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Business

Isetan Mitsukoshi retreats from Osaka's department store wars

JR Osaka Mitsukoshi Isetan

TOKYO -- One of Osaka's largest department stores will soon be less than half the size it used to be.

     The operators of JR Osaka Mitsukoshi Isetan announced Tuesday that it will cut the store's floor space by 60% from the current 50,000 sq. meters. The department is store jointly operated in the city of Osaka through JR West and Isetan Mitsukoshi Holdings. 

     The announcement essentially signals Isetan Mitsukoshi's retreat from Osaka, a market that has been a long-pursued target for the company. Isetan Mitsukoshi's market advance into Osaka was part of a long-term strategy envisioned even before Isetan and Mitsukoshi merged several years ago.

     Mitsukoshi's store in the Kitahama area of the city was seriously damaged by the Great Hanshin Earthquake of 1995. At that time, Mitsukoshi considered it essential to strengthen its weak business base in western Japan as a way to further expand nationwide.

Elusive dreams

Shizuka Yabuki, executive vice president of JR West, and Toshihiko Sugie, managing executive officer of Isetan Mitsukoshi Holdings, announce the plan to reduce the size of their jointly-run Osaka store, in Osaka on Jan, 21.

A key to achieving this goal was for Mitsukoshi to strengthen its position in negotiations with apparel makers and other suppliers, which could be greatly helped by building a flagship store in Osaka. But Mitsukoshi stumbled. In the late 1990s, it lost to Yodobashi Camera in a bid for a plot of land adjacent to JR Osaka Station. Mitsukoshi also later tried to buy Sogo's Osaka store, but failed at that as well.

     Mitsukoshi's last great chance came as the station began a major renovation.

     Department stores in general saw sales slump in the middle of the 2000s. This stressed an already struggling Mitsukoshi, and in 2008, it agreed to merge with Isetan. Mitsukoshi's business plans were integrated, along with its management, into Isetan's business.

     The decision to retreat from Osaka can be seen as Mitsukoshi's epilogue in its story of trying to regain its position as the top department store in Japan.

Regional rifts

The retreat is also a blow to Isetan. Its flagship store in the Shinjuku district of Tokyo has the largest sales per store in the entire world. It also dominates its rivals in Tokyo in sales of high-end fashion items.

     Isetan has been more successful than Mitsukoshi in the Kansai area that encompasses Osaka and Kyoto. Kyoto is home to a very successful Isetan branch. Osaka and Kyoto are only about a half-hour train ride from each other, but spending patterns in the two cities are dramatically different. Isetan, too, has failed to succeed with customers in Osaka. The Isetan brand is seen in the rest of the country as being very Tokyo in taste.

    When Isetan opened its store in Kyoto, rivals Daimaru and Takashimaya fought back by expanding their sales floors at their Kyoto locations. Amid the competition, another rival, Kintetsu Department Store, eventually closed its outlet in front of Kyoto Station.

     Although department stores are improving earnings as consumer spending increases the sales of luxury goods, not all stores are benefiting the same. Even in city centers, smaller stores continue to struggle, and the major department stores cannot rest easy just yet.

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