifth Avenue store and you can buy a cheap T-shirt at the Gap or H&M. On a recent afternoon, shoppers emerging from the Uniqlo store told TIME they were drawn by the Japanese brand’s reputation for innovative textile technology. “I could have got this color from Marks & Spencer,” said Kasturi Nagarajan, a software engineer visiting from New Delhi, as he fished out what looked like a white standard men’s polo shirt. “But I’ve got two of these at home, and I know they dry quicker and don’t stain as much as my other shirts.”

Much of Uniqlo’s advertising talks up the technology woven into its fabrics. A top-selling item is a down coat thick enough to ward off chilly temperatures but thin enough to crunch into a small bag. Fast Retailing has also developed special fabrics, including a light but insulating material called Heattech, which is fashioned into undershirts and other clothing, and a stretchy cloth for its AIRism line, formulated to be cool on hot days. “The sense of matching engineering with design–that’s what makes them special,” says Candace Corlett, president of New York City–based consultancy WSL Strategic Retail.

Prophet of the Loom

Inevitably, success has made an icon of the iconoclast: Yanai is one of the best- known Japanese business leaders since Akio “Walkman” Morita, Sony’s charismatic CEO during the country’s economic heyday in the 1980s. It has also made him the loudest advocate for change in Japan Inc., one who exhorts other companies to rediscover their entrepreneurial zeal by sweeping away the consensus-based decisionmaking and social niceties that sap initiative and creative thinking. “Other Japanese companies advocate globalization, but some of them want to retain their conventional practices,” he says. “Each one of us needs to embrace the concept of ‘change or die,’ [or] there will be no future for us.”

The mantra isn’t new: management experts have been preaching it to Japanese firms, mostly in vain, for nigh on two decades. But Yanai is a more credible messiah. As the first Japanese brand to break big internationally in decades, Uniqlo represents hope for a return to the nation’s golden period, when the likes of Sony, Panasonic, Toyota and Honda had the cachet now enjoyed by Apple and Samsung. Whereas other Japanese CEOs might hesitate to make grand declarations, Yanai says he wants Uniqlo to join the pantheon of Japanese superbrands: “We want to become No. 1 in the world.”

Yanai says his fellow businesspeople can create new globe-girdling successes if they embrace the nothing-to-lose spirit that characterized post–World War II Japan. “After the war, people had the guts to go abroad and establish their brands,” he says. “Out of the rubble, Sony and Honda started to tap into the rest of the world. So did Panasonic and Toyota.” He likens the country’s recent economic gloom–Japan was overtaken by China in 2010 as the world’s second largest economy–to the pall that hung over it in the 1950s but sees that as a chance for renewal: “This is another opportunity to stand up against defeat.”

Yanai’s call to action isn’t very welcome in the halls of the major corporations, where managers who slaved their entire lives crawling up the corporate ladder are deeply invested in the current bureaucratic systems. Unlike the go-getters of the 1960s, Japanese have become terrified of taking the risks crucial to rebuilding their businesses. “The obstacle is that losing face is a terrible thing culturally,” says Kenneth Grossberg, a marketing professor at Tokyo’s Waseda University. “One reason Japanese culture is so risk-averse is that they are ridiculed for their mistakes. I think it will prevent companies from globalizing successfully.”

Newer entrepreneurs, on the other hand, are more Yanai-like in their outlook. Online retailer Rakuten is boldly expanding outside Japan and created a stir by adopting English as its official language. Haruto Shiroma, founder of Mediwill, which helps patients collect information about doctors online, cites Yanai as an inspiration. “If we want to invent innovative products, we can’t make it happen without strong leadership like Yanai-san’s,” he says.

Birth of a Brand

Yanai takes “change or die” seriously: a framed sheet of paper bearing the maxim in English hangs in the corridor outside his large but utilitarian office in an otherwise nondescript building in Tokyo’s Akasaka district. He talks of the times he faced that choice. He inherited his parents’ menswear stores in his native Ube, a small town in a coal-mining region of Yamaguchi prefecture. Yanai had grown up above the first shop, but by the time he took over, the business was in trouble: customers were departing for better opportunities in Japan’s booming new industrial centers. If he didn’t follow, the business couldn’t possibly thrive. So in 1984, Yanai opened a store in Hiroshima, selling casual wear. He called the new shop Unique Clothing Warehouse, abbreviating it a year later to Uniqlo.

Japan’s retail industry was dominated by big department stores supplied by a network of designers, producers, wholesalers and distributors. Inspired by the Gap, Yanai shunted aside this cozy, high-cost arrangement and took control of the entire process, from design to production to distribution, ringing down prices for customers. He outsourced production to factories in China and passed most of those savings on to shoppers whose spending power was constrained by the economic downturn. Uniqlo’s first big hit was a fleece jacket launched in 1998 at a price of only 1,900 yen, about $15. By comparison, the average men’s shirt cost roughly $40 at the time.

Uniqlo’s supply-chain management meant that Yanai could control quality as carefully as costs. As a result, Uniqlo’s appeal was not limited to those looking for a bargain. “Yanai and Uniqlo made a revolution” in Japan, says Kensuke Kojima, a fashion-business consultant in Tokyo and author of the book Uniqlo Syndrome. The brand’s cachet is so broad, Kojima says, that “rich people, poor people, everyone wears Uniqlo.” Sales topped $2 billion for the first time in 2000.

While Uniqlo’s growth at home progressed apace, Yanai stumbled in some of his early forays into foreign markets. In 2005, Uniqlo launched its first three U.S. outlets in shopping malls in New Jersey, where nobody had heard of the brand. By 2006, all three were shuttered. Yanai tried again in 2011, this time choosing prime real estate like New York City’s Fifth Avenue. A high-visibility advertising campaign featuring Orlando Bloom and Charlize Theron ensured that the brand was no longer unknown. Uniqlo now has seven outlets in the U.S. and is aiming for 200 by 2020.

Hands-On Honcho

the rapid expansion of his business hasn’t changed the way Yanai runs his company. In the most notable departure from the norm, he has eschewed the typical Japanese style of managing by consensus. “Yanai sees traditional Japanese management practices as a bottleneck,” says Takayuki Kito, a partner at consulting firm Roland Berger in Tokyo. He single-handedly dictates the firm’s direction and is especially hands-on in design and marketing. Yanai approves every marketing slogan–sometimes doing a last-minute rewrite himself–and (a rarity for Japanese CEOs) occasionally drops in unannounced at Uniqlo outlets for a personal look at the displays and service.

Yanai has even less patience with standard Japanese labor practices. In Japan’s “salaryman” system, workers usually spend their entire careers at the first firm they join. Not so at Fast Retailing, which often hires people overlooked by other companies, such as workers switching jobs midcareer and those who have experience abroad. Uniqlo even has placed foreign nationals in senior positions, which is unusual for a Japanese company.

Not everyone regards Yanai as an enlightened employer. Japanese media have run stories saying his workers complain about long hours, exacting standards and high stress. Such reports have given Uniqlo a reputation as a “black company” that mistreats workers. Masahiro Watanabe, a journalist who has written extensively on the labor practices at Fast Retailing and other firms, says the way Yanai treats his staff is simply un-Japanese. “Traditional Japanese companies treat their employees as family,” he says. “Uniqlo thinks employees are only parts and something replaceable.”

Yanai is unsympathetic. Japanese workers, he says, “never work long hours. That’s the problem.” It’s a symptom, he adds, of a larger malaise, which stems from Japan Inc.’s successes of the 1980s: “Japan got rich, then it got spoiled.” If they don’t change, there’s a sign outside his office he’d like them to read.