In a crowded global retail landscape, there’s one brand that’s worth watching. <a href="http://www.workman.jp" target="_blank" rel="noopener">Workman Co., Ltd.</a>, a Japanese brand that offers workwear, athleisure and work-related products, describes its philosophy as “greater convenience, better quality and lower prices for the working people.” The chain has over 880 stores in Japan and is seen as a rising competitor to Uniqlo. As of August 2020, Uniqlo had 813 stores in Japan. <h3><b>Building A Portfolio of Profitable Stores</b></h3> One thing that’s giving it an edge over the competition is its unique business model that has reimagined the franchise system. Workman has two types of agreements for partners who want to operate a Workman store and are based on store sales volume: a Franchise Agreement and an Outsourcing Agreement. <b>Franchise Agreement. </b> Referred to as a ‘franchise agreement’, it is based on a 6 year contract that is renewable per agreement by Workman’s headquarters. Franchise partners need to invest 3.7 million yen ($35,230) of which 1.5 million yen (US$14,280) is refunded at the end of the contract. Under this agreement, the partner’s income increases as sales (gross profit) increases. <b>Outsourcing Agreement.</b> This agreement is based on a 1 year contract that's renewable as long as Workman’s headquarters agrees. In this case, the franchisee receives a fixed income of 500,000 yen ($4,760) per month plus a percentage of sales. The franchisee must invest 1.55 million yen (US$14,580) of which 1 million yen is refundable at the expiry of the contract. Unlike many brands that end up having more stores than customers, Workman has deliberately limited the number of stores. The company had limited its growth to one store per area with a population of 100,000. Starting in 2021, that will change to one store per 50,000 people. A typical Workman store does around ¥100 million ($952,000) per year, according to the company. However, they point out that Workman Plus stores can earn two to three times that amount by featuring fast moving products in the front of the stores. It’s all about experimenting with the store layout to cater to each store’s customers. Franchisees need to remit a ‘royalty’ of 60 percent of gross sales back to headquarters. In return, headquarters provides franchisees with store rental, equipment and fixtures, along with providing advertising flyers and TV commercials, and covering merchandise shipping costs. <h3><b>Workman in Numbers</b></h3> <b>20%</b> of Japan’s retail workwear market is held by Workman. <b>$849 million</b> in sales for the year ended March 2020, up 37.9% over 2019. <b>$460.4 million </b>(¥48 billion) in sales for the six months from April - Sept 2020, up 16.5% year-on-year. <b>$69.7 million</b> in net income for the six months from April - Sept 2020, up 27% year-on-year. <b>880 stores</b> in Japan. <b>95%</b> of stores are franchises. <b>38 straight months</b> of same-store sales increases. Workman had limited its growth to one store per area with a population of 100,000. Starting in 2021, that will change to one store per 50,000 people. <b>Growth Target for Athleisure wear: </b> ¥100 million ($1 billion)in sales, a 25% market share of Japan’s ¥400 billion athleisure market. <b>Growth Target for Stores: </b> 1,000 stores by 2025 and 2,000 stores by 2040. <b>Market Outlook:</b> Although Japan’s market for activewear is mature, it’s athleisure wear,now estimated at ¥400 billion ($3.8 billion), according to Yano Research Ltd., offers noteworthy growth opportunities. <h6><em>Source: Workman Co, Ltd. investor relations, Kaijinet.com, Nikkei Asia</em></h6> <h3><b>Going to Untapped Markets</b></h3> Almost all of Workman’s stores are ‘roadside’ stores, located in suburban and more rural areas, in contrast to most chain stores that typically are in malls or on high streets. Stores are medium size at around 330 sq. meters. As Workman looks to drive more sales through its own e-commerce store and its store on Rakuten, it is making sure that franchisees also profit. Goods purchased online can be collected in stores two days after the order is placed - and the amount of the sale is passed on to the member store. Workman’s headquarters covers the cost of shipping the products to the stores for pick up. These individual customer orders are grouped with normal inventory deliveries to stores, making it more cost efficient. <h3><b>Strategic Brand Shift</b></h3> When Workman was founded in 1982 it’s products were aimed at construction workers and other tradesmen, who needed performance apparel with a high durability. As the number of tradesmen was decreasing the brand realized that their products appealed to sports and outdoor enthusiasts and those seeking training wear. Workman discovered that there was an untapped market for low priced, performance apparel amongst younger consumers who saw wearing traditional blue-collar workwear as trendy. While many brands look to either provide high-performing garments to upmarket customers or more basic gear to the mass market, Workman opted to leverage the performance and price aspect of its workwear, which were part of its blue-collar model. It then added a bit of style through color, trims or playing with silhouettes. Workman has three sub-brands including FieldCore, for work and outdoors; Find-Out, for work and sports; and Aegis, high performance rainwear. <b>Tactic: Everyday Low Prices.</b> everyday low prices (EDLP) instead of discounting. About 50 percent of Workman’s merchandise is private label brands. Cold weather insulated jackets have retail prices of ¥1,900 ($18) to ¥2,900 ($26). Summer weight tops and bottom with a cooling effect retail for around ¥3,000 ($26.50), prices that are competitive with even online brands. Workman aims to test market 50,000 to 100,000 new products over the next fiscal year. Once it identifies winners, the brand will engage in full scale production based on demand forecasts with an accuracy of 10% to 15% <b>Tactics: Compete on Quality. </b> Develop products that are so much better than other products that it would take competitors several years to catch up. Also, to sell the same products to professional customers (tradesmen) and to consumers so Workman can support fewer but stronger lines. Although Workman has strong growth opportunities in its home market, it is eyeing expansion into the China market through e-commerce. Considering the popularity of Uniqlo in China, don’t be surprised if suddenly Workman became a bestselling brand there too.