Isetan, the women’s specialty chain

Isetan-MItsukoshi enjoyed a significant jump in turnover last year and is optimistic about the future – a future where the department store moniker will be increasingly inappropriate. It is already well advanced in rolling out small store chains, but its latest initiative to create a specialty women’s fashion chain is the project with the most potential.

Isetan-Mitsukoshi is reported to be planning to roll out women’s apparel and accessory specialty stores from next year. While such a chain has been expected for a long-time, the launch will be one of the most significant events since the merger of Isetan and Mitsukoshi. Although its other existing small store chains like MI Plaza, Isetan Mirror & Make, and the up-coming select shop in Nagoya (see JC1403) are major shifts in thinking, it is the women’s specialty store which has the most potential for serious expansion both within Japan and overseas.

The test store for the upcoming chain is the Haneda airport women’s store which will open 17 July. The 600 sqm space will stock the best-selling items from Isetan Shinjuku, in particular items from the Isetan-managed Ready for the Weekend area, as well as beauty products, gifts, bags and accessories. The Haneda store will have a cafe and nail bar due to the airport location, but some future stores may also offer cafes or juice bars, emphasising services to balance product sales. Store sizes of around 600 sqm to 2,000 sqm are expected.

The new women’s chain is being developed by a select team picked from within Isetan-Mitsukoshi’s womenswear and accessories divisions, brought together in a new division last September – the project itself has been in the planning since before the launch of Isetan Mirror & Make. The team is currently working on various merchandise models to suit different markets, but the core lines will be similar to merchandise sold within Isetan Shinjuku in Re-Style, Prime Garden, Ready for the Weekend and other Isetan-managed sales floors, as well as a completely new collection of private branded merchandise. In essence the new chain will be an upscale select shop.

There has been more positive movement at Isetan-Mitsukoshi in the last three years than in the last 25 – this is just the latest in a string of new ideas. Its end of year results were announced in mid-May, with operating profits soaring by 30% to ¥34.6 billion. Consolidated sales jumped 6.8% on 2012 to ¥1.321 trillion, putting the company slightly ahead of J Front Retailing, which finished at ¥1.146 trillion. Isetan-Mitsukoshi expects results to be flat this year, partly because of the tax hike and partly due to the transfer of its ¥26 billion direct mail operation to a new company jointly run with Japan Post. Final net profit was ¥20 billion, a 5.5% fall on FY2012, largely due to the cost of disposing of subsidiary interests and poor performances in the regions and overseas. In particular, problems with the Mitsukoshi store in Taipei led to a large unplanned outlay.

For FY2014, Isetan-Mitsukoshi was expecting a significant dip in demand in April following a 24.2% year on year increase in March, although its key flagship stores, Isetan Shinjuku, Mitsukoshi Nihonbashi and Mitsukoshi Ginza, are expected to stay flat over the first months of the financial year, and hopefully lead a pick-up at the end of the year – Mitsukoshi Ginza was actually up year on year in April. Overall sales in April were better than forecast at just 7.9% lower, fell just 2.7% in May and 4.6% in June.

Isetan-Mitsukoshi is also hopeful about its online sales. In the Spring, Isetan and Mitsukoshi finally completed unification of their IT systems and also installed a team of specialist buyers specifically for online operations, in order to create a more curated online store – this will likely benefit up and coming overseas brands. In the medium term online sales of ¥30 billion are expected, up from ¥9 billion in FY2013. Currently half this turnover comes from sales of traditional gifts, but almost all future additional turnover will come from fashion and lifestyle.

Much more emphasis will be put on omnichannel marketing, with e-commerce heavily promoted in-store, and store events mirrored online. A good example of this was the Gucci leather goods event in Isetan Shinjuku in March, which saw the same merchandise sold for a limited time online. Isetan-Mitsukoshi will also create separate online stores for its small format and speciality store chains, which will be available through third party malls like Zozotown.

The biggest negative factor facing the group is the JR Osaka store which continues to under perform. As reported previously, this has led to the handing over of large parts of the store for direct operation by JR West. Despite being open for just two years, the entire store will undergo refitting this year beginning late July, with some floors entirely closed for a period of up to six months, resulting in even worse sales in the coming year. In FY2013 to March, the JR Osaka Isetan-Mitsukoshi store brought in just ¥30.5 billion in sales, but it is expected to achieve only half of this again in FY2014, at just ¥17.5 billion.