Varying Approaches Taken by Department Stores
INTERVIEWER I am interested in the issue of how the aging of Japan’s population will alter its structure of consumption, and how this in turn will influence the retail world. But before touching on those issues, could you give an overview of the general situation facing department stores?
ŌNISHI HIROSHI Currently the GDP of Japan stands at around ¥500 trillion, of which the retail industry accounts for somewhere between ¥140 and ¥150 trillion. More specifically, e-commerce totals around ¥15 trillion in sales, while drugstores and convenience stores have annual sales of roughly ¥10 trillion. Department stores used to also register around ¥10 trillion in sales a year, but the changing situation has knocked that figure down to around ¥6 trillion. In other words, department stores only account for about 4% of all retail sales. In short, department stores no longer hold the position they once had as the centerpiece of Japan’s lifestyle culture.
But Mitsukoshi Isetan has been trying to show the way forward for department stores, and at present we enjoy a 20% to 25% share of the ¥6 trillion in department store sales.
INTERVIEWER The experience of going to a department store with family members or on a date is completely different from stopping by a convenience store. Have we reached a point today where older, established department stores are on the way out? Or will their status remain even though their volume of sales has fallen?
ŌNISHI There is considerable difference in opinion among retailers and companies. In our own case, we have tried to avoid becoming ensnared in a price war, based on our view that department stores offer a special experience to shoppers. Some other department stores, however, have attempted to price themselves competitively compared to other types of retailers. Basically, department stores are no longer all on the same page, so to speak. And without consensus among ourselves in defining the role of department stores, there is no way to maintain our status.
Two Strata of Senior Citizens
INTERVIEWER In relation to those issues, I’m curious how you view the aging of Japanese society from your perspective in the retail industry. I think Japan is becoming a society where fewer consumers are part of the income-earning segment of society and more are living off their savings.
ŌNISHI I have a real sense of crisis now that Japan is entering an era where a quarter of the population will be 65 or older. But I think that members of that age group can be roughly divided into two types: there are the baby-boomers, who represent a significant portion of those 65 or over, and then there are those who are older than that generation. The baby-boomers tend to have more interests as consumers and want to maintain their lifestyle even if they are no longer working, so there are a lot of things that department stores can offer them.
But when it comes to those a bit older than the baby-boomers, there is no question that their spending power has waned. As a market, that segment seems to have shrunk. I think that instead of just showcasing product to 65-and-older consumers, department stores need to engage in all sorts of other initiatives, such as proposing travel options or financial products that suit their lifestyles. In our case, we also have a credit-card subsidiary, so we are involved in such services as insurance and financial products. And in the years ahead we may try to expand the scope of our activities in those sectors.
Consumer needs for products related to travel are particularly high, with premium-priced products in that sector being popular. Another interesting development is a so-called healthcare mall set up by one of our subsidiaries last year that includes not only healthcare facilities, but also such features as a sports gym. It functions as a sort of hub for interaction and communication, including the provision of services related to culture and other areas.
At the same time, though, it is hard to be profitable without also selling tangible products. In the case of retirees, business-related products like suits will be hard to sell, but there are opportunities, for example, when it comes to clothing or jewelry purchased for a trip. In other words, we need to strike a good balance between offering our customers goods as well as services.
Today’s Sprightly 60-year-olds
INTERVIEWER Although the sales area at the Isetan department store in Shinjuku aimed at consumers 65 and older was reduced by 30% after the branch reopened in 2013 following remodeling, sales among middle-aged and senior-citizen shoppers did not fall. How do you account for this phenomenon?
ŌNISHI We did not redesign our store in Shinjuku in a way that revolved around age groups. Rather, we focused on taste and lifestyles. But we did have in mind that certain floors might attract consumers of a certain age. At the planning stage we had thought that the second floor would almost exclusively attract shoppers in their twenties and thirties, but it turned out that more than three times the expected number of customers in their fifties and sixties bought items from that floor. We estimated that a certain percentage of older shoppers would buy products there, but the actual figure turned out to be quite high, at around 15%. This shows that consumers in their fifties and sixties still feel young. Women, in particular, remain fashion-conscious at that age.
