New No.1 Department Store

[Mulboyne]

Mainichi: Daimaru and Matsuzakaya dept. stores to agree on merger
The Daimaru and Matsuzakaya department stores are set to merge, sources involved in the negotiations said Saturday. Osaka-based Daimaru and Nagoya-based Matsuzakaya are expected to finalize the merger agreement possibly by the end of the current business year, according to the sources. However, both outlets will retain their respective names after the proposed merger to preserve their brand identities in the local communities where they operate. The merger would make the new company the nation's largest department store with annual sales of 1.16 trillion yen, surpassing Takashimaya with sales of 1.03 trillion yen.

Matsuzakaya had been trying to redevelop their Ginza site but ran into planning objections so they were running out of options.

[Mulboyne]

Good chance that there'll be a new number one:

[floatl][/floatl]Asahi: Mitsukoshi, Isetan eye merger in survival bid
Mitsukoshi Ltd. and Isetan Co. have started talks on a possible capital alliance with an eye to integrating their respective managements to create the nation's largest department store operator, sources said Wednesday. Mitsukoshi and Isetan currently rank fourth and fifth, respectively. With the establishment of a holding company, sales would exceed those of current leader Takashimaya Co. as well as those of the planned holding company for Daimaru Inc. and Matsuzakaya Holdings Co...more...

It will make Shinjuku interesting since both companies have stores right across the street from each other.

[GuyJean]

Will it be 'Mitsutan' or 'Isekoshi'?

Do department stores actually make money anymore? Aside from the weekend/sales-once-year rush, they seem to be empty with a lot of staff wandering around battling the sub-artict temperatures the AC is pumping out.. No overhead there.

GJ

[Jack]

[quote="GuyJean"]Will it be 'Mitsutan' or 'Isekoshi'? ]

Don't know which department stores you go to but everytime I go to Keio or Takashimaya in Shinjuku they are packed. Or Mitsukoshi in Ginza is always packed too, actually any Mitsukoshi except for the one in Ebisu is packed. I have even been to the one off the tourist path in Kichijyoji (?) (or what's the end station of Keio's Inokashira line?). Department stores in Japan are still the best place for shopping and I imagine they are making money. I'm a big shopper and I spend enough time in department stores to know that they are always packed.

[Mulboyne]

The basement food courts and street levels are usually always busy in Tokyo department stores but customer levels thin out quite sharply as you go up, especially midweek. Overall sales are still down 30% from bubble levels and things have inevitably been much worse on the bottom line. This is the third major department store alliance announced recently (Hanshin and Hankyu was more about the railways, though) and companies in Japan don't do that if they feel comfortable with their current business model.

June sales were very strong but this might have been because of unseasonable weather since most of the gains were in clothing.

[Samurai_Jerk]

Don't know which department stores you go to but everytime I go to Keio or Takashimaya in Shinjuku they are packed. Or Mitsukoshi in Ginza is always packed too, actually any Mitsukoshi except for the one in Ebisu is packed. I have even been to the one off the tourist path in Kichijyoji (?) (or what's the end station of Keio's Inokashira line?). Department stores in Japan are still the best place for shopping and I imagine they are making money. I'm a big shopper and I spend enough time in department stores to know that they are always packed.

I'll have to agree with Jack here. Places I got are busy on any floor at anytime of the week.

[GuyJean]

Oh, so I guess they're full of people not buying anything.. And why the mergers if sales are rosy? Aren't mergers the Japanese way of hiding debt?

I intentionally avoid department stores, especially during weekends, so I guess I'm not the best judge. They're only good for bird watching, in my opinion.

GJ

[Kuang_Grade]

I'm wondering what's pushing these mergers to be happening right now...After all, it hasn't been peaches and cream in J retail for a long time, so what's bringing it to a boil this year instead in previous years? Is it that the demographic trends are finally catching up to the departos' fixed costs and there aren't simply enough pretty young things buying alot of clothes and too many cheap ass old folks who won't spend money? Other retailers, such as specialty stores or online merchants are clearly nibbling on the department stores customer base but it doesn't seem like they are completely eating the department stores' lunch (unlike in the US, where there has been 20 years of merger after merger in department stores due to the one-two punch of speciality stores and mass merchandizers knocking out most of the department store's customer base). While mergers may offer some back office savings and some increase buying power, short of shutting down stores and getting rid of alot of people (which doesn't seem likely), what are the big benefits in merging? Avoiding stock duplication/increased market/product segmentation for the stores? (ie, one will have a kick ass watch section and another will have a kick ass luggage section instead of both having half assed watch and luggage sections?)

