〈Top Interview〉

We Need to Structurally Change
the Framework of Department Store Businessat This Historic Turning Point.
Overview of operating results for ﬁscal 2008
Would you outline consolidated operating results forﬁscal 2008?
Consolidated sales of J. Front Retailing Group slightly
increased compared with the forecast announced at thethird quarter results presentation in January 2009 (an increase of¥690 million and 0.1%). Thanks to the eﬀorts to further reduce
costs, operating income, ordinary income and net income
increased by ¥3,090 million (12.4%), ¥2,990 million (11.8%) and¥1,170 million (19.5%) respectively. However, that resulted in afall of 6.9% in income and only reduced the range of decrease inoperating income, ordinary income and net income.
The main cause of poor results is sluggish sales ofdepartment stores that account more than 70% of the total salesof the Group. Sales and operating income of department store
business decreased by 7.0% and 36.6% respectively for the fullyear and dropped by 11.0% and 49.7% respectively for the
Tsutomu Okuda, President and CEO

second half of the year because a decline in consumer
conﬁdence was further accelerated and sales of clothing,branded accessories and big-ticket items, which have been thestrong items of department stores, were poorer than expected.
Particularly, a great slump in sales of the main stores in
Shinsaibashi, Kobe and Nagoya aﬀected the performance.
These are partly due to rapid changes in the macro
environment, but the greater cause is the structural factors of
department stores. We acknowledge that department stores areat the very historic turning point.

Department stores at a historic turning point
What is behind the fact that a department store
business model is facing a historic turning point ?
The structural issues of department stores − weakmarket response capabilities and high-cost structure −have two main causes. One is weak marketing mind as
business quality and fundamental marketing strategy error.
The goods on their shelves moved well without making an
eﬀort in the period of rapid economic growth, which created the
supplier-dependent quality of companies with weak change
response capabilities,
power.

outer-directedness and thinking

Department stores in Japan are diﬀerent from in Europe

and the U.S., and particularly, they diﬀer radically in a businessmodel from the U.S. department stores. Due to their basic
business structure, the sales activities of Japanese department
stores have been based on popular appeal and targeted a wide06

range of customers in terms of age, income and lifestyle.
With a view to catering to customers various demands, theirprices ranged from low to the highest and their product lineup
included fashion, living and food products for occasions ranging
from casual to dress-up to formal and with tastes varying from

U.S.
Japan

Buying all goods : 100％
Buying only goods sold : 80％

authentic to advance. At the same time, they have survived byresponding to the changing times and customers and thecharacteristics of the local market and taking advantage of small

Buying all goods : 20％

Difference in sales operation forms between Japan and U.S.

inventory risk while balancing well and changing ﬂexibly thecustomers. Seen from the viewpoint of corporate management,

weight of each of these factors.

however, they are close but not the same.

However, after the bubble economy heyday in the late 1980s,

diﬀerent in

They are greatly

business operation process, the division of

they lost balance and they were excessively shifted to highresponsibilities and authorities between suppliers and department

prices and clothing, the middle-aged, high-income persons,stores, merchandise information system, personnel planning andauthentic and dress-up.

That made them rigid and weakened

their response capabilities to changes in consumers values anddistribution, knowledge and skills required for staﬀ and proﬁt
structure centered on margins and costs.
They also signiﬁcantly diﬀer in the concrete ways to respondlifestyles.

to changes in the market.
Grade
Prestige

Shop operation type sections

respond at the brand level while independent operation ones at

Occasion
Dress-up

the item or SKU level. Partly due to the historic background ofJapanese department stores, however, the distinction between

Post-bubble
periodmixed up as if they were the same. This is one of the major

Taste

Mind
Young

these two operation types remain unclear and they have been

Post-bubble
periodPeriod of
rapid economic
growthMarriedAuthentic

Period of
rapid economic
growthAdvancefactors that caused weak market response capabilities andhigh cost structure with low human productivity.
In addition, since fresh and attractive products that customers

VolumeCasualChanges in merchandise mix from the period of rapid economic growth to the post-bubble periodwant and the items and brands that sell well in department
stores generally have low margins, it is diﬃcult to introduce themin the high cost structure. It caused a vicious cycle between thepoor assortment of items and brands that customers want in

Do you mean that department stores themselves
moved away from the public ?
As a result, department stores lacked variation andindividuality for consumers and went beyond their reachwith high-priced oﬀerings and little dailiness.
The second cause is Japan s unique forms and ways ofoperating sales ﬂoors.

department stores and the high cost structure, which led toloss of customers.
The performance of department stores will never recover until
these structural issues are resolved, even if the economic
environment improves in the future. We believe that we will see
a completely diﬀerent landscape when we go through a tunnel ofthe current global recession.

