Senshukai Group

Medium- to Long-term Management Plan 2014-2018

February 6, 2014

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

Contents
1. Medium- to Long-term Management Plan “Innovate for Smiles 2018”
2. Mail-order BusinessCore Strategy 1: Customer Strategy
Core Strategy 2: Merchandising Strategy
Core Strategy 3: Sales Channel Strategy
Core Strategy 4: Fulfillment Strategy

3. Bridal Business4. Corporates Business
5. New Businesses

6. Senshukai Group Targets

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

1Medium- to Long-term Management Slogan

Innovation is in our DNA, and is where it all starts.
Since our founding, we have brought innovations to the hanpukai and catalog
mail-order businesses.
Going forward, we plan to continue innovating with new businesses that we
expect to drive growth for the whole group.
We also “re-innovate” the mail-order business and other existing businesses.

We at Senshukai aspire to become a “Women's Smiles Company,” bringing
smiles to women customers all over Japan.

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

2

Medium- to Long-term Management Plan
Up until now, management team's medium-term management plans generally lasted three
years. However, in order to undertake even more far-reaching structural change, we decided todevelop solider plans spread over a longer time frame.
Thus, a new medium- to long-term management plan around spans five years (2014-2018),
heralding the start of an even better future for the company.
* Net sales and operating income trends (billions of yen)
(Net sales)(Operating income)

200.0

12.0

Net sales

Operating income

180.0

10.0

160.0
8.0

140.0
120.0

6.0

100.0
4.0

80.0
60.0

2.0

40.0

Medium-term
plan

20.0

Medium-term
plan

Medium-term
plan

Medium-term
plan

Medium- to long-term
management plan

-

-

-2.0
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

3

Medium- to Long-term Management Targets

Senshukai group targets (in final year, Fiscal 2018)

Net sales: ¥187 billion
Operating income: ¥10 billion

ROE: 10%

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

4

Medium- to Long-term Management Targets (by business)
2013 results

2018 targets

Mail-orderbusiness

Net sales: ¥126.4 billion

Net sales: ¥158.5 billion

Operating income: ¥2.8 billion

Operating income: ¥7.4 billion

Bridalbusiness

Net sales: ¥10.7 billion

Net sales: ¥18.0 billion

Operating income: ¥0.7 billion

Operating income: ¥1.8 billion

Corporates
business

Net sales: ¥3.8 billion

Net sales: ¥6.0 billion

Operating income: ¥0.3 billion

Operating income: ¥0.7 billion

Newbusinesses

Net sales: ¥4.5 billion
Operating income: ¥0.1 billion

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

5

Mail-order Business

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

6

Mail-order Business

Overview of Strategy Changes in the Competitive Environment

BeforeCatalog shopping

Competitors:

Catalog mail-order companies

Now

E-commerce

Competitors:

E-commerce companies, retailers＊ The mail-order market for the retail/distribution sector is still growing and is worth over
¥5 trillion.
＊ As the mail-order market has expanded, our competitors have changed from catalog
mail-order companies into e-commerce companies.
＊ As omni-channel marketing spreads, we expect major retailers to enter the mail-orderbusiness, potentially bringing even more large changes to the current competitiveenvironment.
＊ Corresponding to these changes, we aim to establish a competitive edge in the ecommerce market.
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

7

Mail-order Business

Overview of Strategy Core Strategies

We maintain a competitive edge by pursuing the following four strategies.

Whom

Focusing on women in their 30s, 40s, and 50s.
Developing our services and products to be
irreplaceable.

Customer strategy

What

Developing original products that satisfy the needs ofwomen customers.

Merchandising strategy

How

Developing an omni-channel marketing: e-commerce,
catalog mail-order, brick-and-mortar stores.
Offering attentive service that makes the shopping
experience both comfortable and convenient for
women customers.
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

Sales channel strategy
Fulfillment strategy(logistics, IT, customer relations)8

Mail-order BusinessCore Strategy 1: Customer Strategy
Members aged 20-59 and population movement
Femalepopulation(Thousands)

1,200

Registeredmembers

Annual numberof customers

1,000

Customers in2013 were mainly
women in theirlate 30s or early
40s

800
600
400
200
0
20

22

24

26

28

30

32

34

36

38

40

42

44

46

48

50

52

54

56

58 (Age)* Estimates based on data from Ministry of Internal Affairs
and Communication Statistics Bureau census(Thousands)

1,200

In 2018, we extend
our reach beyond
those in their 30s,
and also attract
those in their 40s
and 50s

1,000
800
600
400
200
0
20

22

24

26

28

30

32

34

36

38

40

42

44

46

48

50

52

54

56

58 (Age)

Women in their 30s, 40s, and 50s go through many life changes (marriage; relocation;
childbirth; child rearing; working), and we see opportunities to attract new customers.
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

9Mail-order BusinessCore Strategy 1: Customer Strategy

We identify five key segments for women in their 30s, 40s, and 50s that could help us
expand our customer base.
Traits30s

40s

Employed

Do not have children

Elimination of child care
waiting list allows more
women in this segment
to work

Women in 30s with large disposable incomes
New customers (except child rearing)Singles
DINKS

