Dialing Up Satisfaction

As new specialty brands continue to enter the marketplace, department store retailers worldwide are hard-pressed to target and retain their niche customer segments. Tokyo-based Mitsukoshi Department Store is fighting back, however, by integrating an IP (Internet protocol) telecommunications network and an already aggressive RFID (radio-frequency identification) program to boost category management, improve employee productivity and enhance customer service.

Called the oldest department store in Japan, Mitsukoshi Department Store has 105 stores that sell clothing for men, women and children, household products, general merchandise and food products. This strategy helped Mitsukoshi earn $6.85 billion (U.S. dollars) in sales for fiscal 2005, which ended Feb. 28, 2006.

Like many department store chains, Mitsukoshi competes with niche specialty retailers. So it is not surprising that the chain is eager to enhance relationships with its higher-end customers, especially since this segment “tends to drive most of the company’s profitability,” Masakazu Nishida, general manager, supply chain management solutions department for the chain’s central merchandising division, said during a recent Cisco Systems press conference. (The press conference was held at the New York City office of San Jose, Calif.-based Cisco Systems.)

“By implementing a unique environment based on special tools and technology, we are working to retain these customers,” he told Chain Store Age.

Mitsukoshi chose to leverage its communications infrastructure to create this environment. However, its existing platform of multiple products from many vendors couldn’t meet expectations.

By partnering with Cisco, “Mitsukoshi established one integrated communications infrastructure that supports voice and data,” said Ed Jimenez, Cisco’s director of retail marketing.

Masakazu Nishida, general manager, supply chain management solutions department, central merchandising division, Mitsukoshi Department Store

In January 2006, Mitsukoshi integrated Cisco’s core routing infrastructure and switches to connect voice and data between headquarters and stores. Next, Mitsukoshi traded in a disparate fleet of store-level communications devices, including walkie-talkies, cell phones and phones mounted on store walls, for Cisco’s model 7920 IP-based phones that allow users to speak over an IP network, such as the Internet or an intranet.

Ringing up RFID: The cost-effective network-IP-phone combo also helped Mitsukoshi expand an aggressive item-level RFID project. “We began tagging ladies shoes in October 2004, and then applied RFID tags to women’s premium jeans in September 2006,” said Nishida, who noted that the tags contributed to a 110% sales growth across both categories.

Since the phones support XML and other Web capabilities however, Mitsukoshi decided to exploit the units’ robust functionality to expand the value of its RFID program. For example, by integrating an RFID reader and an inventory-management solution directly into the telephone, Mitsukoshi is streamlining staff efficiencies.

“By swiping a dedicated wand over a shelf containing RFID-tagged merchandise, employees can electronically tabulate available merchandise and complete cycle counts” and record data into the phone, explained Nishida.

The units also seem to be a perfect fit for Mitsukoshi’s dressing-room stations. “We wanted to provide more of a ‘concierge service’ in our fitting rooms. Instead of adding a bulky kiosk, each room will feature an IP phone,” he said.

Rather than ask an associate if a pair of jeans is available in another size, shoppers can swipe the jeans’ RFID tag over the phone’s dedicated reader. The integrated Web-based inventory-management application alerts consumers to additional sizes available in the store.

To date, Mitsukoshi does not use the kiosk to alert associates to bring desired merchandise to shoppers in fitting rooms.

Since launching the IP telephones, inventory management and RFID project in one store in January 2006, Mitsukoshi associates are cutting trips between the sales floor, stock room and fitting room by 25%, Nishida reported.

At presstime, RFID was managing the ladies shoe category in seven stores and the ladies jeans category in nine stores. As new stores add RFID to their inventory, Mitsukoshi will then begin adding the integrated network and IP phones.

By the end of 2007, Mitsukoshi plans to have at least 15 stores using the combination.