Unlike in other countries, department store sales structure in
Japan is very unique. It consists of shop operation typesections with a sales share of 80% where the purchase of mostgoods is recorded only when they are sold and independent
operation type sections with a sales share of 20% that areoperated in American retail way of purchasing and independent
selling.
These two operation forms seem almost the same for07

Development of new department store
business model

Improvement of marketing capabilities andestablishment of store strategies

What new department store business model will
you develop to resolve these issues?

Would you specify the improvement of marketing
capabilities?

In the second half of last year, J. Front Retailing initiatedDevelopment of new store strategies

a full eﬀort to develop a new department store model withIn order to meticulously respond to changes of customers

a focus on the improvement of marketing capabilities and theon a daily basis, we need to clarify store strategies to deﬁne toinnovation of business operation structure to revive department

whom, what and how we should oﬀer, that is, what products

stores.

and services we should oﬀer in what store environment and with

Our target image of a department store is an urban lifestyle
store that adopts a new operation model.

what sales promotion to respond to what customer demands
through regional analysis and increase competitiveness.
In developing store strategies, we will specify the target

Urban Lifestyle StoreCreation of unique and attractive stores adapting to the changing times
Based on popular appeal, widely shift various factors including
customers, merchandise mix and taste & occasionin line with changes in the times

Quick Response to the Changing Times
Fresh Information

Contemporary

Good Taste

Good ValueHigh Quality Service

Exciting Sales Promotion

customers, store concept and image, priority sales policy andproﬁt plan of each store. By integrating sales activities including
products, sales, services, sales promotion and store environment
in line with store concept, we will create step-by-step unique andcompetitive stores that ﬁt the regional characteristics.

Area marketing analysis in cooperation with sores
optionoptionoptionoptionoptionoptionMarket strategy

Security, Safety, High Quality and Trust
Highly Eﬀcient and Low Cost Management

Competition strategy

Store strategy
Target customers
Store concept
Priority sales policy
Profit plan

For this purpose, we will basically shift our focus from thepast merchandising-driven retailer type to the creation of theappeal of stores as commercial facilities centered on marketing.
We will widely deﬁne customers, merchandise mix, pricestructure, tastes and occasions based on popular appeal andShinsaibashi Kobe

Merchandise
Sales
Service
Sales promotion
Store environment

Nagoya

Ueno

Other stores

Other stores
Four priority stores

lifestyle proposing industry as the fundamentals of department
stores to determine their weights according to changes incustomer needs and regional characteristics.

Particularly, we attach importance to quantitative analysis
with a combination of the three axes such as age, income andWe will develop clear strategies for individual stores thatlifestyle as well as traditional qualitative analysis to analyze andplace top priority on competition strategies in the local markets

deﬁne target customers. We will widely determine the target

and eﬀectively combine the factors including merchandise,customers of each store by weighting according to regional

brands, software and hardware services, sales promotion andcharacteristics. And each sales department will oﬀer ﬁnely-tuned

sales ﬂoor environment based on these strategies to create

products and services to meet the demands of each target

attractive stores that customers choose to visit.

customer cluster.

In the meantime, we will focus on quick response to thechanges of the times by always providing fresh information andsuggestions, appropriate fashionability,
prices,good taste,

acceptablehigh quality services and exciting sales promotion as

well as further leveraging the strengths of department storesincluding security, safety, high quality and trust.

At the sametime, we will establish a business operation structure that canrealize them with high eﬃciency and at low cost.
08

New customer
classification =

Age
Young

High consumer
Upper consumer
Medium consumer
Standard consumer
Lower consumer

Around 30

IncomeAround 40 Around 50 Around 60

LifestyleSeniorAdvanced
class
Activeclass
ConservativeclassWe are developing new store strategies for priority storesincluding Daimaru K ob e and Shins aib a shi s t or e s andMatsuzakaya Nagoya and Ueno stores, and then other stores.

women s accessories and other merchandise categories.
The number of customers registering their email addresses
with Daimaru, with whom we can communicate through the

The market research of our stores revealed many problems inInternet or cell phone text messages, is rapidly increasing andresponding to the market. For example, though more than 60%

already exceeded 300 thousand persons. Thus the sales baseof people who visit Shinsaibashi area in Osaka are 35 years oldinterconnecting the website and stores is expanding.

or younger, Daimaru Shinsaibashi store fails to attract many ofthem with the shares of sales on Daimaru-branded cards to its
customers in their 30s and 20s of 16.5% and 7.8% respectively.
Though Daimaru Kobe store has many identiﬁable customers
aged around 30, the number of which accounts for 23% of thetotal, their sales share is 16%, seven percentage points lower.
The purchase rates of cosmetics and confectionary are high, butthat of women s clothing is as low as about 30%. While
analyzing these actual conditions and reﬂecting them in store
strategies, we will set a timeline to remodel and improvemerchandise mix, assortment and pricing policy.

