Everyone wants to win with GenZ and younger Millennials but doing so typically means jumping into the arena with Shein, Temu, Primark, H&M, Zara, Target and many others. This is a market that is price driven - but also wants something trendy. That said, not everyone wants Barbiecore, bold colors or flashy Y2K styles. Young, trendy consumers who want a more minimalist vibe are finding that no one does it better than GU.The brand, owned by Fast Retailing (Japan) brings a Japanese minimalist aesthetic through in easy-to-wear apparel that offers excellent quality for the price. With denim super wide cargo pants at $39.90, ‘chef’ pants at $19.90, cropped cardigans with UV protection at $29.90 and cotton lounge sets at $14.90, prices are affordable and products offer good quality for the price. "We want to achieve ¥1 trillion ($6.7 billion) in sales in the medium to long term." - Osamu Yunoki, CEO Growing Sales - and ProfitsThe success of GU is substantiated by its sales, which increased 20 percent year-on-year to ¥295.2 billion ($1.9 billion) for the fiscal year ending August 30, 2023.In the first quarter of fiscal 2024, the GU business segment reported large increases in both revenue and profit, with revenue rising to 87.8 billion yen ($592 million), up 10.7 percent year-on-year) and operating profit totaling 12.3 billion yen ($82.9 million), up 16.4% year-on-year, per Fast Retailing’s financial statement."We plan to double our sales to $4.08 billion in five years," GU CEO Osamu Yunoki told Nikkei Asia.GU operated 463 stores as of the end of August, including 36 across Taiwan, Hong Kong and mainland China, according to Fast Retailing’s financial statements. Though the company does not disclose sales by region, it is believed to rely on Japan for around 90% of the total."The year ending August 2024 is our time to solidify our footing to expand overseas," Mr. Yunoki said.GU accounts for around 10 percent of Fast Retailing's revenue, while Uniqlo accounts for an estimated 80 percent. Being able to grow GU is essential if Fast Retailing is to achieve its goal of reaching ¥10 trillion ($67 billion) in group sales in a decade. "Big apparel companies launch tens of thousands of new products a year, but we have narrowed our lineup in recent years to a half or less of our peak." - Osamu Yunoki, CEO Not Following Fast Fashion TrendsWhile most fast fashion brands focus on chasing the latest, trendiest fashion, GU has carved out its own niche offering young consumers a more toned down alternative.Although GU avoids much of the flashy trends that other GenZ focused brands lean into, the brand isn’t all about basics.Items like oversized wide-legged cargo trousers with a skater vibe and "chef" pants, an elastic-waist trouser that also comes in shorts are top sellers, alongside long skirts with cargo details and pretty sweaters.However, color palettes are neutral and garments have few, if any, trims. In a sense, GU offers a more budget priced take on Uniqlo.In October through December 2023, sales of Heavy Weight Sweat items, Heat Padded outerwear, Parachute Cargo Pants and other products that captured mass fashion trends proved especially strong, the company said.With its eye on US expansion, GU has sent about 10 executives to its new product development hub in Manhattan to study trends in New York along with Japan and create designs carrying global appeal. It will consider expanding the New York hub into an alternative headquarters, per Nikkei Asia.The Power of Physical StoresGU sees its brick-and-mortar stores setting it apart from rivals like Shein, which rely heavily on their online presence and massive product offerings. In contrast, Fast Retailing is focusing on streamlining operations so that it can better meet consumer demand and boost efficiency in production and distribution."Big apparel companies launch tens of thousands of new products a year, but we have narrowed our lineup in recent years to a half or less of our peak," Mr. Yunoki told Nikkei Asia. "We're already at under 10,000."Uniqlo uses artificial intelligence to collect and analyze 37 million suggestions from customers yearly. GU is using this system to forecast demand and streamline offerings."By eliminating products that are redundant or miss the mark, we can make our brand more attractive and easier for customers to understand," Mr. Yunoki said.Expanding E-CommerceWhile brick-and-mortar has been a core strategy, the brand is also strengthening its e-commerce operation. GU aims to solidify its logistics infrastructure for both retail and e-commerce in Hong Kong, Taiwan and mainland China by the end of this fiscal year, aiming eventually to expand e-commerce to 30% of total sales from 12% now.Fine Tuning Inventories to Adapt to Shifts in DemandFast Retailing has been working hard to develop a system that keeps inventories for its brands at reduced levels, while still ensuring that it doesn’t face stock outs. This has helped to reduce carrying costs, as well as moving the brands away from heavy promotions and discounting.“Pursuing operations that involve ordering roughly 70 percent of our products before the season starts and a further 30 percent or so depending on subsequent sales trends is something that we are now able to do not only in Japan but on a global scale as well. “STOP&GO decisions on orders refers to the curtailment of orders or the flexible ordering of additional production based on most recent sales trends." - Takeshi Okazaki, Group Senior Executive Officer & CFO “Overall inventory levels are improving year on year but inventory is not always uniform at the stock keeping unit (SKU) level. “In other words, we have some products that we should have stopped ordering that we didn't curtail completely and some products that required additional orders that we didn't manage to order in sufficient volumes. This is one area where we are looking to make considerable improvements going forward,” said Takeshi Okazaki, Group Senior Executive Officer & CFO.In addition, the retailer further fine tunes its inventory management with what it refers to as STOP&GO.“STOP&GO decisions on costs refers to our ability to suppress controllable expenses in the face of a significant drop in sales. We experienced large fluctuations in sales on multiple occasions during the COVID-19 pandemic, so we improved our ability to control expenses as an organization,” said Mr. Okazaki. “STOP&GO decisions on orders refers to the curtailment of orders or the flexible ordering of additional production based on most recent sales trends. We have always wrestled with this issue, but we have gradually gotten better at controlling orders. I think our ability to control both costs and orders across our organization has improved as we have focused our efforts in this area and built up more in-house experience.” “We responded particularly well in this first quarter to the sharp fluctuations in sales caused by the warm weather in September and October and the sudden drop in temperatures in November. However, there is plenty of room for improvement on an individual-store or SKU basis, so we are not fully satisfied with the current level of achievement,” he added.A Strong OutlookFollowing in the footsteps of sister brand Uniqlo, Japanese apparel company GU looks to become a globally recognized name.The retailer considers overseas expansion crucial to continued growth, and already has a presence in greater China. "We want to achieve ¥1 trillion ($6.7 billion) in sales in the medium to long term," Mr. Yunoki said. "We hope to get our business in the U.S. and China on track, and expand into Europe and Southeast Asia.”“We predict North America and Europe will generate higher-than-expected significant increases in first-half revenue and profit. “The Greater China region and South Korea are expected to perform as planned by generating higher revenue and profit. UNIQLO Southeast Asia, India & Australia is expected to report significantly higher revenue and profit. “However, first-half performance is predicted to come in below plan following the lower-than-planned performance in the first quarter,” the company said.While the company as a whole is expecting a slower first half, GU is set to power ahead.“The GU segment will meet expectations by reporting higher first-half revenue and a considerable increase in first-half profit.”