Business Model＞

Changing Department Store Business Model

Turning Point inDepartment Store Business Model
Japanese department store sales decreased from ¥9,713 billion in 1991 to ¥5,953 billion in 2017, almost 60% level. Amid environmental changes
such as intensifying competition beyond industry boundaries and rapidly growing e-commerce, we think the biggest problem of department stores isthat the department store business model including sales floor composition overly dependent on women’s clothing in spite of the downward trendof spending on clothing and the product range and tenant composition based on shoka shiire (purchase recorded at the time of sale), whichdeveloped from the high-growth period to the stable-growth period, no longer adapt to changes in the times and in customers’ sense of values.
Therefore, from the standpoint of values department stores should create, we intend to change our business model in four main directions. Throughthese initiatives, we will strive to attract more customers and increase profitability by enhancing store appeal.

History of Retail Industry
1940s
Increasing
wealth andmilitary
power(War)1950s

Economic recovery
Jimmu
Boom1868
Meiji Restration

1960s

1970s

High economic growth period
Iwato
BoomOlympic
BoomIzanagi
Boom

1980s

Oil
ShockTimes

DC brandboom

1956 Economic White Paper 1962 Hayashi Shuji“It is no longer postwar”“Distribution Revolution”

2000s

Collapse ofthe Bubble

LehmanShockIzanami
BoomForeign luxury brands
were popular

1985 Hakuhodo
1999 NTT DoCoMo“Emergence of segmented masses” “I-mode” was born

Flourishing of small/family-run stores and department stores Flourishing of general merchandise stores (mass consumption society)2010s

Low-growth period

BubbleeconomyThree essential Income-doubling 3C
status symbols
planForeign fast fashion brands
accelerated entry into Japan
Rapid growth of inbound tourism
Expansion of sharing economy

Diversiﬁcation of business categories (post-mass consumption society)Department store

61～68
Daimaru achieved
top sales in Japan

91
00 Sogo ﬁled for civil rehabilitation procedure
Department store sales peaked
03 Renamed Millennium Retailing1982 - 83 Seibu Department Store ad copy
“Oishii Seikatsu (delicious life)”
07 J. Front Retailing07 H2O Retailing
69 Tamagawa Takashimaya SC opened 85 Tsukashin opened
08 Isetan Mitsukoshi Holdings

1904 Kabushiki Kaisha Mitsukoshi Gofukuten(Department Store Declaration)
1907 Kabushiki Goshi Kaisha Daimaru Gofukuten
1910 Kabushiki Kaisha Ito Gofukuten
New initiatives including:Supermarket●Western-style architecture,display of goods;●Uniforms;●Entry with shoes on; and●Female elevator attendants

1990s

Stable-growth period

57 Daiei opened 1st store
72 Daiei achieved top sales in Japan
58 Yokado was established
56 Seibu Store was established 69 Jusco was established
80 “Mujirushi Ryohin” was born
69 Ikebukuro Parco opened01 Mycal went under

87 “Loft” was born

Other

74 7-Eleven opened 1st store
97 “Rakuten Ichiba” was launched
75 Lawson opened 1st store
04 “Zozotown” was launched
73 FamilyMart opened 1st test store
16 FamilyMart and76 Tokyu Hands opened 1st store 90 United Arrows opened 1st store
Uny merged
93 Outlet Mall Rhythm
76 Beams opened 1st store
16 Mitsubishi Corporation(Japan’s 1st outlet mall in Saitama)
made Lawson its subsidiary
84 Uniqlo opened 1st store
76 Shinjuku Lumine opened
18 Mercali became listed

Regulation Demographics

1937
Department Store Law
1868
34 million

1973
Large-Scale Retail Store Law (covering large supermarkets)
1967
Exceeded 100 million

1985
121 million

2000
Large-Scale Retail Stores Location Law
1998 Productive-age 2004
(15-64 year old)
Population peaked
population decreased 127.87 million

Depopulating
society

Department Store Value Chain and Competitive Advantage
In order to entice customers to visit our stores, we need to offer the products they want and the experiences that can begiven only in the store space or environment or through sales staff there, namely, new values. By changing our businessmodel, we will strive to enhance store value by adding a perspective of values for customers and values for stakeholders.
Kaitori shiire(Purchase on a no return basis)

Store design

Store layer

Procurement/logistics

Store operation

Real estate rental
Know-how of store planning

14

Shoka shiire

Marketing
Attracting
customers

Know-how of store operation

After-sales
service
Sales

Building
customer loyalty
Know-how of building
customer loyalty

Business Model

Direction of Changing Business Model

Point 1

Point 2

Active introduction of real estate rental format

Drastic reduction of allocation to women’s clothingMore than 80% of current typical department stores offer

While reducing women’s clothing area, which remains

products and have tenants based on shoka shiire. In other words,

bloated since the middle of 1980s, by 30% under thesuch business practice limits the diversification of store planning.

current Medium-term Business Plan, we will create new

Therefore, we will realize an optimal mix, for example, bysales areas and newly zone the sales floors in response toexpanding real estate leasing area to increase store appeal andchanges in customers to increase store appeal. We willtransform the business model into a stable and highly profitable one.

renovate our stores in a way that meets the market in eacharea, for example, by expanding beauty products, food＜Hybrid form＞

products and daily sundries, which are growth categories.

Real estate rental＜Conventional form＞

Women’s clothing area

Shoka shiire
Kaitorie.g. Main building ofDaimaru Shinsaibashi store

Shoka shiire＜Real estate rental form＞

KaitoriReal estate rentalDown(Total FY 2017 to 2021 vs. FY2016)e.g. Ginza six,
Ueno Frontier Tower

Point 3

Point 4

Area dominant formation that attracts customers with“areas”

Strengthening of customer engagement using ICT

Not as“points”of department stores but as“areas,”the Group

The“era of 100-year life expectancy”–“Lifetime Service Hub”is awill dominantly operate Parco and brand shops around department

challenge to establish a new customer information system in order tostores and also conduct activities in concert with local communities

build stronger lifetime customer engagement. Using not only customer

so that we can attract more customers. This is our own strategy

touch points through the Group’s cards but also the app that will bethat aims to grow with local communities by attracting new crowd.

released this fall, we will accumulate fixed-form information and unfixedform information in a multi-layered way through cross-group initiatives.

Example of Urban Dominant Strategy
in the Ueno Okachimachi area

We will provide new products and services to relieve customers’“concerns” and “frustrations” by having more touch points withcustomers and building a long and deep relationship with them on variousoccasions and milestones for their entire life beginning with birth.

Shiseido Beauty Salon
Beauty Garden
Matsuzakaya Pet Salon Libon

Parco●OﬃceArt●Cinema SportscomplexMontbell

Panda
HirobaBirthSchool
Infancy attendance Employed MarriageChildraising

Secondlife

Integrating customer data of Department Store, Parco and other businesses and divisions

Accumulation ofﬁxed-form information

Use of ICT

Accumulation of
unﬁxed information

Integrated customer database

Integrated Report 201815