Matsuzakaya Company Ltd.

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Matsuzakaya Company Ltd.

3-16-1 Sakae
Naka-ku Nagoya 460-8430
Japan
Telephone: ( +052) 251 1111
Fax: ( +052) 264 7140
Web site: http://www.matsuzakaya.co.jp

Public Company
Incorporated: 1910 as Ito Gofuku Company Limited
Employees: 5,516
Sales: $3.26 billion (2003)
Stock Exchanges: Tokyo Osaka Nagoya
Ticker Symbol: MSUZ F
NAIC: 452110 Department Stores

Matsuzakaya Company Ltd. is Japan's oldest department store with roots that can be traced back to the 17th century. The Nagoya-based chain operates ten department stores in central Japan and one in Paris. Matsuzakaya ranks fifth among Japanese department stores in terms of sales, and its business centers on the retailing of clothes, accessories, housewares, and personal products. Matsuzakaya is also involved in wholesale textiles, furniture manufacturing, and supermarkets. In response to intense competition and falling sales, the company launched a major restructuring effort in the late 1990s. Several stores were closed, including outlets in Hong Kong, Osaka, and Yokkaichi.

Early History

In 1611, Yudo Ito opened a kimono and clothing store in Nagoya in central Japan. His family were members of the samurai, or warrior, class in feudal Japan, and it was taken for granted that Yudo would carry on the family name and tradition. Instead, he chose the life of a merchant and used part of the family estate to go into business. The store was moderately successful and became renowned in Nagoya and the surrounding areas for its high-quality clothes. It stayed in the Ito family for many generations.

In 1768, the Ito family decided to expand further afield. It purchased a clothing store called Matsuzakaya—meaning "pine hill store"—in the Ueno district of Tokyo, which was known as a busy shopping area. At the time, Tokyo—then known as Edo—was Japan's most important city and one of the world's major metropolitan areas, with a population exceeding one million. The Ueno store was destroyed in 1858 in a fire that swept through Tokyo but was subsequently rebuilt.

New stores were opened and continued to be operated and owned by the Itos as a family business. In 1910, the 33-year-old Morimatsu Ito, a 15th-generation descendant of Yudo Ito, decided that the time was ripe for expansion. He formed a company called Ito Gofuku Co. Ltd.—"Gofuku" can be translated as drapery or clothing—with capital of ¥500,000. Leading up to the establishment of this company, the Nagoya and Tokyo stores had been expanded and a new store built in Kyoto. A large advertising campaign in major newspapers preceded their opening. An inauguration sale was held in the Nagoya store, with 40,000 people passing through the store's gates during the sale. The store was the largest in Nagoya at the time and flourished in the rapidly growing economy. Japan had defeated China and Russia in 1896 and 1904 respectively and was reaping the benefits of these victories. An affluent upper-middle class was appearing in Japanese society as new businesses flourished. The Ito Gofuku store in Nagoya catered to these customers, selling Western clothes, tobacco, jewelry, and footwear as well as the traditional Japanese clothing that had been the foundation of the family's business for many years. In 1914, the Nagoya store established a food department specializing in imported items and delicacies. In 1913, a restaurant was introduced in the Ueno store, and in 1917 the store was illuminated by electric lighting, as was the Nagoya store shortly afterwards. In 1916, senior managers of the company traveled to the United States to view its prestigious department stores and the current fashion trends. The following year saw the further expansion of the Ueno Matsuzakaya store to a floor space of 5,940 square meters and the addition of elevators. By 1920, the company's capital exceeded ¥5 million, a tenfold increase in ten years. The company's store in Kyoto was expanded further in 1922 and new items, such as imported glassware, were sold at all three stores.

In 1923, the Kanto region of Tokyo suffered its worst earthquake in recent memory, and the resulting fire destroyed or damaged large areas of the city. The destruction was compounded by the fact that most houses were constructed from wood and that most households used gas lamps, which were easily upset in an earthquake. The Matsuzakaya store in Ueno was totally destroyed and its staff of 150 temporarily relocated to the company's other stores. Within months, however, a new store had been constructed and was open for business by early 1924.

In the same year, Ito Gofuku acquired a building in the Ginza, a shopping and entertainment district in Tokyo, and opened a second Matsuzakaya store for the Japanese capital. A store had also been opened in Japan's second largest city, Osaka, in 1923. The opening was preceded by extensive publicity and canvassing by company employees. In 1924, the company's Nagoya flagship store was renovated to become a six-story structure illuminated by neon lighting at night. To unite the company's stores under a brand name, all Ito Gofuku stores became known as Matsuzakaya, and the company changed its name to Matsuzakaya Company Ltd. in 1925. Company revenues increased rapidly as the stores were expanded and demand for imported Western items boomed.

