Business Risk and Other
Our business, performance, and financial condition are subject to risks and uncertainties, including those described in the risk factors below. These risks and uncertainties could result in a material adverse effect on our results of operations and financial condition, and a material decline in the trading price of our common stock.
Forward-looking statements in this report are made based on information available as of the end of this fiscal year.
1) Risks related to business environment and strategies
(1) Risks related to changes in market structure
A decline in the number of large-scale retailers and commercial facilities, including department stores and mass merchandisers may significantly impact our group’s business performance, which has a large share of sales from department stores and mass merchandisers. In addition, a decrease in consumer contact points (physical stores) may affect a decline in brand recognition and a decrease in consumer’s willingness to purchase. The change in the market structure may result in restructuring of existing business platforms, or changes in sales policies, which may affect our group’s business performance.
(2) Risks related to reform of structure of businesses (labor cost ratio, excess inventory, sales of directly managed stores and e-commerce etc.)
High labor cost ratio due to the wholesale-centered business reform still being progressed, and an increase in distribution costs and revaluation of discounts induced from an increase in inventories due to an increase in stock keeping units (“SKUs”) and failure of total inventory and total sales production management may adversely affect earnings performance. On the other hand, failure to strengthen our area-based sales capabilities and to quickly and effectively advance our growth strategies for directly managed stores and online sales may result in inability to adapt to the changes in the distribution channel structure, which may adversely affect performance.
(3) Risks related to increase in procurement prices
The structural changes in the supply chain may cause an increase in purchase prices due to an increase in raw material prices, a higher labor costs in production regions and higher transportation costs, and may affect our group’s business performance.
(4) Risks related to changes in competition/competitive environment
In domestic and overseas markets, competitors, low-priced products and new entrants from other industries may intensify the competition in the market, which may result in a loss of sales share and a decline in business performance in a long-term.
(5) Risks related to changes in consumer values
Our brand strategy, products, or services may not match to the changes in consumer values and we may fail to attract customers or may lose customers, resulting in a decline in business. In addition, failure in brand management and marketing mix may result in unsuccessful attraction of younger generation of customers, while defection of existing customers may damage our brand value.
(6) Risks related to development of new markets and customers
In response to the shrinking domestic market due to a decline in population and fewer children with an aging society in Japan, our group is working to develop new markets by developing overseas markets and entering into new business categories and fields. On the other hand, our failure to meet the diversifying values of consumers and to generate planned outcome may affect our group’s business performance.
(7) Risks related to securing and/or developing human resources
If we fail to secure and/or foster personnel especially for manufacturing (planning and technical capabilities), IT and digital, sales representative, personnel specialized in the area of management of foreign companies, we may not achieve future growth or gain advantages against competitors, which may adversely affect our group’s business performance. In addition, failure to efficiently allocate sales representative and post-retirement rehires may result in inefficient labor costs and reduced motivation, which may cause a downturn in our group’s business performance.
2) Operational Risks
(8) Risks related to information system availability failures
In the event business continuity becomes difficult due to errors or delays in system development, or failure of critical systems, we may lose the trust of all stakeholders, including our business partners and customers. If the core system or e-commerce website become inaccessible due to malicious attacks from outside or natural disaster damage, or if confidential information is leaked from file servers or employee’s PCs, our business may be adversely affected.
(9) Risks related to inadequate information management
In the event of leakage or loss of confidential information or personal information due to inadequate information management, we may be affected adversely in our business activities and suffer significant loss such as loss of social credibility and suspension of business operations.
(10) Risks related to spread of new epidemic
The spread of the new epidemic, resulting in stay-at-home measures and temporary closings of physical stores implemented by government or local authorities, may cause a decline in sales and significantly affect our group’s business performance. In addition, the spread of number of positive cases within a business site may disrupt business operations by suspending employee from coming into the business site or closing the business site.
(11) Risks related to fluctuations in bond markets and interest rates
The market value of listed equity securities and bonds held by the Company may decline, resulting in recording impairment charges. On the other hand, a decline in valuation and underfunding of plan assets may require additional contribution or provisions, which may affect our group’s business performance.
(12) Risks related to natural disasters and accidents
Natural disasters such as earthquakes, fires, or explosions may cause damage to business and production sites, and our employees may suffer damages. In addition, closed traffic, energy outage, blocked communication lines, or damages to large retail stores, directly managed stores, e-commerce website or logistics networks may trigger confusion in our operation.
(13) Risks related to perception of corporate ethics and compliance
We may be pointed out and publicized by a third party on human rights, labor or environmental issues in our supply chain, which may affect our business activities or damage our corporate value. In addition, an increase in violations of corporate ethics and compliance, or problems with advertising expressions and statements, including those on social media or blogs, and other websites, could lead to a loss of public trust and may adversely affect our group’s performance.
(14) Risk related to infringement or violation of intellectual property rights
Infringement or violation of the intellectual property rights may result in litigation or economic loss. In recent years, there has been a proliferation of “spoof advertisements that lead to fake websites” on the Internet that spoof our brand names. Failure to take appropriate measures such as alerts to customers and elimination of such spoof advertisements and fake websites could lead to a loss of trust from consumers and markets, and failure to strategically protect or utilize intellectual property rights may affect our business.
(15) Risks related to appeal to express due to acceleration of digital marketing, labeling of quality and care instructions
In digital marketing, which is becoming mainstream, the content of messages on social networking services, including those involving employee participation, and appealing expressions based on concepts that go against international standards for sustainability, may cause social problems, including negative campaigns and defamation of the sender, which may adversely affect our business performance. On the other hand, violations of laws and regulations related to quality labeling and inappropriate expressions in functional labeling may damage public trust. We may suffer loss due to costs incurred to recall or change the labeling of products, or due to the discontinuation of sales.
(16) Risks related to quality assurance in design and manufacturing
If we sell defective products or if our products harm our customers’ health, we may suffer costs for product recalls and our reputation as a producer of high-quality products may be damaged and we may lose trust from society, which may adversely affect our business performance.
(17) Risks related to social changes in emerging countries
Our group, which has production bases in emerging countries, may experience delays in materials procurement and production due to political instability, legal or institutional changes, the occurrence of strikes, or difficulties in securing human resources, which may affect our business performance.
(18) Risks related to management of tax matters
A large amount of taxation due to tax reform or investigation on transfer pricing may affect our group’s financial position and business performance, in addition to reputational damage.