On May 11, Isetan Mitsukoshi Holdings announced additional measures for its three-year plan to achieve operating profit of 50 billion yen in fiscal 2018. The company cited the promotion of SPA business through structural reform of purchasing, e-commerce business, acquiring new customers through a points strategy, and cost structure reform as top priorities for achieving the plan in its domestic department store business. "Looking at the demographic pyramid and other factors, department store sales will not grow in the future. IT-related communication costs are putting pressure on consumer sentiment, and sluggish consumption among the middle class is likely to continue. The decline in clothing is particularly noticeable, with NB, a major domestic apparel company in women's wear, struggling. In order to address the sluggish margins due to the risk burden associated with the MD mix, we must further reform our purchasing structure and promote the development of SPA businesses in the future, otherwise we will not be able to reach 50 billion yen (in operating profit for fiscal 2018). Inbound sales increased 1.8 times compared to the previous fiscal year (2015), but we believe that this should not actually be set as a sales target," explained Taiyo Onishi, Representative Director, President and Executive Officer of Isetan Mitsukoshi HD, at the announcement of the financial results for the fiscal year ending March 2016.

The company's consolidated financial results for the fiscal year ending March 2016 (FY2015) showed increases in both sales and profits, with sales of ¥1.2872 trillion (up 1.2% year-on-year), operating profit of ¥33.1 billion (up 0.1%), and ordinary profit of ¥36.7 billion (up 6.2%). The Mitsukoshi Isetan Department Stores business alone saw sales of ¥679 billion (up 3.5%), operating profit of ¥24.3 billion (up 1.2%), and ordinary profit of ¥25.6 billion (down 98.4%).

While flagship stores performed strongly, regional stores were unable to recover from the negative impact of the consumption tax hike, resulting in results below the initial target for the fiscal year. Furthermore, by product category, apparel sales have continued to decline year-on-year since the second quarter, with women's clothing sales down ¥3.5 billion to 97.5% of the previous fiscal year. The sales composition ratio also fell 1.2 percentage points. Jewelry sales, which had been strong, began to show signs of decline in the fourth quarter due to the strong yen and falling stock prices.

Major apparel brands are consolidating and discontinuing their brands, resulting in a series of sales floor withdrawals. Regional stores, according to President Onishi, are "having to develop their own products to fill the shelves." In light of this, the core of the three-year plan's additional measures, the purchasing structure reform, has been increased from the initial target of over ¥20 billion to over ¥30 billion. Aiming to increase operating profit by ¥5 billion over the three-year period, the company will actively promote the SPA business.
The specific sales plan for the SPA business is centered on ¥3 billion in fiscal 2018 from Number Twenty One, a women's shoe brand that got off to a strong start with sales of ¥980 million in fiscal 2015. Sales of ¥2 billion from Isetan Men's, ¥1.5 billion from Slice of Life, ¥2 billion from BPQC, and ¥1.5 billion from Isetan Tartan are expected to total ¥10 billion in sales. The company plans to expand its efforts by first expanding to branches and local stores (in-house wholesale), then wholesaling to major domestic and international department stores and select stores (separate company), and finally opening new stores (SPA business).

In addition, the company has determined that the business structure of its branches and local stores, which face many challenges, is no longer viable based on the traditional large-scale store design, and that the creation of a new store model is an urgent necessity. The company plans to restructure its independent merchandising zone (70% of floor space) based on a floor space ratio of 20% Foods & Cafes from brands such as Queens Isetan and Mitsukoshi Isetan Transit, 25% SPA content, and 55% self-curated content such as Lady for the Weekend, Isetan Mirror, and Re-Style. In the tenant assortment zone (30% of floor space), the company's policy of not introducing fast-store fashion brands will shift to introducing lifestyle-oriented tenant content developed in-house, such as senior salons, medical malls, and cafes, and will operate a small- to medium-sized store management model with low-cost operations linked to the main store. In the small- and medium-sized store business, Isetan Mirror, which already achieved 12 stores and ¥3.2 billion in sales in fiscal 2015, is on a growth trajectory and plans to expand to 25 stores and ¥7 billion in sales in fiscal 2018. All three airport stores have achieved profitability, and while Isetan Salone Roppongi Midtown is struggling, achieving only 70% of its target, Isetan House in the Nagoya Building is progressing smoothly. The company plans to have a total of 40 stores and ¥16 billion in sales in fiscal 2018 (compared to 23 stores and ¥6.6 billion in fiscal 2015). The e-commerce business achieved sales of ¥11.4 billion in fiscal 2015, achieving profitability in the department store e-commerce business. The company plans to achieve sales of ¥30 billion and operating profit of ¥1.6 billion in fiscal 2018, and will begin opening new stores externally, including luxury sites and cross-border e-commerce, this fiscal year. The company also established a new Information Strategy Division this fiscal year to integrate its digitalization efforts. We will also explore the possibility of entering the marketing business by generating new customers through the launch of the T-Point service this fiscal year, strengthening in-store ICT, and data analysis.

■Sales for FY2015 from the Three Core Stores

Sales by store for the three core stores in FY2015 and the plan for FY2016 are as follows: Isetan Shinjuku Main Store: 272.4 billion yen (105.4% compared to the previous fiscal year), with the plan for this fiscal year being 108.7%.
Mitsukoshi Nihombashi Main Store: 168.316 billion yen (101.7% compared to the previous fiscal year), with the plan for this fiscal year being 107.3%.
Mitsukoshi Ginza Store: 85.292 billion yen (114.6% compared to the previous fiscal year), with the plan for this fiscal year being 109.2%.
For the three core stores, we plan to invest 20 to 25 billion yen intensively over a three-year plan, and expect to achieve an increase in profits of 10 billion yen.

On a consolidated basis, the company plans to achieve sales of 1.36 trillion yen (105.7% of the previous year) in fiscal 2016, operating profit of 37 billion yen (111.8% of the previous year), ordinary profit of 38 billion yen (103.5% of the previous year), and net profit for the period of 26 billion yen (98.1% of the previous year).

Text: Noda Tatsuya