[Mulboyne]

Seibu and Sogo department stores were both financially troubled. A restructuring led to a rather odd merger and later they both became part of the Ito Yokado group. This was bad news for the other department stores since it raised the prospect that the Aeon group might also seek a foothold in their business. The Murakami Fund was the catalyst for the Hanshin/Hankyu merger after they controversially went after Hanshin. The rise in commercial real estate values over the last few years has turned other department stores into attractive takeover targets and their sales have not recovered sufficiently to make them invulnerable so they are running into each others arms in the hope this will make them too big a mouthful.

Mitsukoshi, in particular, was in a weak position so they will be the junior management partner in any link with Isetan. With Daimaru and Matsuzakaya all set to merge, that leaves the railway department stores such as Keio, Meitetsu, Tokyu, Odakyu etc along with other smaller stores like Marui and Matsuya. The railway stores are probably too complicated for a retailer to pursue because they are integral parts of larger conglomerates but there may yet be some deals. For instance, Tokyu shut down their iconic Nihombashi store some years ago but still have sales around a quarter the size of Takashimaya.

[GuyJean]

Communication breakdown..

Um, was that English or 'depaatogo'?

Actually, I got most of it.. After the third reading.

It seems like a merger, of any sort, would have to complement each other in order to be successful.. But I'm not sure it works that way in Japan. We are all Japanese, remember; If my 'competitor' fails, then I fail.

Hey Kuang, you're 'demographics' comment sounds like an analyst I recently listened to; but he mentioned something about the declining birth rate.. Don't remember much more; was trying to solve the declining birth rate problem.

GJ

[Mulboyne]

It's worth mentioning that a lot of this movement is about clothing sales. Department stores still sell a lot of gear. This ranking is old since it relies on 2005 data but here are the top 10 apparel retailers in Japan (I can't be bothered to check all the numbers but you can get the idea):

Takashimaya - 435 billion yen
Mitsukoshi
AEON
UNIQLO
Shimamura
Ito-Yokado
Marui
Daimaru
Isetan
Sogo - 250 billion yen

Fast Retailing (Uniqlo) has shown some acquisitive ambitions overseas so they aren't out of the mix either.

[GuyJean]

It's worth mentioning that a lot of this movement is about clothing sales..

And the 'warm-biz'/'cool-biz' capital-bull-fucking-shitalism.. Like anyone turned down the AC because Kenji Oyaji wore suits with mesh crotches..

(Actually, I have some cool-biz pants and shirts, and they are much cooler.. Now I fucking freeze my ass off in the office. But I'm much more comfortable walking on the street.. Was that the intention? )

GJ

[GomiGirl]

Our office is like an oven. I keep turning the aircon down as my staff keep turning it up to 27-28.. drives me nuts.

[Jack]

It's true that on some days of the week not all floors of department stores are busy. That's to be expected. However, Japanese department stores have a level of service that is very very high and they have probably not lowered this when sales took a dive following the bubble, except for eliminating the elevator girls.

I don't know what's behind the wave of mergers but could it be a pre-emptive attempt at fighting the potential threat of private equity? J-department stores are rich in real estate and that value probably does not reflect in their share prices, for the publicly traded ones.

[Mulboyne]

Department store operating margins are generally low single-digit which is not good news for any retailer. The level of service is still high but, increasingly, this doesn't depend on the department stores themselves as they have farmed out more and more space to their suppliers and even competitors. Odakyu, for instance, has left its electronics division in the hands of Bic Camera. Most of the staff you see working with cosmetics, handbags and other accessories on the lower floors no longer work for the department store but are sent by the manufacturers. The stores have trimmed costs but they all let their properties deteriorate after the bubble burst and are only now catching up with much needed renovations.

