Continue to Create New Ways of Business

Etoile Kaito

Senken Shimbun: “Trace of History” posted on May 14, 21, and 28, 2018

“Trace of History”（https://senken.co.jp/ ）
posted on May 14, 21, and 28, 2018

[ I ] 116 years of going through a multitude of difficulties

Etoile Kaito is a general wholesale trading company that was established 116 years ago. The company handles about 700,000 SKU (stock-keeping units) ranging from fashionable garments to sundries and foods. Currently,it supplies products procured from about 3,500 companies to about 20,000 retailers.The company has adhered to its founding philosophy of “offering good quality products at the cheapest prices possible and making needed products available at a necessary timing in the required volume.” Over the years, it kept creating new business formats that fit a specific time,including cash-and-carry wholesaling, self-service selling, and a membership registration system. Most recently, it has introduced its wholesale e-commerce (EC) website called “ETONET”, and established a purchasing platform named “iccokara.”

In 1924 , Kaito Shoten moved to Yonezawa-cho, Nihonbashi.

Overcoming Earthquake and the Wars

In 1902, the founder, Yoshigusu Kaito, opened a haberdashery wholesale store, Kaito Shoten, which mainly handled beads and jewelry in Shin Morita-cho, Asakusa-ku, Tokyo (current Yanagibashi, Taito-ku, Tokyo). The founder purchased coral beads and gem-like beads that were used for ornamental hair sticks called “Kanzashi” from craftsmen in downtown and sold the beads nationwide. The business grew steadily, and the store moved to Yonezawa-cho, Nihonbashi-ku (current Chuo-ku) 4 years after opening the business. In 1919, the succession of the business was made by Yoshigusu to his eldest son, Yoshikazu. The second-generation president of 25 years old inherited the store and, at the same time, added sundries to the product line-up. He paid attention to the potential of growing market for celluloid products including soap dishes, bath pails and combs. Yoshikazu expanded the sundries business recognizing that “sundries are consumable commodities, which enable to sell in volume at high turn-over rates although the margins are small.” While many wholesalers in Japan went out of business in the global recession after the World War I, Kaito Shoten grew its business as it traded in a wide range of recession-proof sundries. In September 1923, the Great Kanto Earthquake hit Tokyo leaving it a burnt field. Kaito Shoten also burnt down. In the devastation, Yoshikazu knew “a large demand should be created for recovery”, and in the next month, set up a temporary store of 5.5 meters wide and 9 meters long. For purchasing, he made his own way to Osaka. Suppliers were very favorable towards Yoshikazu, saying, “For Kaito Shoten, you can pay any day you can.” Yoshikazu, at that time, felt in his bones that “trust is the key asset for business.” The purchased products, mainly clothes, sold for cash like hot cakes. Rebuilding of the business after the earthquake went smoothly. In the early 40’s when the Pacific War progressed, the Act to Control Production and Sales of Luxury Goods was introduced and the government took control of the availability and prices of goods. The businesses located in the wholesale district in Nihonbashi were forced to change or close their business one after another. However, Kaito Shoten created a store area where unregulated goods such as knicknacks, bags and stationaries were sold for cash. It even went out to buy surrounding buildings to expand the business. Cash sales generate smaller margins but faster turnover of goods. Yoshikazu determined that “the best business model is to have a smaller-scale sundries store which purchases enough goods to be sold on the day and more when the goods are sold, and to have a stable cash business with spot purchasing.” Yoshikazu positioned the cash-and-carry wholesale business as the core business from those days on. As the war escalated, Kaito Shoten closed for business temporarily in 1944. However, a month after the end of the war in 1945, it reopened the business. For the store stocking, Yoshikazu purchased cosmetics brushes and combs from Kyoto, which had escaped much of the destruction caused by the war. In the era of an extreme shortage of goods right after the war and of accelerating inflation, Kaito Shoten kept offering goods at reasonable “price-tag” prices. The reputation of the business practice spread around Japan, which bought waves of customers coming from nationwide. “The man emerging from the rubble earlier wins others. Trust is the key.” The experience during the Great Kanto Earthquake came in play into rebuilding the business after the war.

