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The Endeavor to Create the "Japanese Version of New Retail Service" Isetan Mitsukoshi and Fujitsu to Launch an Apparel Sharing Service

Main visual : The Endeavor to Create the

In August 2018, Isetan Mitsukoshi and Fujitsu began testing their sharing service called CARITE, a smartphone app-based rental service for apparel, at Mitsukoshi Ginza Store.
By integrating "customer service" and "stores," which are the strengths of leading department store Isetan Mitsukoshi Ltd., with the digital technology of Fujitsu, the objective of this co-creation project is to offer customers a new shopping experience through an app.
We asked about the CARITE project and the future of the retail industry in an interview with the four people working together to create the "Japanese Version of New Retail Service" while overcoming business hurdles between major companies.

What a Department Store Can Do for Customers As the Trend Shifts from Owning to Using

Yuki Kamitani
Planning Staff
Merchandising Strategy Department
Isetan Mitsukoshi
"I sometimes felt there had been changes in the customer value perspective and diversification of their needs in the form of the shift to 'value-oriented consumption.'"

Kamitani: The sharing economy became a strong interest of Isetan Mitsukoshi about three years ago. What kind of impact would the behavior of renting items when they were needed, instead of buying and owing them, have on the department store business? Both buyers for Isetan Mitsukoshi and shop clerks were feeling from their experiences that customers were becoming familiar with the concept of "paying to use items" instead of "owning them."

Hayashi: We felt that the frequency of customers saying, for example, that "I will wear this dress only once" or "I can't buy new clothes unless I reorganize my closet" was gradually increasing. In the previous era, the act of purchasing itself held value and symbolized affluence. The trend, however, has shifted to "value-oriented consumption" in which people place importance on what they want to do with the items they purchase. I think, we, the department store, need to accommodate such changes in customer value perspective and needs.

CARITE is a smartphone app-based women's clothing rental service. Users can rent items for three days. Fees vary by item but include shipping both ways and dry cleaning. The lineup centers around new products released in 2018. Users can select and rent items via the internet or while checking them out at Mitsukoshi Ginza Store. A chat program allows them to consult with a clerk. CARITE is operating for a limited time between August 1 and November 30, 2018.

"Customer Experience at Real Stores" and "Storytelling Skills of Experienced Clerks" are the Strengths of Department Stores

Shuhei Yamada, Co-Creation Innovation Division, Fujitsu Limited
"EC companies still lack experience in real store operation that traditional bricks-and-mortar stores possess. How we differentiate ourselves from EC companies depends on how well we can leverage our digital technology to maximize the strengths of real stores, which are the customer shopping experience and storytelling skills of experienced clerks."

Yamada: Fujitsu was also closely watching how the waves of digitalization started to reach the retail industry. One such wave is the spread of sharing services.
Another is the use of technology at real stores. EC (internet shopping) has already grown to account for 10% of global retail sales, and now EC companies are trying to reach real stores. This trend is prominent in the US and China. EC companies are opening "digitalized real stores" one after another. Alibaba in China calls such a fusion of online and offline business the "New Retail" strategy.

At the same time, it's true that in recent years companies that had developed their business primarily at physical stores have been left with no choice but to withdraw from the market or go bankrupt. According to a news report, in the US approximately 3,800 retail stores will close their doors in 2018.

Kamitani: Bricks-and-mortar stores have features that online stores are missing. Direct contact with customers and understanding of their needs in detail are a couple of examples. EC companies that grew online are now expanding their business to physical stores because they've come to understand the importance of such stores. We, department stores, have knowledge acquired from many years of experience with store operation, and I think we can meet customer needs comprehensively by integrating real and digital businesses while taking advantage of our strengths.

The New Clothes-Sharing Service "CARITE" Digitally Connects Offline and Online

Hiroko Hayashi
Manager, Ladies, Children's Wear, Cosmetics & Fashion Accessories Division
Mitsukoshi Ginza Store Merchandising
"CARITE was a bold, adventurous project full of new experiences for a department store."

Hayashi: For Isetan Mitsukoshi, everything about the CARITE project was new. It was a bold, adventurous endeavor. There were opinions both for and against it, including objections such as, "If a department store designed to sell products starts renting them, the number of purchasers may decrease."

Kamitani: An American study, though, has reported that a rental service operated by a physical store does not necessarily affect the purchase volume. Our view agrees with the study; we predict that the customers may "choose purchasing and renting according to the occasion" and "use the rental service as an extra option while purchasing remains as a choice."

Yamada: In this era, we can use a smartphone to check information anytime and anywhere. This means customers are gaining control over product selection. In a business like that of a department store in particular, how well we can satisfy the diversified needs of customers now in power is crucial. I was wondering what Fujitsu could do with our digital technology to meet their needs.

The CARITE project began in December 2016. When I joined an open innovation gathering, I met a buyer for Isetan Mitsukoshi and on the spot suggested a clothes-sharing service. I know it was a busy, year-end period, but the buyer contacted me shortly afterward and the idea started to take shape.

Kamitani: At that time, we had issues in the digital area. Many of them couldn't be solved if we tried to deal with them internally. IT is not our main field and we lack know-how. So we asked for the cooperation of Fujitsu, who are the professionals in the field.

