Isetan-Mitsukoshi: the premium services business

The pace of innovation at Isetan-Mitsukoshi recently has been unprecedented but it looks like being just the start. As well as small format stores, it is looking to grab a slice of the premium end of some lucrative service industries too, in weddings, travel and healthcare. It plans to open travel stores and ‘health care malls‘ – the first truly relevant response to the potential of the senior market by a department store.

Isetan-Mitsukoshi is in the throes of creating new service businesses alongside its push into small format retailing. Its first plan is to create a new business selling wedding services alongside dresses, suits, jewellery and accessories, both at its department stores and in Isetan Wedding, a dedicated stand alone chain of stores.

Mixing products and services is core to the department store‘s new approach to retailing. The new childrenswear and maternity sales floor at Isetan Shinjuku for example combines sales of clothing with services such as education programmes for toddlers, and advice on pregnancy and childbirth. Along with small format stores and e-commerce, services is clearly one of the three main strategic pillars for Isetan-Mitsukoshi’s future vision of itself as a diverse premium retailer.

The next services business to be tackled will be travel. The group already sells premium travel and even has its own fleet of coaches under the Mitsukoshi brand, but it will now start selling travel in earnest. A new subsidiary called Isetan-Mitsukoshi Travel was set up last month. It will absorb the existing travel division and start operations from July, with sales of ¥7.5 billion expected in the first year. Isetan will cancel its existing joint venture with JTB which saw sales of ¥3.3 billion in 2013.

Within the travel stores, Isetan-Mitsukoshi will marry its travel goods merchandise with existing and new travel services such as bespoke holidays and other upscale travel packages. At its department stores, these high value packages will help raise average sales densities and profit margins, while branded travel boutiques outside department stores selling merchandise and services should also prove lucrative, further enhancing Isetan-Mitsukoshi’s branding as a purveyor of high fashion and luxury across all aspects of Japanese life – tourists included.

According to sources, both the Isetan and Mitsukoshi brands will be used on stand alone travel stores, with Isetan for the younger 30s-40s market, and Mitsukoshi for active seniors.

The department store isn’t stopping at just travel services. Healthcare is next. Last month it formed a joint venture called Smart Life Management with Hulic and Smart Medical, 51% owned by Hulic, 34% by Isetan-Mitsukoshi and 15% by Smart Medical. Hulic is a real estate developer and Smart Medical operates ‘medical malls‘, essentially medical clinics at railway stations, as well as remote health care advisory services.

The three companies will combine their particular know-how to create ‘next generation’ health care malls. Isetan-Mitsukoshi will provide its mall and store management experience and much of the merchandise. As with other Isetan Service ideas, the malls will combine sales of services – healthcare and treatment – alongside merchandise such as medicines, health care machines and gadgets, cosmetics, anti-ageing treatments and so on. The core target will be wealthier seniors, and this new move by Isetan-Mitsukoshi to capture a share of the considerable healthcare spending of this market is a stroke of genius.

The malls will be located in station buildings, SCs and within Isetan-Mitsukoshi department stores, and, like wedding and travel services, provide a potentially high turnover solution for those dreary upper floors. The first mall will open in 2016.

What‘s next? With Isetan-Mitsukoshi seemingly wishing to create service businesses for every stage of Japanese life – rival retailer Aeon already offers funeral services, so premium end of life services too perhaps – the possibilities for interior design stores, and even sports clubs suggest the extension of the department store brand has significant potential.