Isetan Company Limited Business Information, Profile, and History

History of Isetan Company Limited

Isetan Company Limited is one of Japan's leading department store companies, particularly noted for its merchandising strength in the area of high-fashion apparel for women in their 20s and 30s. It has compensated for its comparatively late entry into the field by innovation and niche-building, establishing itself as a fashion leader through sophisticated consumer research and extensive introduction of merchandise from abroad, both well-known designer labels and brands developed exclusively for Isetan. The company operates seven department stores in Tokyo as well as two other stores in Shizuoka and Niigata. Isetan is also active outside of Japan, having established overseas presences in China, Malaysia, Singapore, Thailand, Europe, and the United States.

Kimono Shop Origins

In common with other top Japanese department stores, Isetan traces its origins back to a kimono shop. Whereas Mitsukoshi, Daimaru, and Takashimaya have histories going back hundreds of years, Isetan's story begins in 1886, with the opening of the Iseya Tanji Drapery in Tokyo's Kanda district, then a bustling center of commerce located near the Kanda river. Its founder, Tanji Kosuge, was born Tanji Nowatari in 1859. At the age of 12 he was apprenticed to the Isesho Drapery in Kanda. By the age of 20 Tanji had risen to the position of banto, or head clerk. In 1881 he married Hanako Kosuge, the daughter of one of Isesho's best customers, a local rice merchant, and took the surname Kosuge. Five years later, with the blessing of his employer, Tanji Kosuge went into business for himself.

Kanda was one of the most densely populated areas of the city, and the new shop's location near a busy intersection guaranteed it a steady stream of business. Because of the shop's proximity to several well-known geisha districts, Kosuge's customers included many geisha who needed to maintain a well-stocked wardrobe of fine kimonos. He created his own range of original products, and the Iseya Tanji Drapery came to be associated with exquisite obi--the belt used to tie the kimono--and quality design.

Tanji Kosuge began expanding the business in various ways. He experimented with staying open at night, he sent out salesmen with samples of the stores' original designs to visit the homes of customers, he introduced seasonal bargain sales, he began buying out other kimono stores, and in 1899, as business prospered, he enlarged the Kanda store. So successful had he been that by the turn of the century, the Iseya Tanji Drapery had entered the ranks of Tokyo's top five dry goods stores.

Nevertheless, there was still a big gap between Kosuge's store and those of its long-established rivals. While the older stores were already thinking of moving to a department store format, complete with display cabinets for their products and a wider variety of merchandise, Kosuge was still concentrating on building up the kimono business.

In an effort to bring the store's image more in line with those of its rivals, in 1907 he simplified the store's name to Isetan Drapery, combining the first two syllables of Iseya with the first syllable of Tanji. Three years later he considered building a department store in Tokyo's Hibiya district but shelved the idea as premature. At his death in 1916, Isetan was well-established as a kimono store, but had yet to make the switch to a department store.

Kosuge was succeeded by his son-in-law, Gihei Takahashi. Takahashi had married Tanji Kosuge's eldest daughter in 1908, taking the family name of Kosuge. Upon his father-in-law's death, he took the name Tanji as well.

Takahashi had been working for another kimono store when he first came to the attention of Isetan in 1908. One day he bought 20 obi for his store at a ten percent discount from an Isetan salesman, who assured him that the obi were not being sold at the Isetan store. Walking past Isetan some days later, he discovered that the same obi were being sold, and for a 20 percent discount. Going in to complain, he handled himself so well that he got a further discount. He impressed the man he dealt with--Tanji Kosuge's younger brother&mdash both a good businessman and a potential husband for Tanji's eldest daughter. Takahashi joined Isetan shortly afterward and was married within six months.

A man who read widely, Takahashi had many ideas about retailing. As Tanji Kosuge II, he began to lay the groundwork for Isetan's transformation from a kimono shop to a department store. His first move was to place Isetan on a more businesslike footing by creating the Isetan Partnership to run the store in 1917. It was, however, a catastrophic event six years later that would really move Isetan's plans forward.