The ﬁercer compet it ion becomes, t he more
important customer retention seems to become.
How will you address that?
Strengthening of regular customer strategies
Currently, Daimaru and Matsuzakaya have more than four
millionidentiﬁable

customers in total who hold theircompany-branded cards. The expansion of customer base andthe strengthening of eﬀective CRM (Customer RelationshipManagement) are one of our important tasks.
Sales from customers who hold Daimaru-branded cards

Customers purchasing channels are not only real
stores but their choices are diversiﬁed. Amongthem,Internet sales seem important.

account for about 70% of total sales from individual customers
and Daimaru will improve CRM based on the cardholder
information infrastructure, which is excellent in terms of both
quality and quantity as the company s main strength, and the

Click-and-mortar businessknow-how to get regular customers. At the same time, Daimaru

The strengthening of Internet business is essential towill improve and thoroughly implement its eﬀorts to create,

attract customers who do not shop in our stores and to increase
sales of the products that are not oﬀered in our stores.
One of our unique approaches is an Internet cosmetics
shopping site Marucollet.

Traditionally, department stores havedealt in top brand cosmetics. But the survey of customers

develop and retain regular customers.
Matsuzakaya will introduce Daimaru s systems and know-how
and use the information system dramatically improved throughintegration to strengthen regular customer strategies that thecompany had hardly addressed in the past.

buying behavior revealed that they skillfully use cosmetics fromWe will strengthen the interaction with store marketing

department stores and others.

strategies to increase the number of the high priority target

Therefore, we launched a newcustomers and other regular customers of each store, whilebusiness Marucollet in which

upgrading and bolstering our eﬀorts to implement regular

we ﬁnd excellent cosmetics,

customer strategies including the improvement of the card usage

which complement the ones soldrate and the sales rise to the top level.

in department stores, and oﬀer
them to the customers of
department stores.
Its sales are still small in total
amount but have been growing
on a doubling pace since it
started in ﬁscal 2007. Using theinfrastructure of this business
http://www.marucollet.jp

model, we are expanding into09

Establishment of store operation structure thatenables both stronger market response capabilities
and low-cost management
Speciﬁcally, how will a business operation structurechange in the future?

How will sales ﬂoor arrangement change?

New store operation

We will arrange sales ﬂoors by highlighting the strengths

Daimaru is leading JFR s eﬀort to establish a newof and eﬀectively combining these two operation types

business operation structure mainly for stores. Under this newcentered on shop operation type and based on the ﬂoor

structure, sales ﬂoor operation is divided into two types includingclassiﬁcation tailored to new customer needs. Utilizing theshop operation and independent operation to be based onstrengths of department stores such as good location, large

their respective diﬀerent features.

Sales share
Operation typeSCM plan and management

JFR s major roles
in operation

Profit margin
Cost

ﬂoor space, huge customer base and advanced information

Shop operation

Independent operation

About 80%

About 20%

Buying only goods sold（No merchandise risk）

Buying all goods and sell independently（Some merchandise risk）

Supplier

JFR●Extracting and solving issues by●Merchandising = Headquarters

brand in each SCM process with

Sales services = Storesshop managers to increase sales●Central operation●Local operation by stores●Detailed and quick response to●Scrapping and building brands and shops

changes by item or SKU

Medium to low

High

Low

MediumIn shop operation type sections, suppliers plan and manage

system connecting the customer base, strong customer drawing
power and high reliability, we will introduce new shops andbrands that actively respond to customer needs without being
constrained by the existing suppliers.
Mainly in the sale of goods and other areas including
restaurant business and services, we will improve the responseto new market by accelerating the renewal and replacement ofbrands and shops through the introduction of the best ones thatwill attract attention and popularity from customers, and the mix
and scrapping and building of brands and shops. Thus we will
always maintain and enhance the appeal of our stores ascommercial facilities.

