JR East’s in-station stores a success story

Blessed with prime locations and commuter traffic, carrier is increasingly viewing retailing as a core business

by Hiroko Nakata

Despite the feeble state of domestic consumption, retailers led by East Japan Railway Co. are continuing to infiltrate train stations to tap commuters’ propensity to shop.

The JR East group has been setting up “ekinaka” (in-station) minimalls with names like Dila, ecute and GranSta in central Tokyo’s larger stations on the Yamanote Line loop, as well as smaller ones along the busy east-west Chuo Line.

On Dec. 4 it opened a renovated restaurant area inside Tokyo Station, followed by 15 new shops and restaurants in Ueno Station on Dec. 18.

By the end of February, JR East aims to open 39 outlets in a renovated shopping mall in Shinagawa Station as well.

Blessed with prime locations and heavy commuter traffic, JR East is increasingly viewing retailing as a core business that could help offset any decline in transportation revenue from the nation’s rapidly graying population.

“I drop by station shops almost every day after work,” said a 31-year-old temporary office worker who would only give her last name, Takahashi.

“Sometimes I get a pastry and eat it on the train. At other times, I buy ice cream to eat on the platform while waiting for the train,” she said. “I don’t have to pass through the ticket wicket (to shop) and it’s convenient.”

In seven years, JR East aims to have income from its nontransportation businesses — including train station-based retail and shopping centers — account for 40 percent of all profit, compared with 30 percent now. In the business year that ended last March, overall operating profit stood at ¥344.8 billion.

The strategy seems to work. Filling the stations with stylish shops lures potential customers who would otherwise pass straight through as commuters.

A good example of the in-station strategy is the brightly lit two-story ecute mall occupying a 5,300-sq.-meter area over the platforms at Shinagawa Station. European-style bakeries and patisseries, an American ice cream parlor and traditional Japanese fare are available all day.

“The stores attract people not just because they are inside the stations, but because they include outlets that have never been seen in stations before,” said Mitsuru Miyazaki, chief analyst at SMBC Friend Research Center. He said JR East’s stations have been the hottest thing in retailing for the past several years.

“Some outlets in ecute actually sell sweets that cannot be bought elsewhere,” JR East spokesman Ryosuke Kuboki said.

JR East is actively wooing shops that have a particularly strong pull on women, whose buying power is viewed by some as the leading force in consumption. The railway also periodically renews each station’s lineup to keep the stores fresh and shoppers interested, he said.

JR experimented with new products and brands to get the ekinaka concept rolling.

For example, Uniqlo Co., the casual clothing giant, opened outlets in Shinjuku and Shinagawa stations they call “pop-up stores” — literally because they popped up overnight — just to stoke sales of its popular Heat-tech underwear for several weeks until Dec. 10.

Before the 1987 privatization of the Japanese National Railways into the JR network, stations basically only had newsstands and noodle counters.

This expanded to include major retailers based in adjacent buildings in 1990, and internal convenience stores in 1997.

“Other railways run retail businesses on the side, but JR East does not,” Miyazaki said. What the carrier is doing now has become a unique business model in the retailing industry, he added.

That business model is reliant on heavy commuter traffic. According to JR East, an average of 384,024 people used Tokyo Station every day in 2009. Despite being the capital’s namesake terminal, the number of people using it means it is only the fifth-busiest station in eastern Japan, trailing Shinjuku, Ikebukuro, Shibuya and Yokohama stations.

Due to their unique advantages in location and traffic, however, mom and pop retailers surrounding the stations started to complain that in-station shops were destroying their businesses.

In response, the Tokyo Metropolitan Government decided to start levying heavier taxes on station land owned by JR East in 2007 because the company was only being taxed at a third of the rate surrounding stores and eateries were — an advantage the railway enjoyed due to its government-designated status as a public transport entity.

Other ekinaka head winds are being caused by a recession-weakened economy, which reined in the malls’ steadily rising profits. JR East said sales from in-station concessions slipped 7.7 percent to ¥399 billion in the business year ended last March. That followed a 3 percent gain to ¥433 billion the previous year.

Miyazaki of SMBC said JR East still has room to raise profits.

“JR East has plans to renovate major stations in central Tokyo, and it creates more space when it designs the reconstruction,” he said. “It is strategic and has room to expand business further.”