Shifting to Department Store Format: 1920s--30s

The Great Kanto Earthquake of September 1, 1923, killed some 130,000 people. The Kanda store burned to the ground, along with much of the rest of Kanda. The necessity of rebuilding the Kanda store provided Kosuge with the opportunity to introduce a department store format. When Isetan reopened in 1924 it was selling not only kimonos but also children's clothes, toys, umbrellas, cosmetics, stationery, household goods, and food. If the store had changed, so had Kanda, and it gradually became apparent that Kanda was no longer the prime site it once had been.

There were three reasons for this. First, within Kanda, the devastation caused by the earthquake and subsequent conflagration resulted in a changed street configuration, and Isetan no longer was situated near the corner of a busy intersection. Second, transportation was improving steadily, making the public more mobile. As the subway system was extended, Ginza and Nihonbashi, where Tokyo's leading department stores were located, became more accessible. With the completion of the Yamanote Line, a surface railway that circled Tokyo, new shopping and recreational areas grew up around stations such as Shibuya, Shinjuku, and Ikebukuro. Third, and in many ways most far-reaching, as a result of the Great Kanto Earthquake the center of the population moved away from the devastated areas in central and eastern Tokyo to the suburbs in the west.

By 1928 it was clear that there was no future for Isetan in Kanda. It abandoned a project to build a new eight-story department store there, although four stories of the building had been completed, and began looking for an alternative site. Hibiya, in downtown Tokyo, was considered once more, but after Tanji Kosuge had spent three days looking at the proposed site, he decided that there would not be enough customers and continued the search elsewhere. His eventual choice was Shinjuku, in the west of Tokyo, an area that had begun to develop after the opening of Shinjuku Station in 1875, but which had really taken off after the Great Kanto Earthquake. It was a decision that was to be as important for Shinjuku as it was for Isetan, and the two have grown in tandem ever since.

In 1930, in preparation for its move into the department store business proper, Isetan formed itself into a limited company, Isetan Company Limited, capitalized at ¥500,000. In 1931 it purchased the land on which its new flagship store would stand, adjacent to an existing department store called Hoteiya. Work began on the Isetan building in 1932, and the main building was completed in 1933. It consisted of two floors below ground and seven above, including an auditorium. On its first day of business, it attracted 130,000 customers. Three months later, the old store in Kanda closed.

In 1935 Isetan bought the ailing Hoteiya department store for ¥2 million. This included the building, the land it stood on, and the entire contents of the store. It borrowed ¥3.3 million from the Bank of Japan to pay for the purchase and redevelopment of the store as part of Isetan. A year later, this new addition to Isetan was open for business.

Shinjuku was by then established as one of Tokyo's new city subcenters. It was frequented by middle-class salaried workers and their families, attracted to its shops, cafes, and cinemas. As a new, up-and-coming department store, Isetan blended in perfectly. A play on a popular catch phrase of the day captures the mood of those times. 'Today the Imperial Theatre, tomorrow Mitsukoshi' went the original, linking together these bastions of tradition in the heart of downtown Tokyo. 'Today the Moulin Rouge [a new Shinjuku theater that opened in 1931], tomorrow Isetan,' went the other, clearly identifying Isetan as something of a trendsetter, appealing to those who preferred black comedy to traditional Kabuki.

Surviving World War II and the Allied Occupation

During World War II, Isetan remained open for business almost until the end of the war, although its displays grew barer and its sales area gradually shrank to 50 percent of prewar levels. Escalators and elevators were removed and melted down for the war effort in 1943. That year, Isetan was asked by the Imperial Japanese Army to manage a hotel and store taken over by the Japanese in Sumatra, which it did until the end of the war. The Allied fire bomb raids on the night of March 10, 1945, devastated large areas of Tokyo, reducing the old Kanda store to ashes, but Isetan's flagship store remained standing. Quick action that night on the part of employees put out a fire that threatened to rage out of control; neighboring buildings, however, were not so lucky.

