Mitsukoshi Ltd. Business Information, Profile, and History

Company Perspectives:

We strive to be a high-quality retail business and a highly profitable company, which will lead to the creation of a high-quality retail group.

History of Mitsukoshi Ltd.

As Japan's largest department store company, Mitsukoshi Ltd. maintains approximately 130 locations, both domestic and international, with stores across Japan and in the United States and Germany. The firm is also involved in real estate, logistics, and building services. Mitsukoshi fell on hard times during the 1990s due in part to the rise in Japan's consumption tax, falling consumer confidence, and an overall weakening of the economy. As a result, it has revamped its management practices and restructured business operations. Mitsukoshi operates as part of the Mitsui group, a large industrial group or keiretsu.

17th and 18th Century History

Mitsukoshi's origins date back past its establishment in 1904 as Japan's first modern department store to the nation's feudal days in the 17th century. The Lord of Echigo, head of the noble House of Mitsui, fled from the forces of a samurai who eventually unified Japan by subduing the protectors of the hereditary estates. Because Matsusaka, the place of refuge, was a busy market center near a popular port in a fertile province, the Lord of Echigo, no longer in a position to collect income from his estates, renounced his title in order to become a merchant. After an inauspicious effort operating a brewery of sake and soy sauce, a merchandising dynasty was launched through the work of the former lord's eldest son, Mitsui Sokubei Takatoshi, and his wife, Shuho, daughter of a successful merchant.

The drapery business they opened in 1673 was called Echigo-ya in recognition of the family's noble heritage, differentiating it from other businesses and attaching some prestige to its wares. A luxurious ambiance, in which transactions were discussed secondarily to elaborate social amenities, quickly attracted a loyal clientele, but the couple soon introduced some business practices that greatly broadened their customer base.

First, they maneuvered to become purveyors of textiles to the new government, which by that time had settled down under the thumb of the Tokugawa shogun to a lengthy period of peace and isolation from the outside world. Second, the couple opened a store where customers could view the merchandise and make cash transactions. This was a drastic departure from the practices of the late 17th century, when merchants made house calls on wealthy families--the only persons who could afford to buy--and would have to wait for payment until the lord of the manor collected the annual or semiannual rentals from tenants, who paid in rice rather than currency. That, in turn, would have to be converted into negotiable instruments by professional moneychangers or bartered for other goods.

Centralizing the purchase process in a store eliminated the transportation costs of making house calls, a saving that Echigo-ya could pass on to customers in the form of reduced prices. The couple also introduced fixed prices. This eliminated the uncertainty on both sides that had accompanied the traditional haggling and speeded the purchase process, making it possible to handle more transactions.

The success of the first store led to the opening of a second, in Edo, which became modern Tokyo. It also led to the establishment of a second business--a financial arm. Customers found it convenient to have a moneychanger on the premises, and the financial service eventually grew to gigantic proportions. It became known as the powerful Mitsui Bank, another independent member of the Mitsui group.

In pioneering consumer-oriented business practices, the change that had the greatest effect on attracting new customers was to make merchandise available in quantities small enough to be affordable for the common people. Previously, fabric had to be purchased by the bolt. Echigo-ya was the first store to allow the customer to limit the purchase to the amount needed. This resulted in an unprecedented volume of sales, and the couple was able to open additional stores in other urban centers during the following decades. It was not until the Bon Marche store was opened in Paris in 1852 that such practices became known throughout the occidental world.

Another legacy of the founders was the Mitsui House Code, derived from Takatoshi Mitsui's will in 1722. This was a guide for the Mitsui heirs for management of the family's companies, which were already proliferating through the country. It was also a code of ethics intended to ensure that the founders' principles and traditions of service would be followed by future generations. For example, Echigo-ya was so accommodating that an early patron wrote, "When ceremonial costumes are required in a hurry, the shop lets the servants wait and has the regalia made up immediately by several dozens of their own tailors. ... This is an example of a really big merchant."

In the ensuing 150 years, trust in the Mitsui name grew to be so entrenched that when the Tokugawa shogunate was succeeded in 1868 by the restoration of the imperial government, Mitsui's financial arm became, for all practical purposes, its banker. The management system that the Mitsui House Code had established was no longer adequate, however, to handle the rambling empire of businesses and industrial enterprises that the Mitsui heirs were struggling to keep in order in the late 19th century. Japan's business climate had changed drastically with the opening of the nation to foreign trade and the new Meiji emperor actively encouraging openness to Western concepts. Moreover, the various Mitsui enterprises often did not work in harmony with one another, and each was bound by its own traditional ways of doing business.

Rizaemon Minomura, a talented manager, was recruited by the Mitsuis and given power of attorney to make any changes needed to solve the internal problems of the businesses, which by then represented almost all types of commercial, financial, and industrial enterprises. He was eminently successful. One of his methods was to release certain companies from direct control of Mitsui, but to retain a small share in businesses that were foundering as a result of mismanagement. One of these was the Tokyo Echigo-ya store.

