By Takashi Yamazaki / Yomiuri Shimbun Senior Writer Department stores have been struggling to survive as sales nationwide continue to decline. How is J. Front Retailing Co., Ltd. — operator of Daimaru Matsuzakaya Department Stores Co. Ltd. — paving the way for its future in such an environment? For this installment of Leaders, a column featuring corporate management and senior executives, Ryoichi Yamamoto, president of J. Front Retailing, explains his company’s strategies for attracting customers.
Japan’s department store industry was born in the Meiji era (1868-1912) when kimono fabric retailers adopted a new business style. In my view, the industry today is facing a turning point just as significant as the change at that time.
[Sales at department stores peaked at ¥9.7 trillion in 1991, and had fallen to ¥5.8 trillion by 2018. The shrinking market has forced a series of realignments in the industry. Joint holding company J. Front Retailing was established in 2007 through the integration of Matsuzakaya Holdings Co., Ltd. and The Daimaru, Inc. Matsuzakaya was based in Nagoya while Daimaru got its start in the Kansai region.]
I believe it is becoming more important than ever to create department stores that meet the demands of the community. For our redevelopment project on the former site of the Matsuzakaya Ginza department store, we decided to build a luxury mall to take advantage of the fact that Tokyo’s Ginza district is Japan’s most well-known shopping area and attracts many customers from home and abroad.
[Called GINZA SIX, the mall opened in April 2017. The retail facility’s about 240 stores, including world-class luxury brands, operate on lease instead of being directly run by the department store, as in the conventional method.]
In the conventional business model for department stores, employees work together with commodity suppliers to choose lineups and set up sales spaces. In exchange, store operators receive part of the sales. With this method, department store operators have to shoulder operating costs such as labor expenses. This impacts profitability, especially when sales decline.
In the case of GINZA SIX, the rent we receive from shops provides us with a stable source of revenue. It’s also easier to change tenants in response to new trends. Meanwhile, the company can reduce labor costs by focusing on providing support to shop retailers through conducting overall sales promotion and other similar means. Retailers, on the other hand, benefit from being able to freely create their own sales spaces to take advantage of their distinctiveness.
[GINZA SIX has no floors that specifically cater to men or women.]
I think one reason behind sluggish sales at department stores is that we have not responded well to the changing values of customers.
Up until now, department stores have sought to create sales floors where merchandise is organized and displayed in a way that’s easy to understand. For instance, cosmetics are on the first floor, and as you proceed upward you find women’s clothing, miscellaneous goods for women and apparel for men.
Organizing stores in this way has been losing its appeal to customers. Nowadays, customers have a tendency to purchase a variety of goods at a store that they feel reflects their own values.
For example, you come across an apparel section that also sells small consumer goods, cosmetics and perfumes, and watches. You find that the atmosphere created by the lineup of merchandise nicely fits with your own values. You then purchase a T-shirt and other goods to add joy to your daily life. I’ve been seeing more customers who behave like this.
At GINZA SIX, we sell lacquerware and towels close to apparel stores. Monthly sales figures have been higher than those of the same month in the previous year. Around 80 percent of our customers are in their 20s to 40s, while 70 percent of customers at department stores are 50 or older. I believe the opening of GINZA SIX has had a significant impact on the Ginza area as a whole.
■Appealing to younger generations
[In November 2017, new commercial facility “Ueno Frontier Tower” opened on the former site of the Matsuzakaya Ueno store’s south wing in Taito Ward, Tokyo. The new landmark commercial facility houses Parco, a subsidiary of J. Front Retailing and a leading fashion retailer, as well as a cinema complex.]
We acquired Parco Co., Ltd. in 2012. The chain possesses expertise that department stores lack, and has a proven ability to develop and operate retail facilities.
The Matsuzakaya Ueno store used to operate in both the south wing and main building. We decided to concentrate the department store in the main building and introduce Parco in the south wing. While the Ueno district’s core customers used to be in their 50s and 60s, large numbers of young people in their 20s and 30s have been flocking to Parco since it opened, changing the atmosphere of the area.
[The Daimaru Shinsaibashi store’s main building, which has been undergoing reconstruction, will reopen in Osaka in September. About two-thirds of the retail area will be rented out to tenants as at GINZA SIX. The remaining area will operate in the manner of a conventional department store. Meanwhile, the adjacent north wing will reopen in the spring of 2021 following renovation. Parco and other specialty shops will operate in the north wing, in another departure from the usual department store sales model.]
Osaka’s Shinsaibashi district attracts a variety of customers. In addition to locals who have long visited department stores, there are also many young people and visitors from overseas. We are aiming to create sales spaces that satisfy such a broad range of customers.
[The company currently operates six department stores in suburban and regional areas, including Kochi Daimaru in Kochi and Shimonoseki Daimaru in Shimonoseki, Yamaguchi Prefecture.]
We have closed nine department stores since the company was founded in 2007. It is difficult for us to continue operating department stores in regional areas under the current circumstances. To survive, we must work to give our stores a distinct character, such as by selling local goods particular to the area.
We plan to make operating department stores that reflect local characteristics one of the pillars of our future growth.
Japan’s population will continue to shrink. We can’t escape the fact that demand for food, clothing and consumer goods will decline. Our future will thus be bleak if we merely carry on with business as usual — in other words, if we just keep selling products to customers.
For our future growth and development, we envision offering a wide range of services as a “multi-service retailer” that exceeds the boundaries of retailing.
What will happen if the population continues to decrease? The number of single-person households will increase, society will continue to age and women will make more advances in the workplace. We will also see a rise in the number of dual-income families.
More people may have less free time, more anxiety and more weariness in their everyday lives. I believe we can meet the needs of customers by providing services and goods that can alleviate such anxiety and discontent.
As a first step in this direction, we opened a childcare facility in Yokohama in late March. It operates from 7:30 a.m. to 8 p.m. and offers English classes as well as intellectual training. We would like to meet the needs of double-income households by taking care of their children and providing them with a high-quality education.
Though I initiate such long-term projects, in the words of shareholders and investors, “Your successor will be the one who acts on them.” Therefore, one of my important jobs is to develop human resources for the future. Otherwise, shareholders will not be able to invest in the company with confidence.
We have set up in-house JFR Schools to develop human resources. For the JFR Business Management School, the company selects around 10 candidates to become the next members of senior management each year and puts them through eight-month training sessions that I lead. The course includes four or five rounds of intensive weekend sessions at a training center. Each participant is tasked with formulating a business strategy and action plan as if they were company presidents. Outside consultants and I evaluate their proposals.
We also have two other schools, the JFR Management School for general manager candidates and the JFR Leader School for manager candidates.
Through our future-oriented management style, I expect our company will continue to be an indispensable piece of infrastructure for enriching people’s daily lives. I strongly hope so.
■Ryoichi Yamamoto / President of J. Front Retailing Co., Ltd.
Born in Kanagawa Prefecture in 1951, Yamamoto joined The Daimaru, Inc. after graduating from Meiji University’s School of Commerce in 1973. He became president of the company in 2003 and assumed the position of director of J. Front Retailing Co. in 2007, when the holding company was established. Yamamoto took up his current position in April 2013.
J. Front Retailing Co. operates 16 Daimaru and Matsuzakaya department stores as well as 18 Parco shopping complexes and GINZA SIX.
According to the consolidated financial results under the International Financial Reporting Standards for the fiscal year ended in February 2019, its sales revenue was ¥459.8 billion and operating profit was ¥40.8 billion. The consolidated number of employees was 10,276 as of February.Speech