Pioneer Who Initiated New Systems

In 1948, Kaito Shoten was reorganized into Kaito Inc. At the same time, Yoshikazu handed over the presidency to his 26 years old eldest son, Ichiro Kaito, as a pioneer of cash-and-carry wholesaling, introduced new systems one after another. In the 1950’s when Japan entered the era of rapid economic growth, the biggest management challenge was to ease the congestion of customers coming to purchase goods. In 1952, Kaito purchased a 5-story building in Nihonbashi Yokoyama- cho to create new store space. The number of new customers kept growing, which made it difficult for about 300 employees to offer one-on-one service. The president, Ichiro, adopted “self-service” sales model on the wholesale floor, which was not well known in Japan at that time. Customers picked up a shopping basket piled up at the floor entrance and freely chose goods under this system. While no one even used the word, “self-service”, customers at first complained, “What a lazy way of doing business to ask customers to pick up products.” Ichiro, however, explained, “We are selling good quality products at “price-tag” prices with the lowest margin, displaying the goods in a way customers can freely select products, and purchase smoothly in the shortest time.” This system turned into popular, which prompted other wholesalers to adopt the style. While the business expanded, Ichiro passed away with heart disease in 1959. It was a huge blow to the company’s business. Yoshikazu returned to the position of president. Around 1960, the number of customers increased to about 10,000. As a result, general consumers often mingled with retailers to buy products at wholesale prices, which generated frequent complaints from retailer customers. As a solution, Yoshikazu introduced “Priority System for Registered Members,” under which, the identification of customers entering the store were first checked. This system, to which retail buyers were registered, was the first of its kind in the industry. For registration, employee assessors were sent to retailers who wished to do business with Kaito to see if the stores were indeed opened for business at the declared locations. Only those who passed the assessment were issued with registered preferred member certificates. After taking great cost and many hands, the initial Registration store was increasing big, to about 35,000 stores.

History of Etoile Kaito

1902 Yoshigusu Kaito (first president) opened Kaito Shoten, a jewelry and accessary manufacturer and wholesaler, in Shin Morita-cho, Asakusa, (current Yanagibashi, Taito-ku) Tokyo.
1906 Kaito Shoten moved to Yonezawa-cho, Nihonbashi (current Higashi Nihonbashi, Chuo-ku) for store expansion.
1923 Headquarters burnt down by the Great Kanto Earthquake, but the business reopened after one month.
1941 Cash-and-carry wholesale store opened in Yokoyama-cho, Nihonbashi.
1945 Business reopened one month after the end of WWII.
1948 Established Cash Wholesale Store in Nihonbashi Yokoyama-cho
1948 Business was reorganized and renamed as Kaito, Inc.
1952 Self-service style selling started.
1960 Retailer member registration system was introduced.
1961 Main building (current Fashion Kan) opened, becoming the largest wholesale store in Bakuro wholesale district.
1962 Nihonbashi Clinic, a community general medical facility, opened.
1974 POS system with price-tag reading function was introduced, being the first wholesaler.
1977 An in-house childcare center, Etoile Childcare Center, opened. (~2014)
1979 The company changed the name to Etoile Kaito & Co., Inc.
1982 Store Development Center opened, strengthening retailer store support activities.
2006 Wholesale EC website was launched.
2011 Kinnosuke Hayakawa became the 7th president.
2012 The wholesale EC website was renewed named “ETONET” was launched.
2015 “MONOTIAM” opened to sell products of domestic and overseas creators.
2016 Purchasing platform, “iccokara”, was launched.

The main building of Kaito’s wholesale store opened in 1961 as the largest wholesale operation in Bakuro- cho’s wholesale district.

[ II ] Creating Healthy Workplace for Female Employees

In November 1961, Etoile Kaito’s main building was completed. The building had two stories underground and nine stories above ground, which was the largest wholesale store in the wholesale district of Bakuro- cho. In those days, all three stores scattered around Nihonbashi were closed and consolidated into the main building, thereby establishing a general wholesale store that enabled “one-stop shopping.” The building was equipped elevators and escalators, and “National Cash Register” system was installed instead of the old abacus. The building with the state-of-art equipment attracted many customers lined up in a long queue. The sales floors were packed to capacity with customers for months after the opening. The daily sales in December of that year exceeded a milestone of 10 million yen. Japan at that time was in the longest economic expansion in its history and at the height of a rapid economic growth. The management of the company included Yoshikazu Kaito as president, his third son, Goro (later to become the 5th president) as Director in charge of HR, employee training and IT systems. Goro graduated from Tokyo Jikei University School of Medicine, worked at the University’s medical office, acquired a Medical Doctor’s degree, and joined Kaito. The eldest daughter Fumiko (later to become the 6th president) was Managing Director in charge of sales.

In 1970, female dorms were built.