the whole process of SCM (Supply Chain Management), andAs part of these eﬀorts to establish a new store operation

basically, the purchase of goods are recorded only when theystructure, our stores already began to introduce new shops toare sold and the company assumes no responsibility for

their shop operation type sections without being limited to theinventory. Though their proﬁt margin is low compared withexisting suppliers to bolster low- to mid-priced oﬀerings, which

independent operation type sections, they are low cost andare in particularly strong demand from customers. Independent

highly proﬁtable. Their sales account for about 80% of the total.

operation type sections

Stores operate them locally. Managers in charge of these

also try to increase thesections work with shop managers from suppliers to eﬀectively

reasonable priced products

extract and solve issues on a brand-by-brand basis in each SCM

of men s wear brands

process with the main goal of increasing sales.

T r o ja n a n d Velocé and

In independent operation type sections, the company plans
and manages SCM. All the goods arepurchased andcareer women s wear
brand Sofuol by using theindependently sold to achieve high proﬁt at high margin andadvantages of being able tohigh cost. Their sales mainly from private brands andrespond quickly to

independently selected items oﬀered in non-partitioned open

customer needs.

space account for about 20% of the total. While stores provide
sales and services, the operation of merchandising is centralized
in the headquarters. Since they can reﬂect the company s
intention in the whole SCM, they aim at agile operation todiﬀerentiate themselves from competing stores, develop people,
complement the products that are not oﬀered in shops, andﬂexibly and quickly respond to changes.

10

SOFUOLHuman resources development, business operation
manual and improvement of support systems
If operation changes, will the required humanresources also change?
Under the new store operation, we have to mix shops andbrands most eﬀectively always in the interests ofcustomer needs and proﬁtability to keep our stores attractive andlively. That requires

highly skilled professionals,

thecompilation of operating procedures in a manual for eﬃcient
operation and the improvement of information systems
supporting the streamlining of operations.

More expertise and eﬃciency of business operation
will be required to implement these and how will
you support stores?
The counseling program as an operating procedures
manual serves as important data that can be used todecide to replace shops and brands as well as helping develop
and revitalize shops.
To this end, we introduced to Daimaru s six directly managed
stores a sales productivity analysis system to be used for theRequired expertise diﬀers greatly between shop operation

operational management and counseling of shops in April 2009.

type and independent operation type. While independent

The same system will be introduced to Matsuzakaya storesoperation type sections focus on sophisticated merchandising

successively in and after September 2009.

capabilities and the capabilities to sell out products, shop

With one click, this system visualizes the data necessary for

operation type sections emphasize producing capabilities andevaluating shops and counseling, including each shop s daily

counseling capabilities.

sales, number of customers, per-customer sales as well as

Producing capabilities are to optimally combine andmonthly sales per square meter, deemed proﬁt calculated byintegrate various goods of popular brands and shops, services,

deducting costs from earnings, and customer service satisfaction

sales promotion and store environment under the leadership ofin service surveys. It enables us to see the situation at a glance.

store managers to make the stores more attractive.

CounselingManagers will use this system to improve counselingcapabilities are that our managers work with shop managers

capabilities and management eﬃciency and shops will befrom suppliers based on the counseling program to help

supported and replaced to revitalize sales ﬂoors, which we

increase sales by analyzing the actual situation of the

expect will lead to sales growth.

performance, assortment and sales structure of each shop.

Development and introduction of sales productivity analysis system●Enhance the capabilities of counseling shops● Improve management effciency● Introduced
ntroduced the system to Daimaru s six directly managed stores in

April 2009 and will introduce it to Matsuzakaya in September 2009

Producingcapabilities
Counselingcapabilities

Shop
operation
type

Independent
operation
type

Sophisticatedmerchandisingcapabilities
Selling out
capabilities

11Promotion of low-cost and high-eﬃciency
management to increase human productivity
The management of sales ﬂoors will also change.
The shift to a new department store business model will
signiﬁcantly change our sales ﬂoor operation
management.
As a proﬁt and loss model by sales ﬂoor operation type, wewill operate shop operation type sections ﬂexibly to respond to
customer needs and achieve a good balance between earnings
and costs instead of focusing on proﬁt margins as excessively

departments will be completed in March 2010.
The complete integration of merchandise under one company
is expected to produce great results in terms of sales activities,
including supplier policy and product development through scale
expansion, and in terms of costs and productivity, including thestreamlining and downsizing of purchasing organization.
〈Group organization for March 2010 and beyond〉
J. Front Retailingas in the past, while in independent operation type sections,

Daimaru Matsuzakaya
Department Stores (tentative)

Department
store
business (※）

Peacock Stores

Supermarket
business

Daimaru Kogyo

Wholesalebusinesswhich was high margin and high cost, we will structurally reduce
costs keeping proﬁt margins high so that both sections will beable to achieve high proﬁts.

