Japanese department store thrives on quality, service

''The customer is No. 1,'' said Tanji Kosuge. ''That's what we say here in Japan. I suppose it's the equivalent of 'the customer is always right.' What we mean is that we should always think of the customer first and serve him with sincerity.''

Mr. Kosuge is the third generation in his family to head Isetan, one of Tokyo's major department stores in the bustling Shinjuku area. This year he is also chairman of the Japan Department Store Association, a position he held once before, in 1978.

Like department stores in the United States, Japanese department stores have had to face successive challenges in recent years from mushrooming supermarkets in the suburbs and discount stores in the wholesale districts.

Isetan, which will celebrate its 100th anniversary in 1986, had to choose between competing in the mass market and emphasizing quality.

''We chose quality,'' said Mr. Kosuge. ''And, after a number of years of confusion, I think department stores have come back into their own.''

Since 1933 Isetan's headquarters have been in Shinjuku, one of Tokyo's most vibrant areas. In feudal times it was the starting point for roads leading westward out of Edo, as Tokyo was then known. Today it is an enormous transfer point for commuters coming by train from the western suburbs, and its streets and alleys bustle with shops and eateries catering to every taste. You can dine in a French bistro or in a tiny sushi bar. You can sway to ear-blasting sounds in stroboscopic discos, or catch the Japanese equivalent of music-hall routines, complete with kimono-clad performers playing the banjo-like samisen.

The accent is on youth, and the most typical Shinjuku-goer is the young office worker on his way home from a hard day at his desk, or the housewife from the suburbs looking for a bit of color for her wardrobe. Isetan has prospered along with the growing affluence of its customers.

Isetan has also responded to the challenge of supermarkets and chain stores by building its own chain of specialty stores and supermarkets. But its overwhelming emphasis continues to be on department-store operations, and Mr. Kosuge intends it to remain that way.

Of total sales of 241 billion yen last year ($1.099 billion US), Isetan's flagship store in Shinjuku sold $789 million. Four smaller suburban stores accounted for the rest. In addition, operations like the Mamina chain of specialty clothing stores and the Petit Monde restaurant chain respectively had sales of $68 million and $27 million in 1980.

After-tax profits at Isetan have risen steadily, from $10.78 million in 1976 to $18.63 million in 1981.

Unlike US department stores, Japanese stores do not usually buy direct from manufacturers, but go through wholesale dealers, who will take 10 percent of the retail sales price for themselves.

That is why, Mr. Kosuge said, Japanese department stores cannot make the high markups characteristic of their American counterparts. But neither do they have to slash prices drastically to move slow-moving goods. The dealer will take back unsold goods up to a certain level and dispose of them through his own nationwide channels.

''If we could sell large quantities of a few basic goods, it would obviously pay us to go direct to the manufacturer and negotiate the best possible price,'' said Mr. Kosuge. ''But our aim increasingly is to respond to the varied needs and wants of our customers. That means a large number of different products, made in small lots. There's no point in competing with the supermarkets on tissue paper, for instance. We deal with over 1,000 suppliers. Some are in fact clothing manufacturers like Onward and Renown. We do 8 billion yen ($36.6 million) worth of business with Onward every year. Others are wholesale dealers of various sizes. Fifty percent of all the goods we sell come from about 220 of these suppliers.

''The advantage of this way of doing business is that we do not have to carry inventories ourselves. All we have to do is to order when needed from our suppliers. This is the traditional way of doing business in Japan, and once you have established a relationship of mutual benefit and trust with your supplier, your business will be very smooth.''

About half of Isetan's sales are clothing and textiles. Food accounts for 16 percent, furniture for 12 to 13 percent. In the food area, Mr. Kosuge said, department stores had met the supermarkets' challenge by going ''upmarket.'' In fact, in the department store as well as the food halls, the aim has been to create an ambiance of pleasure, of relaxation, to make shopping a social activity rather than a utilitarian excursion.

Imports account overall for about 10 percent of Isetan's sales. ''We import about 2 to 3 percent directly ourselves, and another 5 or 6 percent through agents,'' Mr. Kosuge said. Foreign goods, whether clothing, furniture, or something else, tend to have a luxury image in Japan. Isetan, for instance, is the exclusive distributor of Calvin Klein clothes in Japan.

Asked what he would consider the characteristic of his management style, Mr. Kosuge answered: ''My greatest emphasis is on human relations. We feel we at Isetan fulfill a social purpose, to meet the needs of society, and each of our 6 ,000 staff members can contribute to that cause.''

He fished around in his pocket and brought out a leaflet, distributed to every employee. It states, ''Isetan takes pride in its aim to be an enterprise of world level, sometimes moving in advance of the age, to raise people's living standards and to make them more abundant.'' Then follows a six-point slogan: ''Idea, service, ever onward, teamwork, ambition, name is pride'' - the last meaning that Isetan employees should take pride in their company's name.

Isetan has several branches in other parts of Japan, and is the chief promoter of an organization of regional department stores that purchase goods in common.

It has gone overseas to establish stores in Singapore and Hong Kong. These stores will not cater just to Japanese tourists, but sink roots in their own communities.

Mr. Kosuge has had a personal friendship with the Marcuses of Neiman-Marcus Company for many years, and he has been studying the catalog-sales operations of Neiman-Marcus with a view to emulating them in Japan. He does not want a Sears Roebuck type of mass operation, but one that will appeal to select buyers of quality goods who cannot come to the store to look things over themselves.

''We have just completed a successful branch store in Urawa (a Tokyo suburb) and are now working on one in Niigata (a major city on the Japan Sea). But in general, this is a time for consolidation, not for expansion. We want to remodel and make better the stores we have already so that we can meet our customers' needs better.''