Yamada: For a company not specializing in digital technology, it is indeed difficult to keep developing and hiring human resources who can keep up with the latest trends of digital technology and introduce it. Meanwhile, companies like amazon and Alibaba are making trillion-yen-level investments in digital technology. The gap between these companies keeps widening.
Retail offers good-quality Japanese products and IT features Japanese technical skills, but these good qualities are not fully taken advantage of. That frustrated me but then motivated me to make full use of them through co-creation.
This CARITE project has been made possible by the co-creation of three companies. Isetan Mitsukoshi takes care of customer service, stores, merchandizing, and promotion. Fujitsu is responsible for digital tasks, back-end development, security, system operation, the IoT, AI, and big data analysis. Then, the startup company ARCHECO Inc. takes part in the project by carrying out front-end development including design, user experience (UX), and UI development.

Matsunae: More specifically, our system seamlessly acquires online and offline user behavior data based on their app account ID and produces analysis results as feedback. I believe we can visualize each user's potential tastes or preferences and realize optimally personalized customer service by using AI to analyze not only chat scripts, but also app-based behavioral data including item data acquisition via QR codes at stores, registering them as favorites, adding them to the cart, and paying for them.

Trial Revealed an Unexpected Benefit: Introduction of a Store to Rental Customers and the Rental Service to Shoppers

Hayashi: We held a press conference on CARITE on August 1, 2018, and TV and newspapers reported the news. Many customers saw the news report and came to the department store. We think the news had a great impact. Customers commented that, "It's a convenient service" and "This service fits with the times."

The CARITE press conference took place on August 1, 2018, in the promotion space on the third floor of Mitsukoshi Ginza Store.

Hayashi: One of the unexpected benefits of CARITE was that we introduced stores to rental customers and the rental service to shoppers. CARITE customers can see and choose clothes on the third floor of Mitsukoshi Ginza Store. Due to its favorable location, the display works as a showroom. Many customers touch and feel the clothes available for rental and end up saying, "I want it for myself. I'd like to buy it now." At the same time, we sometimes suggest to customers at the store that they can rent the item, too.

I think recommending purchasing or renting, whichever meets customer needs more, while observing their reactions will be a new business model for a department store.

Open Innovation Between Two Big Companies Created Success by Overcoming Differences in Commercial Practices and Business Speed

Shumpei Matsunae, Co-Creation Innovation Division, Fujitsu Limited
"CARITE was a rare project since it was an open innovation by two big companies working together."

Matsunae: Speaking of co-creation, it's often carried out between a big company and a venture company. I think an open innovation by two big companies like this project is rare. Even when someone has an idea that "We should definitely start something new," big companies cannot easily turn it into a reality.

Kamitani: Looking back, it was cross-industry co-creation between a department store and an IT company. Everything between the two was different, including commercial practices, business sense, and business speed. At the beginning, we had difficulties understanding the characteristics of each other's industry (laughs).

Yamada: Yes. I was surprised by the speed of business in the fashion industry (laughs). Building an IT system takes at least a year and up to three to five years in a long project. In the fashion industry, one year is divided into seasons, and in each season, business is run in units of a week. It was like, business runs at its full speed for a week, produces a result, and accumulates those results.

Matsunae: I joined the project in the middle and quickly realized that there was no contractor-contractee relationship between Isetan Mitsukoshi and Fujitsu. I was surprised that everyone was working in an equal relationship. We were able to work on the project feeling that we were the members of the same team.

Aiming to Realize the "Japanese Version of New Retail Service"

Kamitani: CARITE is running for a four-month trial period between August and November, 2018. During this period, I'd like to fully consider customer comments and make sure to incorporate them into a service that customers find useful. At this point, the service has been accepted much better than expected. The service needs the smartphone app to operate. The app has been downloaded more than expected, and the website views are increasing.

Matsunae: Our future vision includes adding a chatbot to the app to support customer service and implementing a personalized item recommendation feature.

Yamada: Isetan Mitsukoshi holds "Observe and study your surrounding facts for constant growth," "Innovate and stay ahead of the times," and "Respect others. Be inspired by diverse views and ideas" as the corporate philosophies. I perceive this co-creation as a case in point of two companies from different fields integrating different values to tackle the challenge of creating a new business model and drive innovation ahead of the times.

I'd like Isetan Mitsukoshi and Fujitsu to keep working together to identify potential customer needs from data to be accumulated in the future and offer new types of hospitality that always meets their needs. By leading this trial to success with a top retailer, Isetan Mitsukoshi, and creating a digitalization model case, we would like to take on the challenge of creating the Japanese version of new retail service.

Discussion members

Yuki Kamitani
Planning Staff
Merchandising Strategy Department
Isetan Mitsukoshi Ltd.

Hiroko Hayashi
Manager, Ladies, Children's Wear, Cosmetics & Fashion Accessories Division
Mitsukoshi Ginza Store Merchandising
Isetan Mitsukoshi Ltd.

Shuhei Yamada
Co-Creation Innovation Division
Fujitsu Limited

Shumpei Matsunae
Co-Creation Innovation Division
Fujitsu Limited