Building the SPA blueprint: direct sourcing via Hong Kong (1988)

A retailer that stepped through to making the goods

The heart of this decision was not a negotiating knack for buying cheap, but the building of a procurement structure in which a retailer stepped all the way through to the “making” side. The proposition the roadside customer demanded — cheap, good-quality everyday clothes — could not be solved through Japan’s multi-tiered distribution; the only answer was to run everything, from planning through production to sale, in-house. Ordering directly from Chinese sewing factories with Hong Kong as the window, and locking up a top factory’s production line by buying it out entirely, was a structure born of that necessity.

The mechanism that survives in the record was set down in writing between 1994 and 1996, but its prototype reaches back to the searching done in Hong Kong in the late 1980s. The design — cut out the trading houses, narrow the item count, and secure a first-rate factory with large lots — paired with the operational discipline of governing the risk of goods that cannot be returned through weekly price changes (1995), and together they sustained the coexistence of low price and high quality. That it built the skeleton of procurement before the flashy products themselves is what prepared this company’s later leap.

For a retailer to step through to “making” was rare in the Japan of that time. That Fast Retailing built the prototype of the manufacturer-retailer early, and kept honing that procurement structure as the core of its competitive edge, is instructive as a lesson: what decides a company’s skeleton is not the hit-or-miss of products but the strength of the system that supplies them.