TOKYO — Downtown department stores and suburban shopping centers, longtime rivals for market share here, are coming together for survival.
The impetus comes from structural changes taking place in the Japanese retail market, including developments that will have a deep impact on future sales, a declining and aging population, new generations of consumers who are more sophisticated in taste and lifestyle, a widening gap in income and wealth between rich and poor and increasing global competition.
George T. Kumekawa, chief operating officer of brand marketing at Itochu Corp., said as consumer needs and preferences become more diverse, department stores and shopping centers can respond to a broader range of consumer requirements through collaboration.
In announcing its new management policy, Takashimaya Department Stores said it is positioning shopping centers as its second “core” business. The company is set to invest 275 billion yen, or $2.29 billion, over the next seven years, of which 70 billion yen, or $583 million, is to be used in bolstering its presence in shopping centers, while 155 billion yen, or $1.29 billion, will go into remodeling existing stores and other projects.
Department stores have been typically what is called a city business, and as more shopping centers have to offer an increasing diversity of merchandise, one way for department stores to get business is to become a core tenant in a shopping center, Kazuyuki Matsui, an analyst at Yano Research Institute, noted. That formula has been prevalent in the U.S. for decades, but is just taking hold in Japan. Matsui said competition among major retailers will become more intense in coming years as the pie becomes smaller.
Mitsukoshi, another leading department store company, said it is adopting a new management plan to cope with growing competition from shopping centers, specialty store complexes, retail facilities at railway terminals and other “large-scale urban-style commercial facilities.”
The program will focus on selected business areas of strategic importance, giving a high priority to expansion into the shopping center sector.
“Entry into shopping centers is completely a new challenge,” according to Mitsukoshi, adding that it expects the experience to provide new opportunities for contact with customers.
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Mitsukoshi joined a shopping center for the first time in November when it became a “core” tenant in Diamond City, built on the former site of Nissan Motor Co.’s automotive plant in Musashi-Murayama City in the northwestern suburb of Tokyo.
The “three-core” mall, positioned as a regional shopping center and one of the largest in the Tokyo area, consists of a Mitsukoshi department store, a general merchandise store operated by Jusco, a subsidiary of Aeon Co., Japan’s largest supermarket/general merchandise store that has a majority stake in the real estate developer of Diamond City, and a mall of specialty stores.
The 130-store facility, which is the 22nd Diamond City shopping center, with 1.6 million square feet of floor space and a parking lot for 4,000 cars, is expected to draw more than one million shoppers annually, including those from Saitama Prefecture to the north.
Mitsukoshi’s next move is into the northeastern region of Japan, with a presence in another Diamond City shopping center in Natori, south of Sendai City, opening Feb. 28. Competition is intensifying in that region as Parco is set to launch its railway terminal shopping complex in Sendai in June next year.
According to the Japan Council of Shopping Centers, there are 2,759 shopping centers in operation, including 79 that opened last year, with a total floor space of 484 million square feet and average per-center space of 283,000 square feet that contain 2,554 key tenants. Total sales in 2006 reached an estimated 26.83 trillion yen, or $223.58 billion, up 0.4 percent from the previous year, giving shopping centers a share of more than 20 percent of Japan’s retail market.
In contrast, department store sales have been on a decline for a decade. According to the Japan Department Stores Association, total sales by its member companies in 2006 fell for the 10th consecutive year to 7.77 trillion yen, or $64.75 billion, down 0.7 percent from the previous year, or 15.5 percent less than 10 years earlier. The association is affiliated with 96 companies with 277 stores.
Tokyo is becoming a battleground for big shopping centers as more are going up. Attention is on Tokyo Midtown, a huge shopping-office-residential complex financed by a consortium led by Mitsui Fudosan Co. that is nearing completion on the former site of the Defense Agency in Roppongi, for opening at the end of March. It is within walking distance of the famed Roppongi Hills, another gigantic complex of shops, business offices and residences that opened three years ago.
Tokyo Midtown will feature a 54-story tower that is expected to be the highest in Tokyo when completed, surrounded by six buildings. It will accommodate 20,000 office workers and 517 residences and service apartments, and a Ritz-Carlton hotel.
The project is aimed at providing higher-quality inner-city life, Mitsui said, explaining that it is designed to meet diverse lifestyles in fashion, interior and design, food and cafe, restaurant and bar, and other services.
Tokyo Midtown comes only a year after Omotesando Hills opened, which has become a new landmark in upscale Omotesando, reportedly attracting 9.5 million visitors from February to December 2006.
More are coming. A nine-story, 153-store shopping/office complex, New Marunouchi Building, with 2 million square feet of space, is being constructed by Mitsubishi Estate Co. in Tokyo’s business center of Marunouchi in front of Tokyo Central Railway Station for completion in April. Across the street stands Marunouchi Building, another shopping/office complex that was rebuilt in 2002.
One development industry executives are concerned about is legislation that will go into effect in November to restrict construction of large shopping centers that exceed 107,600 square feet of space outside cities. The law was enacted in response to outcries from owners of small local-area shops who said they went out of business because of increasing competition from big shopping centers. Some of the developers are said to be studying plans to shift to a smaller model called a Neighborhood Shopping Center.