30s

50s

Career40s

The population in thissegment is growing; ourcurrent main customers
will advance to thissegment in 10 years

Active50s

Not employed

Have childrenChildrearing
motherCustomer segment with high lifetime value
A demographic that we can compete withcompetitors for if we step up our service offering
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

Housewife /Part-timer

Segment we continue
focusing on as market size
likely to remain attractive

10

Mail-order BusinessCore Strategy 1: Customer Strategy(Thousands)

Estimated market size and active customer target in the mail-order business

1,200

2018

1,000

800

Female population

Career 40s
Approx. 3.2 million

600
SingleDINKS 30s
Approx. 3.9 million

400

2013
(Note)
Annual number of active
customers: 4.77 million

200 Estimated market size

Active 50s
Approx. 7.9 million

Childrearing motherApprox. 8.6 million

0
20

25

30

35

40

45

Housewife/part-timer
Approx.
505.9 million55

60

65

Data: Ministry of Internal Affairs and Communication
Statistics Bureau census

We are targeting 6 million active customers each year.
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

(Note) Customers for Belle Maison and other group mail-order subsidiaries

11

Mail-order BusinessCore Strategy 2: Merchandising Strategy

Differentiate ourselves from competitors by offering value-added original products
through developing private-label brands.

Major e-commerce companies
Differentiation

Merchandise

Merchandise

E-commerce market

Selling other companies' products, or providing
virtual malls where other vendors sell products

Developing private-label brands
Merchandising using our self-developed
original products,
together with products we procure externally+ Solid customer loyalty point programs+ Attentive service

Co-existence

You know what I like!
I can discover something
new and exclusive!

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

Customer

12

Mail-order BusinessCore Strategy 2: Merchandising Strategy

Aiming to improve overall profitability by focusing more on product developmentusing the SPA-type development.

(Note)

Original
products

SPA-typedevelopment

OEM-typedevelopment(controlled)High
profitability
Mediumprofitability

Low
profitability

Select purchases(discerning)

Product development format

Product development format(Note) SPA (Specialty store retailer of Private-label Apparel) -type development: Product planning is done in-house, and manufacturing and sales of these privatelabel products are also overseen by companies
OEM (Original Equipment Manufacturing) -type development:
Manufacture of products designed in-house are outsourced to third-party producers

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

13

Mail-order BusinessCore Strategy 3: Sales Channel Strategy

We create more opportunities to purchase our products by using an omni-channel approach
tailored to products, rather than a sales channel mix built around mail-order catalogs.
E-commerce

Merchandise that
customers want

Suggestions
52 weeks a year
Commondatabase

Merchandise

Enabling customers to buy
anytime and anywhere they want

Seasonal suggestions
StoresCopyright SENSHUKAI Co.,Ltd. All Rights Reserved.

Customer

Catalogs

14

Mail-order BusinessCore Strategy 3: Sales Channel Strategy

Developing an unique omni-channel strategy for Belle Maison, leveraging the best qualities ofeach sales channel (e-commerce, catalogs, brick-and-mortar stores).
E-commerceThis web portal-based channel allows customers to buy anytime and anywhere they want.
Strengthen efforts to attract women customers in their 30s-50s by making our websites
compatible with mobile devices as smartphone usage spreads.
Unlike the seasonal suggestions in our catalogs, this sales channel offers timely
suggestions to customers 52 weeks a year, as seasonal temperatures change and customer
needs evolve.
Catalogs

This key “push marketing” channel differentiates ourselves from competitors in the ecommerce market. We create opportunities for customers to purchase products byoffering suggestions that make use of our experience in product planning and catalog
presentation.
Optimize sales cost and pursue effective sales promotions targeting existing customers.
Goal is to increase the number of fans of our private-label brands.
StoresWe plan flagship stores that spotlight our private-label brands.
This sales channel gives us direct contact with customers.

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

15

Mail-order BusinessCore Strategy 4: Fulfillment Strategy (logistics)

We invest roughly ¥5 billion mainly in the Chubu area (Kani and Minokamo Distribution Centers)in order to reduce costs and provide customers with speedier fulfillment.

Kani
Minokamo
KanumaKoshien

Logistics (current)

For improving

 Monthly transactions involving over 200,000
different items on average, and figure still growing.
 Growing numbers of active customers purchasing
items from various wide-ranging categories at once.
 Issue: speed at filling orders, delivery-to-order.
 Conclusion: a need to overhaul operations.

Make investments focused mainlyon the Chubu area (near Nagoya).
Goal is to achieve lower-cost operationand speedier fulfillment by revamping
logistics network and improving
productivity.

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

16

Mail-order BusinessCore Strategy 4: Fulfillment Strategy (IT)Proactively rebuild entire system (especially the core system), with the aim of
improving system development speed and enhancing flexibility.
System outline
Product planning and development
Now: Focus
on storefront

Future: Focus
on merchandise

Catalog specific
For e-commerce

CommonCurrent system
 Flexibility and scalability of e-commerce
system has reached its limits.
 Core system is old.
 System has grown increasingly complex asfunctions have been added over the years.
 Manpower needs and maintenance costrising.
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

Managing sales channels

E-commerce specific
E-commerce specific
Catalog specificCustomer fulfillment
CommonCommonFor improving

Streamline operations and systems, and upgrade
the core system. Make investments focused oncompetitive superiority and improve systemdevelopment productivity.