The Tokyo Echigo-ya gained its independence in 1872, under the management of a related family named Mitsukoshi. The store prospered under its new management. Known first as the Mitsui Clothing Store, it became the Mitsui Dry-Goods Store in 1896 to reflect its expansion into additional lines of merchandise. Capitalizing on the Mitsui reputation for high quality and the growing popular fancy for Western-style fashions, the store brought in a designer from France to develop a new apparel department. The designs caught on, along with other innovations, including a display of merchandise in the open, life-size poster displays at railway stations as well as a catalog sales department. Home delivery by auto was instituted in 1903. Stocking foreign-made goods also attracted customers.

Japan's First Modern Department Store: 1904-1930s

The following year, under new director Osuke Hibi, the store was reorganized as Mitsukoshi Dry-Goods Store Company and announced its metamorphosis into Japan's first modern department store, with newspaper advertisements emphasizing the convenience of one-stop shopping for an ever-increasing variety of merchandise, simulating "in part, the department stores of the United States." As well as adding items such as jewelry, luggage, food, and photography to its wares, Mitsukoshi also held events such as expositions and exhibitions to contribute to the cultural life of the area. This had the effect of elevating the status of the store and attracted so many new customers that additional Mitsukoshi stores were opened.

By 1914, the Mitsukoshi stores were firmly established as sources of high-quality merchandise that were accessible and affordable for most shoppers, and other stores had begun to copy their innovations. The new Renaissance-style building constructed to house the flagship store that year sported Japan's first escalator. Mitsukoshi was also firmly associated with cultural activities, having participated in the refurbishing of the Imperial Theater, among many community projects.

Japan's eventual entry into World War I did not slow Mitsukoshi's growth. If anything, wartime industries furnished employment that enabled many more persons to become customers. Reduced-price special sale days and the introduction of gift coupons also stimulated sales.

The Great Kanto Earthquake of September 1, 1923, marked a turning point for all Japanese department stores. Along with many other buildings in Tokyo, they were all burned to the ground. Small mobile units were quickly set up throughout the city to supply essentials to the people, many of whom had never before been customers. A large number of customers acquired in this way continued to shop at Mitsukoshi throughout the rebuilding process and remained loyal patrons. The new stores, built as high-rises with many architectural innovations, offered further convenience. They ended the practice of having customers remove their shoes at the entrance and pad through the stores in cotton slippers. Fashion shows were held and beauty salons added. Business burgeoned. In 1928, to reflect the great variety of goods and services offered, Mitsukoshi dropped the Dry-Goods part of its name and became Mitsukoshi Ltd.

In the 1930s, mobilization for war again created industrial activity that increased the number of workers who could become part of Mitsukoshi's customer base. The Mitsukoshi name had begun to be recognized overseas as a result of participation in world's fairs and other expositions in Europe and the United States, increasing the number of foreign customers. As part of the Mitsui group, Mitsukoshi profited from its association with Japan's top business-industrial conglomerate, or zaibatsu. However, government constraints on the business, instituted in 1938 and continuing throughout World War II, along with the wartime damage resulting from direct bombing, left Mitsukoshi in a greatly weakened state.

Postwar Growth

The trust in the company's integrity that had been built up over many generations enabled Mitsukoshi to begin the recovery period by successfully combating the black market with fixed prices. Working with the new government established during the Allied occupation of Japan, Mitsukoshi was able to make rapid progress in rebuilding its business. Reaching out to customers through its continuing involvement in cultural events, as well as adopting Western-style products and retail techniques, Mitsukoshi had recovered enough by 1954 to celebrate its 50th anniversary with exhibitions of fine art and the introduction of new fashions that quickly became popular.

The phenomenal recovery and growth of Japanese business and industry in general brought Mitsukoshi a host of new customers. As Mitsukoshi added new products made possible by Japanese technological advancement, a consumer boom resulted that carried through the 1960s and made it possible for Mitsukoshi to open overseas stores in such locations as Paris and Hong Kong, beginning in 1971. By 1974, Mitsukoshi's flagship store was importing Rolls Royces for purchase. During the 1970s, Mitsukoshi stores opened in London, New York, and Rome.

Mitsukoshi's profits dropped in the early 1980s. In September 1982, Mitsukoshi's directors dismissed Shigeru Okada from the presidency, and Akira Ichihara became president; in 1986 he became chairman of the board.

By 1985, the company's catalog sales, as well as its stores' travel, construction, and decorating departments, had become so large that they were reorganized as independent business divisions. Mitsukoshi continued opening new department stores, expanding existing ones, and establishing numerous specialty shops. In 1989, Mitsukoshi purchased 1.5 million shares of stock in Tiffany and Co. Mitsukoshi's president, Yoshiaki Sakakura, was appointed a director of Tiffany later that year.