According to one of his sons, Tanji Kosuge shrugged off the despondent comments of his employees on August 15, 1945, the day the Japanese emperor announced Japan's surrender. 'What are you saying? The store's still standing, isn't it? You've got nothing to worry about. I'm going back to work tomorrow.' Kosuge's wish for a quick return to business as usual was not fulfilled for several years, however. Apart from the problem of the lack of merchandise, the Allied occupation authorities had taken a liking to the building, and in 1945 requisitioned it for Allied use from the third floor up. Not until the end of the occupation, in 1952, would Isetan have the building to itself again.

The department store business after World War II saw a much greater emphasis on Western-style clothing. In the years immediately following the war, women made do with what they had--blouses and Japanese-style pantaloons called monpei--but from the late 1940s there was a growing fashion-consciousness, initially inspired by the 'military look' sported by women in the Allied occupation forces. In 1951 Isetan sponsored Tokyo's first postwar fashion show--Tokyo Fashion 51--which presaged a boom in fashion shows, modeling, and modeling schools.

Launching a Postwar Expansion

In 1956 Isetan underwent its first major postwar extension. Three new buildings were added, increasing the sales area by 25 percent. The purpose was not simply to increase Isetan's size; it was to reaffirm Isetan's image as a fashion leader. From this period Isetan introduced modern merchandising techniques, dividing up customers very specifically on the basis of age, sex, taste, and spending power. The new-look Isetan--it also changed its logo--celebrated the completion of its refurbishment with a grand opening in October 1957.

In 1960 Tanji Kosuge II stepped down as president and was succeeded by his eldest son, Toshio, who took the name Tanji upon his father's death two years later. The new president was a graduate of Keio University who had joined Mitsui Trading Company in 1941, before being drafted into the Imperial Japanese Army in 1942. After the war he had spent three years at Showa Textile Company before joining Isetan as a director in 1948.

Under Tanji Kosuge III, Isetan maintained its reputation for innovation during the 1960s. Anticipating the growth in private car ownership, it opened a parking garage adjacent to the store in 1960, becoming the first Japanese department store to have its own car park. In 1963 it introduced designer brands to the store with a Pierre Balmain haute couture salon, and in 1964 took the initiative in rationalizing women's clothing sizes, developing a system that has since been utilized by all Japanese department stores. In 1968 it opened a new annex devoted entirely to menswear. Many were opposed to the move, but Kosuge believed that by removing all men's clothes from the main building he could both create space for more women's and children's clothing and target the different categories of male shoppers more effectively in a building designed for that purpose. 'Bring him along, too,' said the publicity as Isetan sought to reach out to male shoppers through wives, girlfriends, sisters, and daughters who already shopped regularly at Isetan. Meantime, Isetan had become a publicly traded company in 1961.

By the late 1960s Isetan had established itself as the number one fashion merchandiser in Japan and recorded Japan's highest sales per month for a single store. In a move to strengthen its fashion merchandising capability further, in 1967 it established the Isetan Research Institute Company, Ltd., a think tank for collecting and analyzing information about the latest fashion, industrial, and consumer trends. The institute was an important source of ideas for Isetan's new product development. A year later, it opened its first overseas representative office, in Paris, which, along with other offices opened subsequently, also acted as a source of information on fashion trends.

Expanding Overseas and Diversifying: 1970s--80s

From the 1970s Isetan began a period of expansion, opening new stores both at home and overseas. Isetan's first overseas store opened in Singapore in 1972, followed by a store in Hong Kong a year later. The increase in stores continued in the 1980s, accompanied by the growing diversification of Isetan's business activities in the areas of fashion, food, leisure, and finance.

Subsidiaries set up in these areas in the 1980s included J.F. Corporation, which supplied Isetan with originally developed brands and also created brands for specialty stores around the country; Prio Company, Ltd., an importer-wholesaler of quality women's wear; Queen's Isetan Co., Ltd., a gourmet foods store; Isetan Travel Service Company, Ltd., which arranged package tours to domestic and overseas destinations; and Isetan Finance Company, Ltd., which was responsible for a wide range of nonbanking financial operations including the credit management of Isetan's charge card, the I-Card, the use of which was extended in 1988 to all shoppers at Isetan, as well as cashing, leasing, and loan services.