Leading the Times

While bringing modernization to management, Kaito actively hired female high-school graduates. Back in those days, most of sales staff hired by wholesalers was middle-school graduates. Yoshikazu thought, however, that “Mechanization is an absolute must even in the commerce sector,” and that “The education level of employees must be raised, which will also help rationalize clerical work.” Around the time of the opening of the main building, Kaito had many dorms for female employees built. In 1963, it renovated the 3rd building, which had been kept empty, to open a cultural center, “Etoile Gakuen”. The curriculum was organized for everyday from 6pm to 9pm on Monday to Sunday to offer about a dozen courses including flower arrangement (Ikenobo school, Sougetsuryu school), tea ceremony (Omotesenke school), calligraphy, design drawing, English conversation and cooking, aiming to develop an educated workforce. In the late 1960’s, such human resources development led to the promotion of female employees representing 50% out of 20 managers and 70% out of 40 section managers. In 1970, Kaito completed the construction of a 10-story integrated dormitory for female employees called “Etoile Kaikan” of a total area of 9,500 square meters. The dorm is equipped heating and cooling system and cost 1 billion yen for construction alone. Such investments in employees benefit resulted in attracting talented human resources from throughout Japan. In 1974, Kaito introduced a POS (Point of Sales) system, which had not been seen very often even in other industries. Kaito handled about 400,000 SKU focusing on clothing, some sundries, home and lifestyle products, 80% of which were Kaito’s original products. As Kaito traded in products affected by rapidly changing fashion trends, the company Director, Goro Kaito, considered “POS was essential to maintain and strengthen functions as a manufacturer such as placing orders with thousands of suppliers for producing new products and materials as well as instructing to cease production.” Kaito developed POS terminals together with Oki Electric Company, Ltd. and Fujitsu Ltd., which adopted a method of combining bar codes and magnetic codes. They built a POS system enabling product unit information management of 1 million SKU after a half day or one day of receiving them.

In 1970, female dorms were built.

Etoile Childcare Center, an in-house center, opened in 1977

Establishing a Clinic and a Day Care Center

As the number of female employees dramatically increased in early 1960s, female employees represented 70% or 850 of the total of 1,200 employees. The urgent challenge was to establish workplace health and safety systems. That is particularly to develop workplaces where “Female employees can work in good health.” Goro Kaito led the initiative of opening a community general medical facility called Nihonbashi Clinic. It installed an extensive collection of medical equipment equivalent to a university hospital. The clinic is still in practice and appreciated as “A clinic that taking good care of patients” by not only the employees but also residents and workers in Bakuro-cho and Yokoyama-cho areas. Sensibility of female employees is essential to Kaito selling fashion products. Resignation of talented mid-career female employees because of marriage and child rearing is a painful loss to the company. Increasing the retention of married female employees became another urgent challenge. In order to resolve this issue, an in-house childcare center called Etoile “Day Care Center” opened its door in 1977. The fact that female employees are able to “work with babies, establish in-house (Nihonbashi) clinic as annex” was much talked about beyond the industry at the time. The current president, Kinnosuke Hayakawa, entered the Childcare Center in its opening year. In 1985 when Goro Kaito took the position of the 5th president, and in the following years, the company is required to expand the sales floor to respond to the needs of diverse retailer customers. In 1986, Kaito opened in succession Marie Kan, a bridal showroom featuring bridal related dresses, furniture and gifts, Jewelry Kan, an accessories/jewelry showroom and in 1990, Belle Saison Kan for packing materials. The company realized the convenience of one-stop- shopping, making everything available within Bakuro-cho. In 2003, each showroom’s sales floor was renewed. Aiming at making it more convenient to shop around, the four wholesale showrooms were reorganized into Fashion Kan, Living Kan, Jewelry Kan, and Home Decoration Kan to align them with changes in the market. Fumiko Kaito who had been involved in management since the Kaito Shoten days became president in 2003. Following her cherished words to live by, “Always produce buds after flowers,” Fumiko paid attention to the development of human resources in all the departments as the company’s business operations expanded.

[ III ] Pursuing the Goal of Becoming General Wholesaler with Specialties

In June 2011, Kinnosuke Hayakawa succeeded the position from Fumiko Kaito to become the 7th president at the age of 33. Since the 1990’s, the domestic fashion market had been shrinking and their major customers, local specialty stores, had been facing difficulties. A few months before Kinnosuke took over the president’s position, the Great East Japan Earthquake occurred, which caused a sense of anxiety of the future everywhere in Japan. Kinnosuke Hayakawa had seen his grandmother president, Fumiko, always standing at the frontline floor since he joined the company in 2004. He decided to become president as he was confident that Kaito had an absolute trust of many retailers nationwide who in their daily operations needed Kaito, and felt that he must ensure the company remain in business. Hayakawa was attracted by “The characteristics of Kaito’s business model.” The company started a full-fledged cash-and- carry wholesale business model after the Second World War, and had grown to become an “Integrated” business starting in the 60’s as symbolized by building the largest main building in the Bakuro-Yokoyama wholesale district. Even though it had been more than 50 years since then, Hayakawa thought that “There still are market demands for our products and we are supported by buyers from all over Japan. It is because the past management has accumulated and built essential elements for our business.” Kaito is challenging to construct further evolution to their wholesale business built on that basis.