They still sell a lot of clothes but the supermarkets and Uniqlo have taken a larger share and the overall market isn't expanding. Foreign brands continue to open their own sites which means that you have more options than a department store if you want to buy them. There's no real private equity threat for department stores, but the likes of AEON are hovering and if they don't bulk up then they might not have the premium buying power they used to enjoy for so many years.

[GuyJean]

Thanks for the info, Mulboyne..

Since stores are still crowded even with sales down 30% from the bubble, does that mean they were 30% more crowded then? Or, are people shopping more like me? Doing 'research' at the brick and mortar stores then buying from Kakaku.. I think people 'window shop' more these days.

Do women change brands of make-up much? Seems like once they get a brand they like, they stick to it. And now they can order their refill online rather than going to the stores.

I think they need a different approach; department stores should remodel most upper floors to daycare centers and/or retirement centers. It would promote couples to have more children - depaato locations are usually close to stations and would be convenient for parents. And the retirement centers could be like 'silver centers' with club activities and hospice care.

The lower floors should be showrooms; new designs on display for touching/feeling, etc., but all purchasing would be online. Their stock could be stored in warehouses where rent is cheaper, which would make the actual stores smaller allowing more retailers in the location..

Of course, then the department store would be even more crowded.. With sreaming kids, slow walking old people, and kechi housewives.. rather than fine chicks in tight skirts and fuck-me pumps out to be seen. They shouldn't change a thing..

GJ

[Mulboyne]

A big part of the fall in sales has been a sharp cutback in corporate gifts. This has been ongoing - Mitsukoshi's corporate and wealthy individual sales department last year reported a decline of 15% compared with the year before. Companies used to phone up and order regular oseibo and ochugen consignments as well as a whole range of corporate gifts but this practice is just not in favour right now. People still see department stores as destinations but they might make their purchase elsewhere after checking out what is available. You are right that years of deflation has made customers less tolerant of their premium pricing.

[Doctor Stop]

http://www.yomiuri.co.jp/dy/business/20070727TDY08007.htm

Observers said Mitsukoshi, which has been mired in financial difficulties, likely made the first move on proposing the deal. As a long-established store, Mitsukoshi's strength is services for corporate customers. However, sales to these well-heeled customers fell by 15.5 percent to 18.7 billion yen in the business year ending February, compared with the previous business year.

The plunge was attributed to weak demand for seasonal gift products among corporate customers. Sales at Mitsukoshi stores in shopping centers that opened in Musashimurayama, Tokyo, in November, and in Natori, Miyagi Prefecture, in February also have been sluggish. A new store is scheduled to be opened in the Umeda district in Osaka--a busy commercial area already home to outlets of Hankyu Department Stores Inc. and Daimaru--in the spring of 2011.

These conditions apparently prompted Mitsukoshi to take drastic measures to boost sales and turn itself around.

[Jack]

Department store operating margins are generally low single-digit which is not good news for any retailer. The level of service is still high but, increasingly, this doesn't depend on the department stores themselves as they have farmed out more and more space to their suppliers and even competitors. Odakyu, for instance, has left its electronics division in the hands of Bic Camera. Most of the staff you see working with cosmetics, handbags and other accessories on the lower floors no longer work for the department store but are sent by the manufacturers. The stores have trimmed costs but they all let their properties deteriorate after the bubble burst and are only now catching up with much needed renovations.

They still sell a lot of clothes but the supermarkets and Uniqlo have taken a larger share and the overall market isn't expanding. Foreign brands continue to open their own sites which means that you have more options than a department store if you want to buy them. There's no real private equity threat for department stores, but the likes of AEON are hovering and if they don't bulk up then they might not have the premium buying power they used to enjoy for so many years.

Basically acting like shopping centre managers? The Burberry section within a department store, as an example, might be owned and run by Burberry itself, and same with other brands whichever they might be? If that's the case, it's not a bad way to lower expenses without negatively impacting service.

[jackedup]

Well, having companies run their own little sections in a department store is exactly how they do it in some of the department stores in England. I know the tiny boutiques in Selfridges & Co. in England are just like spaces rented by fashion houses (Chanel, Burberry, etc).