Isetan also ran a chain of supermarkets through Queen's Isetan Co., Ltd.; operated a nationwide restaurant chain of approximately 100 outlets through Isetan Petit Monde Company, Ltd., started in 1957; and imported and sold cars through Isetan Motors Company, Ltd., started in 1970.

Under Kuniyasu Kosuge, who succeeded his father, Tanji Kosuge III, in 1984, the company continued to grow. A graduate of Keio University who subsequently studied in the United States, Kosuge worked for Mitsubishi Bank for seven years, including a stint in London, before joining Isetan as a director in 1979. His overseas experience was useful as he presided over a growing international network of companies.

In Europe, Isetan operated stores in London, established in 1988, and Vienna, opened in 1990, which together with the company's representative offices in Paris, Milan, and Barcelona strengthened their business capabilities, including the procurement of merchandise through licensing agreements, product development projects, and information gathering. In 1988 Isetan established an international finance company in Amsterdam to support its overseas business activities. It opened a store in Barcelona in October 1991.

Active in the United States since the opening of a representative office in New York in 1979, Isetan moved into the U.S. market with more purpose when it entered into a joint venture with New York-based Barney's, Inc., an upscale retailer of clothing and sundry goods, in 1989. Isetan looked to strengthen its merchandising and increase its expertise in specialty-store management through the joint venture, while helping Barney's to open new stores across the United States. The tie-up also resulted in the opening of a branch of Barney's in Tokyo in November 1990. The Shinjuku store became the largest joint venture between a Japanese and a U.S. retailer, and Isetan had plans to open Barney's outlets in other Japanese cities.

Struggling Through the 1990s

In the mid-1990s Isetan suffered from the aftermath of the rapid decline of the Japanese economy and the souring of the Barney's joint venture. When the Japanese economic bubble burst in 1991, the economy was thrown into a lengthy downturn featuring a precipitous drop in consumer spending. In 1992 overall department store sales fell 3.3 percent, the first such decline in 27 years. Isetan's sales began to decline as well--they fell for the first time in company history in 1992--and at a particularly inopportune time, given the company's far-ranging expansion in the heady days of the late 1980s that left it with a mountain of debt. In the depressed climate of the mid-1990s, Isetan also faced increased competition from the burgeoning ranks of discount stores such as Ito-Yokado Co., Ltd. In fact, Isetan in 1993 was threatened with a takeover by Ito-Yokado after Isetan's largest shareholder, Shuwa Corporation, a financially troubled real estate firm, sought to unload its 29 percent stake. But Mitsubishi Bank, Isetan's main bank, intervened, forcing Kuniyasu Kosuge to step down as president in favor of 30-plus-year company veteran Kazumasa Koshiba, and arranging the sale of the Shuwa shares to 41 of Isetan's major existing shareholders and business partners. The pushing of Kosuge into the honorary chairman's seat marked the end of the Kosuge family's reign over Isetan. Meanwhile, the culminating moves of Kuniyasu Kosuge's overseas expansion also came in 1993 when new stores opened in Bangkok, Thailand--Isetan's largest unit in southeast Asia--and in Shanghai, China.

The company's new president put a halt to any more store building and concentrated on improving profits. He closed underperforming affiliates, including the company's stores in Hong Kong, a fitness club in Tokyo, and Isetan Motors. In the short term, however, Isetan was haunted by the overexpansion of the 1980s. The Amsterdam-based finance company formed in 1988 suffered large losses from secret derivatives trading during the 1994 fiscal year, leading Isetan to post an extraordinary loss of ¥9.7 billion (US$89 million). The relationship with Barney's turned south in 1994 when the U.S. retailer requested more money from Isetan to fund its newly expanded operations but Koshiba refused to do so, his company having already poured more than US$600 million into the joint venture. This led Barney's, unable to make the rent payments on its stores, to file for Chapter 11 bankruptcy protection in early 1996. For the fiscal year ending in March 1996 Isetan posted its first net loss since 1961 as a result of the writing off of billions of yen in loans to Barney's. Legal action ensued as well, with both sides suing each other over the original terms of their joint venture agreement. Kuniyasu Kosuge, the architect of the Barney's venture, voluntarily resigned from the Isetan board in mid-1996, leaving a 0.43 percent stake as the only connection between the founding family and the company.