In 1929, Matsuzakaya's Ueno store was rebuilt and opened to the public with much fanfare. The store was spectacular for its time, with 26,000 square meters of floor space, eight elevators, heating and air conditioning, and its own post office and hairdresser. The store also contained a zoo on the roof of the six-story building and was hailed as the most prestigious department store in Japan at the time. Fashion shows were regularly held at the store, and it was known as the best place to shop for the latest fashions. The expansion and investment in all Matsuzakaya stores continued in the 1930s as the Japanese economy grew at a fast pace. A new store was opened in the city of Shizuoka in 1932, and in 1937 the Nagoya store was expanded to 30,000 square meters, surpassing the Ueno store. In the same year, Matsuzakaya's Nagoya store hosted the New Japan Cultural Exhibition.

With the start of World War II, Matsuzakaya's fortunes declined. The supply of luxury consumer goods from the West slowed greatly after 1940, and the military government's policy was to stimulate the economy and labor force to help the war effort. This led to falling sales for the company, and the military government asked the store to help publicize and take part in energy-saving and recycling initiatives. By 1944, it was clear to many Japanese that the country would lose the war. In this atmosphere, Matsuzakaya began the retailing of gold, silver, platinum, and jewels to nervous investors. By 1945, Japan had lost the war and the U.S. Air Force had inflicted destruction on major Japanese cities with its nightly B-29 attacks. Matsuzakaya's Ginza and Nagoya stores were destroyed in air raids in March and the Osaka and Ueno stores were damaged. During the war, Matsuzakaya had optimistically invested in various parts of Asia occupied by Japanese forces. These investments included a hotel in Kuala Lumpur and a store in Peking. These were confiscated after Japan's defeat and the cost to the company totaled ¥8 million.

Postwar Growth

In the years following World War II, Matsuzakaya, along with most other Japanese businesses, was in a state of disarray. The Japanese were, however, quick to rebuild their country, and corporate Japan began to reorganize itself with the aid of subsidies from the U.S. government, which effectively controlled Japan until 1951. The occupying forces asked most large Japanese companies to aid in the relief effort. Matsuzakaya's contribution was the conversion of its Osaka store, which had escaped the air raids largely undamaged, into a Red Cross center to tend to the sick and wounded. In early 1946, the first postwar shareholders' meeting was held and plans to rebuild the company's stores were announced. This was followed by the reopening later in the year of the Ginza, Nagoya, and Shizuoka stores. The Ueno store was refurbished, with a cinema built on the top floor of the seven-story structure. In 1948, the company launched a promotion campaign in which it claimed to be "binding together lifestyle and culture" in Japan. The late 1940s, however, were a time of rationing in Japan, and it was not until 1949 that Matsuzakaya's sales reached the level of prewar years. The year 1949 marked a turning point in the Japanese economy overall, with living standards finally reaching prewar levels.

In 1950, Matsuzakaya celebrated its 40th anniversary of incorporation and in the following year the 340th anniversary of Yudo Ito's first store. The year 1952 saw the expansion and refurbishment of Matsuzakaya's Ginza store and the next year that of the Nagoya store. The Ueno store followed in 1957. The work on these stores laid the foundation for their present-day position as landmark department stores in Tokyo and Nagoya.

Key Dates:

1611:
Yudo Ito opens a kimono and clothing store in Nagoya in central Japan.: 1768:
The Ito family purchases a clothing store called Matsuzakaya.: 1910:
The company incorporates as Ito Gofuku Co. Ltd.: 1925:
Ito Gofuku changes its name to Matsuzakaya Co. Ltd.: 1946:
A postwar shareholders meeting is held and plans to rebuild company stores are announced.: 1966:
A new store in Osaka attracts 30,000 people opening day.: 1978:
A store opens in Paris.: 1980:
The first Matsuzakaya store is launched in the United States.: 1999:
U.S. operations are shuttered as part of a companywide restructuring effort.

By 1960, the world economy, and Japan's in particular, was booming. The 1960s were years of strong growth for Matsuzakaya at a time when new retail empires such as Ito-Yokado and Daiei were building up large chains of supermarkets. These were hugely successful in catering to the day-to-day shopping needs of the consumer, while Matsuzakaya offered upmarket goods. There was now less emphasis on food and more on luxury goods. In 1964, Japan's economic recovery was in full swing and the country played host to the Olympic Games. The Matsuzakaya Ginza store mounted several exhibitions connected with the games, and a salon, a pool hall, and a boutique devoted to Nina Ricci clothes were added to the store. This was complemented by the addition of a Henry Poole men's suit boutique in each store in 1964. The boutiques were staffed by tailors hired from the United Kingdom to cut suits in the style worn by English gentlemen. In 1965, the accounting operations of the company were computerized with the introduction of an IBM mainframe. The following year saw investment in staff training with the establishment of a training scheme for all employees and a training school in Nagoya for the company's managers. In 1966, a new store was completed in Osaka with a floor space of 67,000 square meters. The store was built on Osaka Bay and attracted 30,000 customers on its opening day. In 1968, Matsuzakaya set itself a sales target of ¥100 billion to be achieved by the company's 60th anniversary in 1970. The company exceeded this figure with sales of ¥103 billion in that year.

