"Working to Ensure Corporate Integrity" (Ito-Yokado Co.)

JFS Newsletter No.31 (March 2005)
"TOWARD A SUSTAINABLE JAPAN - CORPORATIONS AT WORK" ARTICLE SERIES Article No. 24
http://www.7andi.com/en/
http://www.7andi.com/en/csr/(Corporate Social Responsibility Annual Report)

Supermarkets are essential in daily life in many cities of the world. Large self-service retailers that sell groceries and apparel have made our lives more affluent and convenient. Meanwhile, the soaring consumption of materials and energy to maintain our lifestyles based on mass production and consumption generates massive amounts of waste and has negative impacts on nature.

Against such a background, more and more people in Japan are reconsidering their lifestyles. What kinds of changes does this mean for retailers, who play such an important role in the lifestyles of consumers?

Ito-Yokado Co., a leading general merchandise retailer in Japan, has 177 stores in 25 prefectures. The company posted about 1.4748 trillion yen (about U.S.$14 billion) in annual sales (February 2004), which means average daily sales of over 20 million yen (about U.S.$194,000) at each store. Established in 1920, the company now has about 47,400 employees, about 70 percent of whom are part-timers. The company opened its first store in China in 1997 and now operates five stores there.

What roles do retailers play in creating a sustainable society? Ito-Yokado believes the most important thing is to reduce the environmental impacts of retailing businesses. This is associated with examining the entire lifecycle of merchandise, from purchasing, production, and distribution, through to consumption and disposal by customers, along with proposing a sustainable lifestyle to customers. The company thinks it is essential for future retailers to change consumer behavior to make it more environmentally friendly, safety- and security-conscious, and sustainable, as well as make lifestyle suggestions.

The keys are to offer merchandise with sustainability in mind and to focus more on sustainable sales activities. These are, however, not easy to do.

Ito-Yokado has a relationship with various stakeholders such as customers, suppliers, local residents and governments, stockholders and the natural environment. It is necessary to address conflicting interests, solve difficulties, and fulfill its responsibility to society as a retailer.

People have various opinions about plastic shopping bags, for example. In Japan, about 30.5 billion plastic bags are consumed annually, equivalent to 558,000 kiloliter of crude oil (calculation by Japan Polyolefin Film Industry Trade Association). To reduce the use of plastic bags, the Ito-Yokado asks customers to bring their own shopping bags and offers incentive stamp cards for those that do. Customers will get one stamp every time he or she refuses to receive plastic bags. A card filled with 20 stamps can be used as a shopping certificate worth 100 yen (about U.S.$1). Despite this, only 6.3 percent of customers at the food department bring their own shopping bags.

Consumer organizations that are proactive in their approaches to curb global warming request that Ito-Yokado do more to reduce the use of plastic bags, even if it has to charge fees to customers. On the other hand, many people are opposed to the idea of asking the consumers to pay for a service that until now has been free, because they think the plastic bags are necessary to carry different types of merchandise, for instance hot and cold products, hard and soft products, or products that may leak. Meanwhile, some customers would prefer to use plastic bags for the sake of convenience, even if they have to pay a small fee.

Apart from that, the company is also dealing with how to reduce the use of plastic food trays and containers. Because of Japan's aging society and dwindling birthrates, an increasing number of people live alone or have small families. As a result, single-unit sales and small package sizes have become popular. The company has reduced the weight per container as far as possible, but to meet the needs of customers it cannot avoid increasing the numbers of small containers sold.

The company believes that the key to resolving such dilemmas is, first and foremost, dialogue with the stakeholders. The company reviews its operation daily on the basis of dialogue with stakeholders. Their approach to solving the issue of plastic bags and containers is to listen to what the stakeholders have to say, but at the same time keeping up the level of their services and exploring and trying out ways that have less impact on the environment but are beneficial to the company.

Here we introduce two initiatives by Ito-Yokado that resulted from this dialogue. The first one is the "labeling improvement project" that began in March 2002. In Japan, since 2001, there has been a bout of incidents involving fraudulent labeling about the place of production of foods including meat, rice and tea. Comments from customers are still dominated by suspicions and requests about accuracy and correctness of food labeling.

To begin with, the company thoroughly reviewed its food labeling system, which many felt was confusing. It made sure that the place of production was printed before the name of the product, prohibited descriptions such as "fully ripe" or "choice" that may mislead consumers about product quality, and set new standards on how to indicate sizes and quantities.

Furthermore, four staff now make surprise visits to stores all over Japan twice a year for inspection. They walk through the shop floor with the store managers and the sales floor managers to undertake "store label checks" by examining the labels and conducting interviews. To promote further improvements, the evaluation results of each store will be quantified and announced publicly.

Also, descriptions in advertising media such as newspaper inserts and pamphlets are strictly checked beforehand by the office of the company's "Fair Trade Committee." Each time the company plans for a sale, this office, responsible persons in product departments, and members of sales promotion departments will get together to discuss and verify whether the set sales prices and the descriptions (labels) are appropriate. The final advertising media will be checked by the office once again before delivery to customers.

Another example was to develop in May 2002 products under Ito-Yokado's house brand, "Made in Japan," to meet customer demands for safety and security, and the credibility the customers are hoping to entrust in the company. Nearly 80 percent of the clothing and 30 percent of household goods sold at Ito-Yokado stores are manufactured overseas. However, customer demands for safe and secure food and for identification of the source of production have expanded to the realm of clothing and household goods. A growing number of customers feel that domestically-made products offer what they want in terms of quality and technology, which triggered the development of the new brand.

Ito-Yokado realized that it had previously seen the local communities near its stores as the customers who buy its merchandise, but had not focused on building relationships with them as business partners who manufacture the products. Under the philosophy of "local production for local consumption," it is natural for retailers to sell locally grown produce to local customers, if the store is located near an area of production.

When looking at cooperation with local communities in terms of the production volume, the situation is similar. In its "Made in Japan" program, the company decided to deal with small manufacturers as long as their products are excellent in quality, even if it meant volume or seasonal restrictions, like selling at one store only, or only when the product was in season. The company realized that in many cases it was only small-scale operations that could maintain high quality in their products.

The "Made in Japan" program has many advantages, including keeping alive unique Japanese production techniques, the revitalization of local small-scale producers, and the quicker responses to consumer needs. The trust that develops between consumers and producers who know each other also has the potential to produce products that offer new value.

The brand has been well-received by customers. Ito-Yokado sells 935 items of clothing from 190 local production areas and 145 items of housing equipment from 19 production areas, topping 20 billion yen in annual sales (about U.S.$190 million). Pleased with these results, the company plans to continue nurturing this brand.

Steady efforts such as these help to deepen the relationships of trust between Ito-Yokado and its customers, suppliers and local communities. The company hopes that these relationships will help build the foundations for future breakthroughs by the company and stakeholders to overcome the challenges that arise in the search for sustainable society.

Ito-Yokado places dialogue with stakeholders at the core of its corporate activities and aims to fulfill its social responsibility as company that all stakeholders can trust.