[Mulboyne]

[Mulboyne]

Bloomberg: Isetan Mitsukoshi to Close Stores in Japan, Europe, Nikkei Says

Isetan Mitsukoshi Holdings Ltd. will close the Mitsukoshi department store in the Ikebukuro section of Tokyo, the first store to shut since 2000 in the central part of the city, Nikkei English News reported, without citing anyone. Isetan Mitsukoshi will also shut stores in other locations in Japan, as well as in all locations in Europe, the news service said. The company has faced competition from Seibu Department Stores Ltd. and others in the Ikebukuro area, Nikkei said.

Other reports say they will probably close the Mitsukoshi in Kagoshima, branches in Germany and the Isetan in Shanghai.

[Mulboyne]

Isetan Mitsukoshi has announced revised forecasts for the fiscal year ending March 2010. They are now expecting to earn operating profit of only 2 billion yen which would be a 90% fall. They will be closing the Isetan store in Kichijoji next year which is being reported as a further sign of tough times in the department store industry.

[Mulboyne]

Mainichi: Growth of budget retailers, online stores led to fall of Seibu Yurakucho department store

Behind the decision by Seven & i Holdings Co. to close the Seibu Yurakucho department store in Tokyo later this year lies the burgeoning market of low-budget clothing retailers and online stores amid the prolonged recession.

The Seibu department store made inroads into the high-end Yurakucho shopping district during the 1980s, backed by strong sales at its Ikebukuro and Shibuya stores in Tokyo. Located close to Yurakucho Station, the Yurakucho branch has mainly targeted young women with a wide selection of clothes and household goods, rather than the middle-aged and elderly who are usually the major clients of department stores.

However, upmarket department stores have been suffering from declining customers since the financial crisis in the autumn of 2008 triggered employment insecurity and a decline in income. In fact, the department store industry saw a sharp drop in its sales of clothing and jewelry for 2009, down 13.2 percent and 15.3 percent, respectively, compared to the previous year.

Recently, the posh Ginza and Yurakucho districts have become home to a rising number of stores dedicated to affordable fashionable clothes, from Uniqlo to foreign retailers H&M and Abercrombie & Fitch. The Seibu Yurakucho store no longer had the capacity to beat off these emerging forces.

While an array of department stores in local regions have already folded amid the severe economic climate, such trends also hit urban areas last year, with the closure of the Mitsukoshi department store's Ikebukuro branch in Tokyo in May and Sogo's Shinsaibashi main store in Osaka in August. The decline of department stores is showing no signs of abating.

[Mulboyne]

Yomiuri: Department stores struggling / Yet another industrial reorganization appears inevitable

Daimaru Matsuzakaya Department Stores Co., a product of the merger of two leading department stores--Daimaru Inc. and Matsuzakaya Co.--began operations Monday, aimed at boosting its purchase of of merchandise and streamlining its operations. Yet a similarly, large-scale reorganization of leading department stores, such as Isetan Mitsukoshi Holdings under which Mitsukoshi Ltd. and Isetan Co. have integrated their management, has brought about few tangible effects. As fears have begun to be voiced over the survival of department stores, which have lost the support of many consumers with the rise in popularity of mass retailers selling products such as clothing and home electrical appliances, some experts have said the entire distribution industry will need to reorganize itself.

According to the sales of the five leading department stores in February, released on a same store basis Monday, Daimaru saw its sales rise by 2.3 percent from a year earlier, thanks to an increased demand for high-priced merchandise, marking the first year-on-year increase since March 2008. Daimaru, which is strong in low-cost operations, aims at reinforcing its earning power through the latest merger under the holding company J. Front Retailing Co.

Meanwhile, there is no sign of any pickup in sales for the industry as a whole. Other leading department stores have seen a decline in sales from a year earlier, with Mitsukoshi down 8.6 percent, Takashimaya down 6.1 percent, Matsuzakaya down 3.1 percent and Isetan down 0.2 percent. "As department store owners continue having their tenants manage their stores in their own way, the department stores haven't been able to meet the changing needs of consumers," said Hidefumi Tsuchiya, deputy director of corporate management consulting department at Daiwa Institute of Research Ltd.