By 1971, Matsuzakaya, along with Daimaru Co. Ltd., had become the leading department store in Japan in terms of reputation and prestige. The company completely refurbished its Nagoya store in 1971, and once again this became Matsuzakaya's largest store. With floor space of 71,000 square meters and ten floors above ground and two underground, it was one of the largest department stores in the country. In addition, a new store was opened in Nagoya, located near the main railway station. The 1970s saw the continued expansion of the Matsuzakaya chain into other Japanese cities such as Okasaki in 1971 and Kuzuka in 1972. A Paris branch was added in 1978. The original customer base of Matsuzakaya's first overseas department store was the Japanese expatriate community in Paris, but the store soon became popular with native Parisians. In 1980, Mayor Bradley of Los Angeles officially opened the first Matsuzakaya in the United States. Again, the targeted customer base was the large Japanese community in Los Angeles.

The 1980s saw Japanese consumers spending more and more on luxury items as the huge and affluent middle class reaped the rewards of Japan's booming economy. Women's fashions from France and Italy became especially popular, with an extremely lucrative and competitive market. Matsuzakaya and the other big department stores such as Mitsukoshi Co. Ltd. and Isetan Co. Ltd. devoted several floors of their large city stores to women's fashion and saw large profits from the sales in this department.

A 17th-generation Ito, Jirozaemon Ito, headed the company at this time, although the Ito family no longer held a significant number of shares. A development for the company in the late 1980s and early 1990s was the establishment of retailing via communications satellite tie-ups with Prestel of the United Kingdom and Teletel of France. Although Japanese department stores had a record year in 1991 in terms of earnings, Matsuzakaya included, the slowing of growth in the Japanese economy made the company more cautious about future investment plans.

Problems in the Mid-1990s and Beyond

Increases in sales and profits were hard to come by for most operators in Japan's retail sector in the mid-1990s due to the continued weakening of the economy throughout Asia. An April 1998 Chain Store Age article summed up conditions in the industry, declaring, "For some retailers, the currency crisis resulted in a worse case scenario—shutting doors on former shop-'til-you-drop streets and centers. The moderate reaction for some merchants has been to cut back on expansion, while still others are forging ahead despite what they feel are short-term challenges."

At this time, Matsuzakaya took several strategic actions to combat falling sales. By 1998, the company was in the midst of a major restructuring effort. It announced the closure of its Hong Kong store that year. A round of job cuts were launched in 1999, and the firm announced it would not recruit any graduates for employment in 2000. (Matsuzakaya had been recruiting since the early 1950s.) Its store in Los Angeles, California, was shut down. Certain operations were streamlined, and remaining stores were organized into three main business segments: Nagoya, Osaka, and Tokyo.

While the company worked to shore up sales and profits, it became entangled in a scandal when one of its executives was arrested for making payments to a corporate racketeer. This type of criminal, known in Japan as sokaiya, extorted funds from major businesses by threatening to disrupt annual or shareholder meetings. Despite the bad press, Matsuzakaya moved ahead with its turnaround efforts, determined to overcome this challenge.

Problems, however, continued in the early years of the 21st century. The company posted a loss in 2000 as result of intense competition and restructuring charges related to an early retirement program. It closed its unprofitable store in Yokkaichi in 2001. "Recent changes in the business environment, including the introduction of international accounting standards and cutthroat competition beyond the traditional boundary of business sectors, has made it difficult for loss-making stores to continue to exist," explained president Kunihiko Okada in a February 2001 Japan Weekly Monitor article. Indeed, stagnant personal consumption had halted Matsuzakaya's growth altogether. The company closed down its 81-year-old Osaka store in 2004.

Matsuzakaya struggled as its peers appeared to be overcoming the problems facing the retail industry. In fiscal 2004, the company was alone in reporting a drop in pretax profits. Foreign companies, supermarkets, and specialty retailers were cutting into Matsuzakaya's market share, putting the firm in a precarious position. Japan's oldest department store company was quickly becoming one of its weakest and smallest, leaving industry analysts speculating about its future.

Principal Subsidiaries

Elmo Co., Ltd. (40%); Central Park Building Co., Ltd. (29%); Nagoya Underground Parking Lots Co., Ltd. (36.6%); Aichi Xerox Co., Ltd. (39%); Seikosha Co., Ltd.; Matsuzakaya Membership Association Co., Ltd.; Sakae Printing Co., Ltd.; Rec Resort Co., Ltd. (80%); Sakae Linen Supply Co., Ltd. (33.3%); Toto Transportation Co., Ltd. (66.7%); Showa Transportation Co., Ltd. (66.6%); Shizuoka Itaku Co., Ltd.; Yokohama Matsuzakaya Co., Ltd. (51.1%); Sanmen Shoji Co., Ltd. (68.6%); Matsuzaka Service Co., Ltd.; Tokiwa shokai Ltd.; Japan Rifex Co., Ltd.; Shoei Foods Co., Ltd. (48.7%); Rec Finance Co., Ltd. (31%); Funazu Kogei Co., Ltd. (44.7%); Matsuzakaya Store Co., Ltd.