June 20, 2014 4:53 am JST

Japan's Isetan Mitsukoshi cashing in on private-label goods

TOKYO -- Isetan Mitsukoshi Holdings Ltd.'s private-label products will likely push up the company's operating profit by roughly 5 billion yen ($48.53 million) in the current year through March 2015, offsetting about half the negative impact from the April 1 sales tax hike.

     Shoes, bags, shirts and other items, for which the company handles product planning, are growing popular among shoppers particular about both quality and price.

     The Japanese department store operator launched in fiscal 2011 a full-blown initiative to restructure procurement, and has since been developing original merchandise and items available only at its retail stores.

     It cuts procurement costs by farming out production and buying the output directly from manufacturers. Gross margins on these items are 10-15 percentage points higher than regular merchandise.

     The company aims to have such products account for 15% of sales from the domestic department store business this fiscal year, up 3 percentage points from fiscal 2013.

     The higher sales tax could push down profit by as much as 10 billion yen, according to President Hiroshi Onishi. But helped by a beefed-up line of original merchandise and lower costs, group operating profit is expected to rise 1% to 35 billion yen to mark a fourth year of record earnings. By boosting production abroad, the company will work to further raise profitability.