Really, the term "senior citizen" no longer applies to people in their sixties. Maybe those who are 70 or 75 could be grouped under that category, but not sixty-year-olds. So we think there are opportunities for their spending to increase, and they are likely to respond positively to new services and goods. But when it comes to those 70 or older, efforts to entice spending will probably fall flat, so a different approach is needed.
Meeting the Needs of Shoppers With No Nearby Stores
INTERVIEWER Opinions seem to be divided regarding older consumers, with some viewing senior citizens as key consumers because of their ¥70 to ¥100 trillion in financial assets; whereas others think that this segment is not interested in upscale products and will be more oriented toward inexpensive items available at convenience stores and the like. What is your analysis of the situation?
ŌNISHI Department stores cater to consumers with the resources and finances to purchase upscale products. But there are also around six million people in Japan who are isolated in the sense that there are no stores within walking distance of their homes. I think when viewing the overall situation, we need to consider what can be done to meet the needs of those shoppers as well.
One idea we are considering at Mitsukoshi Isetan is to offer satellite shops. Of course, this would not mean that we would open thousands of stores, like convenience chains do. Rather, the scale would be in the hundreds, and the products that I would like to see offered would be of a bit higher grade. Such satellite shops could offer clothing, food items, and other assorted goods. Naturally, the lineup of products would have to be limited. In provincial areas of Japan, there is still demand for summer or end-of-the year sales and gift items, so the stores would need to respond to those needs, too.
Customer Service Is a Strength
INTERVIEWER With the rise of e-commerce and the graying of society, even convenience stores are having to make a greater effort to attract consumers. What is your view regarding the importance of customer service geared to senior citizens?
ŌNISHI In the case of convenience stores, customer service is limited to interaction at the counter. This contrasts with the situation at department stores, where the contact with customers begins the moment they enter the store. Department stores are able to spend more time introducing products and communicating with customers. I think that department stores will not be able to draw on their strengths without maintaining that distinction. Even if the financial situation is tight, stores should not reduce their sales staff. And in fact we are increasing ours. Older customers in particular are looking for sales staff able to provide them with courteous and thorough service.
Sales and profits are important, but I keep a close eye on the number of customers who visit a store. Some expect that number to fall by 3% to 5% year by year due to the aging of the population and expansion of Internet shopping. We need to make preparations so that we can maintain sales and profits even if that decrease occurs.
Retail Opportunities in Regional Areas
INTERVIEWER In the past, there was not so much of a gap between Tokyo and other parts of Japan in terms of consumption, but it seems that now areas outside Tokyo, including the Kansai area, are quite stagnant. What are your thoughts on this?
ŌNISHI The situation in Tokyo seems like it will be fine for the time being, but regional areas are suffering the double blow of falling populations and economic decline. In the past, regional cities developed their downtown areas by attracting department stores to open in shopping districts. But as people started moving out to the suburbs, large-scale retailers like Aeon began to build mega-retail complexes in those suburban areas, while the city centers fell into decline. And today even governmental offices are moving outside the city limits. There is a lot of talk these days about how to revitalize downtown areas, but I think that a larger vision will be needed for those efforts to succeed.
Another point worth mentioning is that regional areas have many industries with long histories and traditions of manufacturing craftsmanship. One of our missions as retailers is to create new markets by introducing those local products to consumers. At Mitsukoshi Isetan, we have been carrying out an initiative called Japan Senses since 2011 that aims to raise awareness of the outstanding materials, technologies, and products that are available in regions across Japan.
This is an area where funding from the public and private sectors is necessary. The Japanese government has announced ¥260 billion in subsidies to local governments in the form of discount coupons for local products, but whatever increase in consumption this will spark will be temporary. I think that if such funds are available they would be put to better use in trying to revive local industries.
(Based on an interview in Japanese with Mamiya Jun, the head of the Nippon.com Editorial Department. Banner photograph: The Isetan department store in Shinjuku that was remodeled in 2013 to include lighted spaces featuring the latest fashions. © Jiji Press.)
