MUJI significantly reduced Chinese production sites due to cost pressure

Ryohin Keikaku, the company behind Muji, has announced a major strategic shift by significantly cutting down its production facilities in China. The firm plans to cut its 240 contracted manufacturing sites in the country by half within the next two years, aiming to reduce labor and operational costs. This move comes as the "Made in China" label for the garment industry is losing its appeal due to rising pressures on both raw material and labor expenses. According to an apparel industry analyst, the cost of production in China has become increasingly unattractive, especially with the sharp rise in energy prices and material costs. As part of its global strategy, Muji currently sources 100% of its best-selling knitted fabrics from China, while 70% of its garments are manufactured there, with 20% produced in Japan and the remaining 10% in other Asian countries. Most of the Chinese-made garments are produced through an OEM (Original Equipment Manufacturer) model. The analyst also noted that the ongoing increase in production costs has placed significant pressure on the entire garment industry. “Energy costs have become one of the biggest challenges for manufacturers,” he said. In 2010, Muji reported a net income of $321,000 for the first quarter, a drop of 26% compared to the previous year. A report from Macquarie Securities highlighted that Japanese companies once viewed China as a low-cost production hub, but now they are shifting their focus toward the Chinese market itself, seeing it as a long-term growth opportunity. Meanwhile, Wang Rong, an analyst from Hua Rong Securities, pointed out that in 2009, China's total retail sales of clothing reached 326.43 billion yuan, making up about 70% of the overall textile and clothing market. With a consistent growth rate of over 20% in the past five years, the clothing market was estimated to reach around 630 billion yuan in 2010, with projections of 10.5% annual expansion by 2015. Japanese advertising firms have also noticed a growing trend among Chinese consumers, particularly those in their 20s. These young consumers are more optimistic, socially active, and willing to spend compared to their Japanese peers. A key demographic attracting attention from Japanese marketers is the 200 million “post-80s” generation in China—13 times larger than the equivalent group in Japan. Interestingly, Muji, which adopted a low-price strategy in Japan, has seen its products become relatively expensive in China. For instance, a pair of right-angle socks can cost up to 50 yuan, with the high price including shipping, import duties, and store rents. Public data shows that Muji’s Shanghai stores charge 25–30% more than in Japan. Analysts suggest that this phenomenon—foreign brands becoming luxury items after entering China—is common. However, such pricing may not be sustainable in the long run, given China’s relatively low per capita GDP and the affordability concerns of local consumers. Matsuki Mujizaki, the chairman of Muji responsible for operations in Singapore, Thailand, China, and Hong Kong, stated, “My current goal is to strengthen logistics and make it easier for more people to buy at lower prices.” It’s worth noting that Muji’s parent company, Ryohin Keikaku, has faced financial difficulties over the years. After years of losses, it was acquired by Walmart in 2007 and subsequently delisted from the stock exchange. Muji’s overseas expansion has been challenging. It opened its first international store in London in 1991 and expanded to France in 1999, but by 2001, all its overseas operations were operating at a loss. Its path in China has also been rocky, with a brief exit from the mainland market alongside its parent company, Xiyou Supermarket, before re-entering in 2008. Experts emphasize that addressing high prices and managing cost pressures remain critical for Muji’s success in China. There is a growing trend among foreign fashion brands to move manufacturing from coastal areas to inland China or even to other parts of Asia, in an effort to maintain competitiveness.

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