The dispute with Barney's was not resolved until early 1999 when the company emerged from bankruptcy under a reorganization plan in which the company's creditors received more than 90 percent of the equity. Isetan came away with a stake of about seven percent as well as various concessions that settled the lawsuits. Isetan gained ownership of Barney's stores in New York, Chicago, and Beverly Hills, California, the exclusive right to license the Barney's name in Japan, and a 30 percent stake in a joint venture with Barney's to license the name elsewhere in Asia. Isetan also continued to operate two Barney's units in Japan, located in Tokyo and Yokohama.

With the resolution of the Barney's debacle settled on terms that seemed to favor Isetan, the Japanese retailer was finally in a position to concentrate fully on turning its fortunes around. Isetan, however, continued to face the extremely difficult Japanese retail environment at the dawn of the new millennium, a time in which some prominent Japanese retailers were themselves declaring bankruptcy.

Principal Subsidiaries: Barneys Japan Co. Ltd.; Century Trading Co. Ltd.; Cerruti Japan Corporation; Isetan Clean System Co. Ltd.; Isetan Data Center Co. Ltd.; Isetan Finance Co. Ltd.; Isetan Petit Monde Co. Ltd.; Mamina Co. Ltd.; Musashino Kaihatsu Kanri K.K.; Niigata Isetan Co. Ltd.; Queen's Isetan Co. Ltd.; Shizuoka Isetan K.K.; Isetan (Singapore) Limited; Isetan (U K) Ltd.; Isetan Co. Ltd. (U.K.); Isetan Department Store & Co. (U.K.); Isetan Italia S.p.A. (Italy); Isetan of Japan Ltd. (Hong Kong); Isetan of Japan Sdn. Bhd. (Malaysia); Isetan S.p.A. (Italy).

Principal Competitors: The Daimaru, Inc.; Mitsukoshi, Ltd.; Mycal Corporation; Seibu Department Stores, Ltd.; The Seiyu, Ltd.; Takashimaya Company, Limited; Tokyu Department Store Co., Ltd.

Chronology

• Key Dates:

• 1886: Tanji Kosuge opens a kimono shop called Iseya Tanji Drapery in Tokyo's Kanda district.
• 1907: The shop's name is changed to Isetan Drapery.
• 1916: Kosuge dies and is succeeded by his son-in-law, who is known as Tanji Kosuge II.
• 1923: The Great Kanto Earthquake destroys the Isetan store.
• 1924: Isetan reopens as a department store.
• 1930: Firm is incorporated as a limited company, Isetan Company Limited.
• 1933: Company opens new flagship department store in Tokyo's Shinjuku district. The Kanda store closes.
• 1945: Allied occupation authorities requisition much of the Isetan store for Allied use.
• 1952: With the end of the occupation, Isetan regains full control of its building.
• 1956: Postwar expansion begins with the opening of three new stores.
• 1961: Company goes public.
• 1968: First overseas representative office opens in Paris.
• 1972: First overseas store opens in Singapore.
• 1988: First European store opens in London.
• 1989: Company enters into a joint venture with New York-based Barney's, Inc.
• 1990: Barney's joint venture opens first Barney's store in Japan, in Tokyo.
• 1992: Sales decline for the first time in company history.
• 1996: Barney's files for Chapter 11 bankruptcy protection; Isetan and Barney's sue each other.
• 1999: Barney's emerges from Chapter 11--Isetan holds seven percent stake and control of several stores in Japan and the United States.