Department stores are striving to streamline their operations by closing stores and cutting personnel. The number of stores they either closed or are planning to close this year has so far totaled 11, already topping the eight stores closed last year. J. Front Retailing Chairman Tsutomu Okuda said, "The number of department stores will eventually be trimmed down to one per marketing area population of 1 million." When simply calculated by population, the existing 270 department stores across the country are to be trimmed to about 120.

Breakthrough?

"We are in an era when a former textile maker produces parts for liquid crystal display products. Department stores also need to transform themselves," said Tadashi Yanai, chairman and president of Fast Retailing Co., the company that operates Uniqlo stores. One breakthrough can be a low-pricing policy. Sogo & Seibu Co., the department store created by the merger of Sogo and Seibu department stores in 2003 and now under major retail group Seven & i Holdings Co., will expand in May its lineup of lifestyle goods dubbed "Limited Edition," jointly developed by the store and the internationally renowned fashion designer Junko Shimada. Meanwhile, Takashimaya Co. plans to open stores in other Asian countries, including China.

On the other hand, Isetan Mitsukoshi Holdings is poised to retain its policy of selling high-quality merchandise, as President Kunio Ishizuka has said, "We're determined to maintain the key essence of the department store." Nonetheless, it remains uncertain whether department stores can hold on to the conventional style of management when the economy is hit by sluggish consumption. Some have already pointed out the possibility of a new phase of industrial reorganization, involving specialty stores.

[Number11]

Uniqlo sells uninspired, crappy merchandise, marketed in crappy, lifeless advertisements and sold in cold, crappy stores by dour part-timers paid cheap, crappy wages.

1. The rich always have money and will always buy in any economy. The rich are a niche, but they're a bitch because they're fickle.

2. The middle class are the voracious carnivores of consumers who want people to look at them and think that they're rich. There are fewer and fewer middle class. They never migrate to the rich, they are migrating south to the working poor. Their purchasing power will continue to decline and so will prices, and so will the stores that cater to them.

3. The poor are getting poorer and are the fastest growing demographic. Someone should open a chain of rag stores. Literally a chain of stores that sell rags for the poor. Oh wait, there is a rag store for the poor (Shimamura), and I expect they will be booming in the future.

[Mulboyne]

1. The rich always have money and will always buy in any economy. The rich are a niche, but they're a bitch because they're fickle.

That's one of the curious things about Japan. The rich actually don't spend much compared with the wealthy in many other countries. At least, not in Japan: they might spend freely overseas. Some put it down to the concern about attracting criticism for conspicuous consumption. I've always maintained that a lot of lavish expenditure is personal expenditure masquerading as corporate entertainment or gift giving. A combination of a crackdown by the Tax Agency and a tightening of corporate largesse has taken its toll over the years. The department stores were big beneficiaries of oseibo and ochugen season spending but companies just don't allocate the budget there like they used to.

[Number11]

Even though it's not outwardly mentioned, I think there is a lot of latent "bubble" envy. The entire time frame has to be discounted and valued properly to get a true picture of the complete market, including the department store sector. If people skipped the 1980s in data, straight lined everything from 1980 to 1992 or so, it might be better.

At least, I think so. I'll defer to your almost God-like knowledge of the sector.

[Catoneinutica]

That's one of the curious things about Japan. The rich actually don't spend much compared with the wealthy in many other countries. At least, not in Japan: they might spend freely overseas. Some put it down to the concern about attracting criticism for conspicuous consumption.

I think this is right on the money (as it were). Envy is a huge element in Japanese social interaction, and the conspicuous consumer has become a real derukugi since the most recent downturn. Still, Japan remains the largest market for many-a brand-name maker, and there are unaccountably wealthy maniacs who still spend like drunken sailors. As an example, a single ojichan, one, buys about 80% of the bronze sculpture at Mainichi Auction (and they sell freight-train quantities of the stuff).

[Mulboyne]

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As the dire situation for the industry continues, the department store association's monthly data release gets prime coverage on TV. April sales fell 3.7% year-on-year which is now the 26th consecutive month of such declines. Interestingly, sales to foreign tourists jumped 40% that month (I'm not sure how they came up with that figure either). Tourists represented 10% of business in April which is pretty high if true.