During this time period, Mitsukoshi was still tied to the Mitsui group through the shares Mitsui held and through its own participation in the Mitsui group's leadership conferences. Like the rest of the Mitsui group, Mitsukoshi expanded through takeovers and joint ventures as well as through self-developed businesses. Mitsubishi recovered from World War II somewhat faster than the Mitsui group because all of its businesses were self-developed and therefore closer-knit and easier to control. That was why the Mitsui group had not regained its prewar zaibatsu number one position; however, its number two position, under the postwar keiretsu system, was not seriously threatened. Along with the Mitsui group, Mitsukoshi, too, appeared to be securely established as a front runner, both internally in Japan and worldwide. A sign of the ever-widening circle of Mitsukoshi activities was its joint venture with Marubeni Corporation in 1990 to set up cable television services in Europe.

Overcoming Problems: 1990s and Beyond

Problems arose in the 1990s, however, that threatened to usurp Mitsukoshi from its top spot. In 1992, the company was forced to forgo a costly expansion plan it had started in 1990 due in part to sluggish sales in its luxury goods segment. That year, the company also started to reorganize its executive and management structure, believing that mismanagement was the cause for much of the company's financial woes. By September 1992, the company was reporting major declines in pretax profits.

Mitsukoshi was dealt another blow in April 1997 when Japan raised its consumption tax from 3 to 5 percent. This tax increase, along with a crisis in Asia's financial sector, weakened consumer confidence. The company and its competitors began to feel the crunch as sales began to dwindle. Many of these companies had expanded significantly during the 1980s and early 1990s and were now left with too much floor space. According to a 1999 Nikkei Weekly report, sales per square meter of floor space declined by more than 30 percent from 1990 to 1999. Nevertheless, Mitsukoshi opened its new Fukuoka location in October 1997. Over 180,000 visited the store on its grand opening day.

Despite the challenging economic climate, Mitsukoshi was determined to enter the new century on solid ground. The firm launched a new management strategy in the late 1990s with five major goals--to secure strong sales and profitability, to bolster the performance of company businesses, to restructure financial operations in order to promote future growth, to adopt a new corporate culture, and to remain a good corporate citizen. As part of this plan, the firm sold off its interest in Tiffany and Co., set plans in motion to overhaul operations at three of its stores in the Kansai region, and stopped a golf course development project in the Chiba Prefecture. For the first time since it was listed in 1949, Mitsukoshi was forced to cancel its dividend payment in fiscal 1999.

Consumer spending continued its downward trend in the early years of the new century. Company sales declined for the third year in a row in fiscal 2000, prompting Mitsukoshi to look for new growth avenues. In 2000, the company launched its "Only You" e-commerce Web site and joined the Yahoo! Japan Shopping online shopping mall the following year, hoping that increased Internet sales would make up for lackluster traditional retail sales. During 2001, plans were set in motion to refurbish the Mitsukoshi Nihombashi store in preparation for its 100th anniversary celebration in 2004. Management hoped the revamped store would become a landmark in the Nihombashi area. A relocation strategy for the Osaka location was also in the works.

Taneo Nakamura took over the helm of Mitsukoshi in February 2002. Under his leadership, the company continued to divest unprofitable businesses and focused on entering high profit areas. In early 2003, the firm announced that it would merge four of its subsidiaries--Nagoya Mitsukoshi, Chiba Mitsukoshi, Kagoshima Mitsukoshi, and Fukuoka Mitsukoshi. Nakamura commented on the strategy in a 2003 Japan Economic Newswire, stating, "We will enhance our competitiveness and earning power by focusing management resources on our mainline department store operation."

Principal Subsidiaries: Nagoya Mitsukoshi Ltd.; Fukuoka Mitsukoshi Ltd.; Chiba Mitsukoshi Ltd.; Kagoshima Mitsukoshi Ltd.; Leo d'Or Trading Co. Ltd.; Niko Co. Ltd.; Mitsukoshi Sewing Co. Ltd.; Mitsukoshi Real Estate Co. Ltd.; Mitsukoshi Logistics Co. Ltd.; Mitsukoshi Environment Service Co. Ltd.; Mitsukoshi Enterprises Co. Ltd. (Hong Kong); Mitsukoshi U.S.A. Inc.; Mitsukoshi UK Ltd.; Mitsukoshi France S.A.

Principal Competitors: The Daimaru Inc.; Seibu Department Stores Ltd.; Takashimaya Company Ltd.

Chronology

• Key Dates:
• 1904: Mitsukoshi Dry-Goods Store Company Ltd. is established as Japan's first modern department store.
• 1914: The company's flagship store is home to Japan's first escalator.
• 1923: Department stores are destroyed in the Great Kanto Earthquake.
• 1928: The firm shortens its name to Mitsukoshi Ltd.
• 1971: Mitsukoshi begins to open overseas stores.
• 1989: The firm acquires an interest in Tiffany and Co.
• 1997: Mitsukoshi opens its new Fukuoka location; over 180,000 people visit the store on its grand opening day.
• 2003: Restructuring continues amid weak consumer spending.