I've followed Japan's Fast Retailing (OTC BB: FRCOF.PK) for a few years now, so I can't say I was terribly surprised by the $900 million bid the company made for Barney's last week.

Barney's, which is owned by Jones Apparel Group (NYSE:JNY), is already slated to be sold to Dubai investment group Istithmar for $825 million. But you can hardly blame Jones for wanting to talk to Fast Retailing if it's willing to pay more after any breakup fee is paid to Istithmar.

The Jones side of the equation has plenty of angles to consider, but I'm far more interested in what's going on at Fast Retailing. Fast Retailing's Uniqlo brand is a powerhouse in Japan. Uniqlo sells only very basic clothing items, but the company does quite well, and when I lived in Japan, I was more than happy to pick up my basics at Uniqlo over Gap (NYSE:GPS). As a mature chain in Japan, Uniqlo also generates oodles of cash flow, which any company ought to be pleased with.

Uniqlo lacks growth opportunities in Japan, though, and Fast Retailing has turned to overseas markets for the brand, the development of new brands from scratch, and acquisitions of new brands in Japan and Europe. Thus far, there has been talk of success, and sales have increased, but the only meaningful movement in cash flow has been for capital expenditures.

I'm not a fan of retail companies that view themselves as a portfolio of brands. Gradual extensions of a brand can make sense, but when companies begin piling on brands, it rarely works out well. With every new brand added to the business, I wonder how Fast Retailing will focus and grow any of them meaningfully without materially increasing its cost structure. Also puzzling is that the businesses the company has acquired don't appear to have much overlap. Currently, its ownership stake in Theory is the only one that would likely to have much overlap with Barney's. I'm not convinced that diversification helps in a business where fashion matters, particularly when the company diversifying has a history of sticking to basics.

Instead of acquiring multiple brands and trying to get one of them to catch fire, I'd much rather see Fast Retailing move toward an approach that focuses on returns on capital and returns to shareholders via larger dividends and share repurchases. This might not be as glitzy and fun for management, but I think it would lead to higher returns for shareholders.

If Fast Retailing were to take a Limited Brands (NYSE:LTD) approach and narrow down to a few core brands, jettison the rest, and up its dividends and repurchases, I'd get very interested. But I don't expect the company will take an approach that narrows its focus. If anything it's more likely to take on more acquisitions that dilute its focus unless things get materially worse.

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At the time of publication, Nathan Parmelee had no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy. Gap is a Motley Fool Inside Value selection and Limited Brands is a Motley Fool Income Investor selection.