Business Model

Transformation of Department Store Business ModelGreat Transformation of Department Store Business Model
Environment surrounding department stores

7.3% in 1991 when department store sales peaked.
Behind this trend, there are increasing changes in
consumption quality such as casualization andglobalization of fashion and a shift to balanced
consumption and service/experience-based consumption.
Given these circumstances, we recognize that whatis expected of department stores is not at the level ofimprovement but initiatives for discontinuous growththat depart from past successful experiences, that is,
the great transformation of obsolete business model.

About 100 years have passed since kimono fabricdealers created a new business format known as adepartment store in response to changing times. Its
business model is at a major turning point. According
to data compiled by the Japan Department Stores
Association, after peaking at ¥9.7 trillion in 1991,
national department store sales decreased to ¥5,887billion in 2018, below ¥6 trillion for two consecutive
years, which represent 60% of
peak sales. We faced economic
National department store sales
crises such as the collapse of thePeak of sales
bubble economy and the collapse¥9.7 trillionof Lehman Brothers and competition
Collapse of Lehman Brothers
beyondindustryboundaries
became fiercer at an accelerated
pace during that period. We thinkan even bigger problem than theseexternal factors is the failure towell keep up with the speed ofchanges of current times, which issort of the “obsolescence of1980
1985
1990
1995
2000
2005
2010
2015
department store business model.”Source:“Nationaldepartment
storesales”
releasedbyJapan
Department
StoresAssociation
Department
storesarecharacterized by operation with
Sales of Daimaru Matsuzakaya Department Stores existing
FY2018 latest monthly sales of Daimaru Matsuzakayalarge assets held in prime urban
stores and national department stores for last 10 years
Department Stores and national department stores（%）（%）
locations. However, we cannot say
6.0
8.0
all department stores can generate
4.0
6.0
enough revenue commensurate
2.0
4.0
with the value of these assets
0.0
2.0
currently. During the high-growth
-2.0
0.0
-4.0
period, we could earn decent
-2.0
-6.0
revenue only by focusing on sales.
-4.0
-8.0
Existing Daimaru and Matsuzakaya stores
Existing Daimaru and Matsuzakaya stores
In current mature period or low-6.0
National department stores (adjusted)
National department stores (adjusted)-10.0
growth period, however, we need to-12.0-8.0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 (Year)
Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
carry out structural reforms with astronger focus on B/S from theperspective of improving asset
Consumption expenditure on clothing and footwear and share of total consumption expenditure
efficiency.
(Yen)
（%）
8.0
30,000With regard to sales floor
allocation, women’s clothing floors
7.0
25,000that have rapidly become bloated
6.0
20,000since the 1980s do not meet
5.0changes in customer consumption
15,000
4.0
behavior. According to the Family
3.0
10,000
Income and Expenditure Survey by
2.0
the Ministry of Internal Affairs and
5.000
1.0
Communication, the share ofexpenditure on clothing and footwear
1997
2002
2007
2012
2017
1992
plummeted to 3.8% in 2018 from*Source: Monthly Disbursements per Household (two-or-more-person households) from“Family Incomeand Expenditure Survey”by the Ministry of Internal Affairs and Communication

18Business Model

Establishment of new business model

Review of sales floor allocation

In these circumstances, we determined two major
directions for the ongoing transformation of ourbusiness model. One is transformation to a“hybrid”
model with a well balanced mix of retail and real estate
rental as an evolved department store and the other istransformation to a“real estate rental model”that“doesnot operate a department store,” including thetransformation of business format. Since the market
characteristics of department stores vary greatly byarea, it is important to optimize each store based on its
store strategy in order to improve customer satisfaction
and profitability of store assets.

We will reduce bloated women’s clothing floor areaby 30% compared to FY2016 during the period of thecurrent Medium-term Business Plan, and in thus
created spaces, we will offer categories that can be
expected to grow revenue and attract many customers.
In the Sapporo and Nagoya stores, we created original
sales space “Kiki Yococho,” which is curated byourselves with an assortment of cosmetics, accessories
and food and beverage, in April 2018 and March 2019,respectively. It led to tangible results such as attracting
more customers and improving sales floor efficiency.
We will continue to review allocation based on thestore strategy of each store.

(1) Hybrid model
A typical example is the“new main building of theDaimaru Shinsaibashi store,” which will open on
September 20, 2019. In the case of the new mainbuilding of the Shinsaibashi store, real estate rental
occupies approximately 65% of total sales floor area
and kaitori and shoka shiire occupy remaining
approximately 35%, which is an optimal balance.
Traditional modelHybrid model
Real estate rental“Kiki Yococho,”Matsuzakaya Nagoya store

Progress of reduction of women s clothing ﬂoor area

Reduction rate ofwomenʼs clothing
ﬂoor area (total)

New main building of
Daimaru Shinsaibashi store(2) Real estate rental model
Typical examples include“Ginza Six,”which wascreated by developing the two blocks including theformer site of the Matsuzakaya Ginza store as one,and“Ueno Frontier Tower,”which was created byrebuilding the south wing of the Matsuzakaya Ueno
store and converting it to a commercial complex.
Traditional model

Real estate rental model

Real estate rental

FY2017FY2018FY2019(planned)

FY2021(planned)

△2%

△6%

△16%

△30%

Promotion of DX (digital transformation)
With the common mobile app of Daimaru andMatsuzakaya released in May 2019, we will makecustomers’shopping experiences at department stores
more attractive and revitalize CRM activities by shifting
our axis of customer retention to smartphones.
Furthermore, we will promote the conversion ofdepartment store business to be operated digitally byintroducing new customer management tools toadvance gaisho activities, using digital platform toexploit the affluent market, and using RPA for operations
to enhance productivity.
Mobile app
New CRM

New

customer toolDX
WebRPA
Process reform

Ginza Six
Integrated Report 201919