Isetan - Company History

Isetan opened in November 1886 in Hatagocho, Kanda, as the Iseya Tanji kimono shop. Kosuge Tanji was born in Kanagawa, came to Tokyo to work at a kimono dealer in Yushima, was adopted into the Iseya rice-merchant family of Kanda, and then branched off to trade under a name assembled from both halves of his life — Ise from the family he married into, tan from his own. By the standards of the trade this was a late start: the rival kimono houses — Ito Gofukuten in 1611, Shirokiya in 1662, Echigoya (later Mitsukoshi) in 1673, Daimaru in 1717, Takashimaya in 1831 — had all opened two centuries or more ahead of him.

The department store as an institution did not yet exist in Japan; it was created in 1904, when Mitsui’s Echigoya was incorporated as Mitsukoshi Gofukuten with capital of ¥500,000 and began replacing seated selling with displayed goods, wooden shopfronts with reinforced concrete, and drapery with a full range of merchandise. Every large kimono house followed. Isetan did not compete on breadth. It made its name on a deliberately narrow line — sashes and printed patterns — and became known as “Isetan of the obi and the pattern,” a reputation built on selection rather than assortment.

When the founder died in 1916 his son took the name Kosuge Tanji as the second generation and, in 1917, converted the shop into a partnership as the first formal step toward becoming a department store. Six years later the Great Kanto Earthquake destroyed it. The store was rebuilt in April 1924 in department-store form — but the second Tanji judged almost immediately that the site itself was wrong, and began looking for somewhere else to go.

The land Isetan had been hunting for turned up in Shinjuku, on the former Mifuku site. Once the leasehold purchase was agreed, the company reorganized itself into a joint-stock corporation in September 1930 with capital of ¥500,000 — the corporate form was changed in order to acquire the site, not the other way round. In September 1933 the new seven-storey building opened with 16,500 m² of selling space, the Kanda store was closed the same day, and the head office moved. Isetan gave up forty-seven years of ground rather than run two stores and see which won.

What followed proved the move was not hedged. The neighbouring Hoteiya store was bought in June 1935, capital was raised to ¥4m that December, and by March 1936 selling space had passed 10,000 tsubo. A third extension begun in July 1937 was halted at the fourth floor in April 1938 as wartime controls tightened over retailing; the Department Store Law of 1937 then governed the industry, and by the end of the war stores were surrendering the bulk of their floor space.

After the surrender the Occupation requisitioned the Shinjuku flagship from the third floor up, and Isetan spent a decade running a deliberately shrunken business on what was left — while still buying land for the future, taking a site at Ikebukuro in December 1948 and opening the Tachikawa store in February 1952. The requisition was lifted in April 1953 and the whole building reopened that October. Sales for the half-year to May 1955 were ¥4.07bn, against Mitsukoshi’s ¥24.8bn for the full year 1954: Isetan was still a single-store house among national chains.

Growth was reinvested almost entirely in Shinjuku. Capital went from ¥400m in 1956 to ¥2bn by 1964; half-year sales passed ¥20bn for the first time in the period to May 1965; the shares were listed on the First Section of the Tokyo Stock Exchange in October 1961, twelve years after Mitsukoshi. In 1966 Isetan absorbed the neighbouring Marubutsu and put on its site Japan’s first department store devoted entirely to menswear, opened in September 1968 as the flagship’s annex — the building that would become the Men’s Building thirty-five years later.

By the mid-1970s Isetan was the most profitable department store in Japan and the least diversified. In the year to November 1976 sales were $616.5M (¥180bn) and recurring profit rose 53.1% to $20.4M (¥6bn), with 78.6% of the increase coming from retailing itself; at Mitsukoshi the same split ran the other way, 71.1% non-operating. Its 26.3% gross margin was the industry’s best. But every branch combined produced only a quarter of sales, and apart from Tachikawa every store had been opened since 1969 and every one stood in greater Tokyo. President Kosuge Tanji defended this: retailing is strong only where it is rooted locally, and jumping to Kansai or Kyushu would simply fail.

Where the house style was exported, it did not travel well. The affiliate Fujigo Isetan in Takasaki was repainted in Isetan colours down to the wrapping paper and the lift attendants’ uniforms, and local customers resented it; sales fell 6.3% in the year to November 1976. In Kumamoto, Isetan took only 35% and left 55% with the local partner. Abroad, the first overseas store — Isetan Singapore, opened January 1972 — survived by refusing to haggle in a market where haggling was normal, and grew about 30% a year by the late 1970s. Then, in 1989, the company reversed its own caution: a comprehensive agreement with the American luxury retailer Barneys, with ¥61.6bn committed to buildings in New York, Chicago and Beverly Hills, followed by a five-year plan calling for ¥300bn of investment and a queue of new domestic stores.

The expansion had to be financed with debt. The property company Shuwa had accumulated roughly 28% of Isetan’s shares by 1993, which under securities-industry rules barred the company from raising equity; interest-bearing debt went from ¥48.3bn at March 1990 to ¥118.3bn at March 1993, with ¥7.5bn of interest in that year alone. Mitsubishi Bank declined to support a share buy-back while the price was held artificially high, and turned cool on a planned 100,000 m² store in Yokohama. In January 1993 news that Ito-Yokado was in talks for Shuwa’s stake knocked ¥150 off the share price in a day. That March the company reported sales of $4.0B (¥443bn), down 5.4%, with recurring profit down 64%. In May the founding family’s Kosuge Kuniyasu resigned to become honorary chairman — a post that did not exist in the articles of association — and Koshiba Kazumasa, a merchandising man, took over.

Koshiba’s answer was to go back to being a retailer. In July 1993 he told his executives that Isetan would expand outright buying, carry its own inventory risk and differentiate on that basis; his first act as president was to tour the parties to the abandoned Odaiba project and apologize. Then came the rebuilding of the selling floor itself. At the loss-making Kichijoji store, a credit-division manager sent in as store head in 1994 abandoned the “town for young people” premise, lifted the share of clothing sales taken by customers over 45 from about 25% to 32–33% in a year, and returned the store to profit by March 1996. The same people brought the method to Shinjuku in 1996 as the okaiba revolution — stop calling it a place where staff sell and make it a place where customers buy — and used i-card purchase data to re-sequence the entire store. When Takashimaya opened a rival flagship in Shinjuku that October, Isetan’s sales rose 9.6% year on year.

Barneys, meanwhile, filed for Chapter 11 in January 1996 and sued; Isetan counter-sued and won an order for $197m in 1997, but wrote off ¥34.3bn in the year to March 1996 — its first loss since listing in 1961 — and ¥47.4bn across two years. The lesson entered the language of the company: asked in 1998 whether he would write a house rule, Koshiba said it would be “don’t touch anything outside the core business.” In 1999 Isetan stopped trying to make its branches into miniature Shinjukus and gave them the different job of being the best all-round store in their own district. In September 2003 it rebuilt the 1968 annex as the Men’s Building without adding a square metre, tearing out the brand-by-brand partitions and taking editorial control of the floor back from the suppliers; two years later 53% of visitors were men and sales reached $372.2M (¥41bn). The last moves were consolidating ones — Iwataya taken over by tender offer in 2005, a ten-year, ¥200bn investment vision in 2006 — and then, in August 2007, agreement to merge with Mitsukoshi. Isetan was delisted on 1 April 2008 into Isetan Mitsukoshi Holdings, and the operating company itself disappeared into Isetan Mitsukoshi Ltd. in April 2011.