「モノ売るユメ、ささえる。」がコーポレートスローガン

Improving Convenience with EC

Etoile Kaito has strengthened multi-channels for their wholesale transactions by introducing e-commerce (EC) to improve the buying convenience. Kaito’s EC website opened in 2006, taking the step into the online wholesale world. In 2012, the company launched the “ETONET”, its EC website that has enhanced functions and lists new product information updated on a daily basis. It also introduced a system, which could confirm the inventory level by product number using a mobile device such as a cell phone in real time. The company built a wholesaler system enabling speedy transactions to “Ship products in the afternoon when they are ordered in the morning” and to “Ship them whenever and wherever.” Recently, more sales have been made through the “ETONET” from overseas, most of which have been from Asian region including Taiwan, Hong Kong, South Korea and China. Such demands from overseas are concentrated on fashion items such as bags, baby products made in Japan and practical kitchen products, expanding their markets year after year. In 2016, a new EC wholesale initiative named “iccokara” was launched. Based on the product catalogues issued by suppliers, Etoile Kaito receives orders for those products through its EC website from specialty shops nationwide. Kaito gathers up the orders by manufacturer, places orders weekly, receive all the orders at its own logistics center in Kawasaki City, and sort them by retailers to ship them out. The benefit to the manufacturers is to delegate credit management of the purchasing retail stores to Etoile Kaito.

“Your dream to sell goods, We support !” is the corporate slogan.

Deepen the trust from retailers through retail store support activities which have been ongoing since the 1980’s.

Strengthening Fashion Merchandizing

Etoile Kaito has also been brushing up merchandizing (MD) capability exercising its expertise. In 2010, it launched E-Fashion Trend, which is a trade fair held in the event space of the Fashion building. It is an event to be held every season to exhibit mixed-brand apparel and other fashion products, and take orders from the customers. Etoile Kaito develops product plans for 6 months ahead, regularly checks the order receiving status, and determines inventory risks by item number. The company also undertook organizational reform to strengthen its MD functions. MD department take the leadership to coordinate departments in charge of apparel, accessories, and other miscellaneous products. MD department proposes fashion and styling themes prevailing or talked-about at a time, thereby making the company structured to be able to quickly and flexibly respond to the market. Each department is prompted to propose products according to a given theme. For example, when the MD team comes up with an idea for “Setting up a panda section as a panda baby has just been born at the Ueno Zoo,” a floor section filled with panda items is created in a week. The company has established a system to aggregate specialty products according to a unified theme. Since 2015, Etoile Kaito has opened unique corporate stores one after another aiming at end consumers, including “KAMAKURA necosalon” selling cat-themed products in Kamakura, “ORACE” that features its in-house travel pants brand “PITATS”, LIOLA for high-end Italian knit product brand, “MONOTIAM” for small lot products from many unique creators, and “OTIUM”, a showroom-type life-style specialty boutique. Those stores are all established to pursue the functions required for the next generation wholesale business. Kaito is aiming at understanding intrinsic needs in each product category by digging deep into select and unique markets. Kinnosuke Hayakawa is confident that “The initiative will contribute to developing new wholesale business, as being a mere general wholesaler will not give our customers satisfaction.” He said, “We must specialize in each product area so that we can become a general wholesaler being able to compete with specialized wholesalers.” While hammering out new ways of doing business, Etoile Kaito keeps “Connecting with others is important, and trust is the key” at the heart of its philosophy. In its retailer support activities the company has engaged in since the 1980’s, Kaito’s employees visit retailers to give them advice on products to sell. “We are relying on Kaito’s staffs who understand our store and introduce variety of products for us to carry”, “The purchasing style of examining the products first hand before placing orders fits our store,” said many retailer customers. President Hayakawa confidently states, “We will strengthen our EC business going forward, but it will remain a complementary business.” “Our employees’ job is also to offer explanation to retailers to promote the use of EC. Our number one job is to offer a place for our customers to encounter our products through our wholesale business model of utilizing the strong human resources deployed at our stores.” Etoile Kaito’s corporate slogan as a wholesaler is “Your dream to sell goods, We support!” As a general wholesaler who supports product line-ups of specialty retailers based in local communities, the company will strive and continue to supply diverse specialty products.
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