J.Front Design & Construction

Coupled with the above-mentioned overhaul of sales ﬂoor
operations through a new approach, we are planning a drastic

JFR Card

overhaul of business operations, organizations and personnel

Daimaru Home Shopping

planning at a company-wide level including out-of-store sales,

J. Front Foodsg e n e r a l a ﬀ a ir s , h u m a n a ﬀ a ir s , a c c o u n t in g a n d o t h e radministrative support sections when Daimaru and Matsuzakaya

Other businesses

Dimplesare integrated into one company in the next ﬁscal year. And
thereby we will aim for highly productive department store
operation by a few select people, which involves changes in our※In addition, Hakata Daimaru, Shimonoseki Daimaru,
Kochi Daimaru and other companies will operate businessas subsidianes of the new department store company.

way of thinking and working.

Integration of Daimaru and Matsuzakaya into one
company and integration of their merchandise
What eﬀect is expected by integrating Daimaru andMatsuzakaya into one company?
The integration of Daimaru and Matsuzakaya into one
company as one of the main pillars of our businessstructure reforms will be carried out in March 2010, a year

Women s accessories &children s wear

Sep 2009

Women s wear, men s wear &accessories and foodstuff

Mar 2010

Home fumishings and art work,
kimono & jewely

Outlook for ﬁscal 2009

implementation structure and speed up decision-making, as well

Fiscal 2009 remains unpredictable and what is theﬁnancial outlook for the year?

as signiﬁcantly reducing duplication of organizational functions,

Consolidated performance for ﬁscal 2009 depends on

with the aim of achieving high-eﬃciency and low-cost

department store sales. Honestly, it is very diﬃcult toahead of the original schedule. This will unify the management

management.

12〈Merchandising integration
schedule〉

Mar 2009

forecast our business for the year under these economic

We are also in the process of integrating the merchandise of

circumstances. Department store sales for ﬁscal 2009 are

the two companies. Following the integration of women s

expected to be ¥745.7 billion (a decline of 10.8% from theaccessories and children s wear departments in March 2009,previous year) because a sharp sales drop for the second half ofwomen s wear departments, men s wear and accessories

ﬁscal 2008 will recover in the second half of ﬁscal 2009 but the

departments and foodstuﬀ departments will be integrated inconsumption environment will remain severe.

September 2009 and the integration of the remaining home

Since we will reduce selling, general and administrative

furnishings departments and art work, kimono and jewelry

expenses by ¥10.3 billion from the previous year by strictlycontrolling expenses without sanctuary, operating income is
projected to be ¥6.5 billion.
Sales of supermarket business, wholesale business and otherbusinesses are forecasted to be ¥127.5 billion, ¥75.5 billion and¥87 billion respectively, whereas we expect operating income tobe ¥0.9 billion for supermarket business, ¥2.9 billion forwholesale business and ¥2.1 billion for other businesses.
As a result, consolidated sales and operating income are
expected to be ¥990 billion and ¥12 billion respectively. On a
consolidated basis, we will invest ¥64 billion mainly in big
projects for the future including the new annex to Daimaru
Shinsaibashi store, which will open in November 2009, andDaimaru Umeda store whose ﬂoor space will increase by 1.6
times in spring 2011.

Shareholder return
What do you think about proﬁt distribution toshareholders?
Our basic policy is to divide up proﬁts appropriately with adividend payout ratio of 30% in consideration of its proﬁt
level, future capital investment and cash ﬂow trends while
maintaining and improving sound ﬁnancial position. We also
consider stock buyback from time to time to improve capitaleﬃciency and implement capital policies in a ﬂexible manner.
For ﬁscal 2008, comprehensively evaluating the performancefor the year and the business environment, we have decided todecrease a term-end dividend by ¥1 from ¥4.50 for the previous
year to ¥3.50 and pay an annual dividend of ¥8 combined withan interim dividend of ¥4.50. That results in a dividend payout
ratio of 59.0% for the year. However, excluding the eﬀect ofloss on valuation of investment securities caused by theunexpected rapidly deteriorating stock markets, it is 32.5%.
For ﬁscal 2009, comprehensively evaluating the interim andterm-end earning forecasts in the largely unpredictable businessenvironment, we will omit an interim dividend and pay a term-end
dividend of ¥6.

13