Isetan Mitsukoshi Holdings - Company History

By the 2000s Japanese department stores were consolidating among the largest players: Sogo and Seibu merged into Millennium Retailing in 2003 and passed under Seven & i, and in September 2007 Daimaru and Matsuzakaya combined as J. Front Retailing to take the industry lead by sales. General merchandise stores, specialty chains and e-commerce had been taking share for a decade, and the pressure had reached the largest names. The Mitsukoshi–Isetan combination belongs to that wave. Announced in August 2007 and completed on 1 April 2008 by joint share transfer, it put both companies under a new holding company listed the same day on the Tokyo Stock Exchange — Mitsukoshi’s formality and nationwide store network on one side, Isetan’s buying-and-editing craft and the drawing power of its Shinjuku flagship on the other. Ishizuka Kunio of Mitsukoshi became president, Muto Shinichi of Isetan chairman.

The plan was explicitly slow. The target announced at the merger was operating profit of ¥75bn five years out (¥45bn from Isetan, ¥30bn from Mitsukoshi), but the first year was set at ¥34bn — only 82% of the two companies’ combined forecast for the year before — because unifying the information systems, the spine of the whole deal, would not finish until fiscal 2010. Until the systems connected, the central promise (Mitsukoshi borrowing Isetan’s merchandising data and buying power to stop running out of what sells) could not begin. The contrast with J. Front, which produced merger gains from its first year, was visible, and so was the gap between the partners: Mitsukoshi’s operating profit for fiscal 2007 was cut twice, from a ¥15.4bn plan to ¥8.5bn.

Then the timing turned catastrophic. The Lehman shock came six months after the launch. Sales of ¥1,426.6bn in the year to March 2009 fell to ¥1,291.6bn the following year with a net loss of ¥63.5bn; more than ¥120bn of department-store revenue disappeared in twelve months. Before the store rationalisation and staff redeployment that a merger is supposed to bring had properly started, management was fighting a structural downturn — and the sequence of integration slipped backwards.

Under the holding company, the group was rearranged. Iwataya — the Kyushu department store Isetan had taken over by tender offer in 2005 — became a wholly owned subsidiary by share exchange in 2009. In Hokkaido the sequence ran the other way: Marui Imai, founded in 1872 with four stores in the prefecture, filed for civil rehabilitation in December 2008 after competition around Sapporo station and a collapse in sales, and asked Isetan, already an ally and 13% shareholder, to sponsor its rebuilding. The Sapporo and Hakodate operations were carved out into new companies in 2009. In April 2010 Mitsukoshi’s stores in Sapporo, Sendai, Nagoya, Hiroshima, Takamatsu, Matsuyama, Fukuoka and Niigata were split into regional companies, and on 1 April 2011 Mitsukoshi and Isetan themselves merged into a single operating company. Three years after the holding company, the two houses were legally one.

In June 2012 Onishi Hiroshi, who had run Isetan, took the top job at the holding company with a clear creed: the source of a department store’s advantage is the floor its own buyers assemble, not the space it rents to luxury brands. He turned down repeated requests from Louis Vuitton and others to expand their concessions in the Shinjuku main building, and backed self-edited floors such as Re-Style and Isetan Girl to hold a high-sensitivity clientele. He treated selling as the craft itself — “the hardest and most important job in a department store is selling on the floor” — and argued for raising sales staff pay to raise sales rather than cutting labour cost when revenue fell. It was an unusual line in an industry drifting towards landlordism.

The recovery of the early 2010s, though, came mostly from inbound Chinese spending meeting the pull of the Tokyo flagships; the regional stores never stopped losing money, and higher pay lifted the labour-cost ratio. Operating profit held in the ¥33–35bn range through the middle of the decade and then broke: ¥23.9bn in the year to March 2017, down ¥9.2bn, then a net loss the year after. Fixing floors and running more events was not enough for stores whose problem was fixed cost. In March 2017 Onishi left the presidency mid-term, in what the press reported as a collision between the editorial creed and a faction that wanted structural surgery first.

Sugie Toshihiko took over in April 2017 promising selection and concentration while keeping his predecessor’s direction: resources to the three flagships — Shinjuku, Ginza and Nihonbashi — and closures elsewhere, starting with Isetan Matsudo and Mitsukoshi Chiba. The medium-term plan described the ambition as becoming “an IT company that also does retail,” a platform connecting people and the times. The intent was coherent — cut fixed cost in the regions, fund the flagships — but the actual digital investment never approached that of the companies it was benchmarking itself against, and the gap between slogan and spending was noted inside and outside the company.

The costs of reform arrived before its benefits. Sales of ¥1,196.8bn and operating profit of ¥29.2bn in the year to March 2019 gave way to ¥1,119.1bn, operating profit of ¥15.6bn and a net loss of ¥11.1bn a year later, as closure charges met a consumer slowdown. Then, in spring 2020, the pandemic removed both halves of the business at once: city-centre stores were ordered shut, and inbound spending vanished. In the year to March 2021 sales fell by ¥303.2bn to ¥816.0bn, with an operating loss of ¥20.9bn and a net loss of ¥41.1bn — the department-store segment alone losing ¥30.3bn, the worst figures since the merger.

In November 2020 the company withdrew its medium-term plan outright: its premises no longer held. Sugie acknowledged that the pandemic had changed how everyone in the company thought. The store-visit assumption that had carried the format for more than a century no longer held either, and with shops shut the customer relationship had to move to the personal-shopping (gaisho) sales force and to digital channels. Redesigning that relationship was left to the next chief executive.

Hosoya Toshiyuki became president and CEO in April 2021 and redefined the department store as a place visited for special occasions rather than routine buying — non-daily value, deliberately not competing with volume retail. His reading of the market was that spending had split in two: unstinting on the few things a customer cares about, ruthlessly rational on everything else. The strategic consequence was to stop counting footfall and start counting people. Customer IDs from the credit card, the app and the gaisho business were joined into one identity, so that purchase data could drive individual proposals — from running buildings to knowing customers, with retail and finance operated as one base.

The medium-term plan published in November 2021 built on that with three pillars: high-sensitivity premium retail led by Isetan Shinjuku’s editing, CRM around identified customers, and a “federal” strategy in which the group’s property, finance and systems companies earn outside the department-store business. Its target for fiscal 2024 was operating profit of ¥35bn and ROE of 5.3% — above the pre-pandemic peak. Recovery in identified-customer spending arrived at the same time as the return of inbound demand, and in the year to March 2024 operating profit reached ¥54.3bn, the highest in the company’s history and far beyond the plan. Sixteen years after the merger, the combination finally produced numbers no predecessor company had reached alone.