17

Bridal Business

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

18

Bridal Business

Market Trends

Marriage market (2012)
Number of marriages

Share of venues used for wedding parties (Greater Tokyo)(%)

40

Hotels

Wedding halls

Guesthouses

Restaurants, others

2008

2010

2012

670,000 couples
30

Average sales per wedding(nationwide)20¥3.44 million
10

Average start-up costs for
new life (nationwide)¥970,000

02006* Data from Recruit Bridal Souken survey and Ministry of Internal
Affairs & Communication Statistics Bureau population survey● Number of marriages is declining slowly but the market in large urban areas is expanding due topopulation inflows.
● We think renovations help differentiate guesthouse-style wedding venues more easily thanconventional wedding halls, and we see potential growth for such venues ahead.
● Average sales per wedding for guesthouse-style weddings are high, but competition will become
more heated.
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

19

Bridal Business

Expansion Strategy

To keep sales growing, we continue opening new wedding halls and renovating existing ones
in both urban and suburban styles.
Overview
Major urban cities where we can differentiate our service offering from competitors,
and where weddings are profitable based on average sales per wedding
Urban style: Major cities(Tokyo 23 wards, government-decreed cities)
Suburban style:
Major cities with populations of over 300,000, except listed above(Prefectural capitals or equivalents)

Planning to increase from 16 wedding facilities in 2013 to 26 in 2018
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

20

Bridal BusinessCore Strategy

Establish a more solid business foundation by overhauling operations and focusing on
human resource development
Review of sales promotions

1) Better customer draw

Increasing added value through branding

2) Higher contract rates

Focusing more on derivative businesses
Lowering sales cost rate3) Stronger profit margins

Human resource development
Improving operations and management4) Greater customer satisfaction

Boosting profitability for existing facilities as well as theoverall business by establishing a stable foundation for operations
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

21

Corporates Business

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

22

Corporates Business

Market Expansion and Strategy

B2C demand at corporations has grown alongside the expansion of the e-commerce market.
(Billions of yen)
10,0008,000

E-commerce (retail/services)

6,000
4,000
2,000
0

2008

2009

2010

2011

2012

* Figures based on Ministry of Economy, Trade and Industry e-commerce market survey data

Expand the corporates business, mainly through fulfillment services, which have continuity
and profitability to corporate customers.
Services build-out
Solution-based newservice development

Fulfillment(contract services)
Boosts to
all three

Better efficiency
Enhanced activity achievedby more specialized
targeting

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

Merchandise
sales, contract
merchandise sales(novelties)

Profits maintenanceAdvertising
services

Margins kept strong byenhancing services menu
lineup23

New Businesses

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

24

New Businesses

Overview of Strategy and Entry into the Childcare Market
Along with our slogan “Women's Smiles Company,” we keep developing unique businesses
to fulfill women customers' needs.
Overview

1. Put priority on developing new businesses likely to generate meaningful synergies withexisting businesses due to high compatibility.
2. Cultivate peripheral businesses to complement those new businesses that we develop.

Establish and operate certified nursery schools in 2014 and develop peripheral services
going forward.
2014

2015

2016

2017

2018

Establish and operate new subsidiary, SENSHUKAI CHILD CARE CO.,LTD(first certified nursery school scheduled to open in September 2014)

Establishment of certified nursery schools

Next stage (market entry currently being studied)

Peripheral businesses dealing withchildcare¥5-10 billion(Estimated size of
potential market)

We keep developing businesses that bring a smile to women customers' faces.
Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

25

Senshukai Group Targets

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

26

Medium- to Long-term Management Targets (consolidated)(Millions of yen)

Fiscal 2013

% to netsales

Fiscal 2014

% to netsales

Fiscal 2018

% to netsales

Net sales

141,552

100.0%

150,000

100.0%

187,000

100.0%

Gross profit

69,07748.8%

70,77247.2%

92,226

49.3%

SG&A expenses

65,05746.0%

67,172

44.8%

82,22744.0%

Operating income

4,019

2.8%

3,600

2.4%

10,0005.3%

Net income

4,046

2.9%

2,300

1.5%

6,500

3.5%

Return on equity

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

8.5%

4.5%

10.0%

27

Dividend Policy
The Group’s policy regarding the distribution of earnings to shareholders is to strive
continuously for a payout ratio of 30% on a consolidated basis.

The Group will use internal reserves to invest in the development of new businesses forthe medium to long term, to promote the rationalization of existing businesses, toconduct mergers and acquisitions for expanding the Group businesses, to improve thesoundness of its financials, and to generally further strengthen its competitiveness andoperations.
(Yen)

30

Second halfFirst half
Payout ratio (consolidated)

25

50.0%
42.7%

45.2%

40.0%

38.3%

35.0%

20
12

29.8%

15
8

5
6

12
25.7%

10

10

30.0%
25.0%
20.0%

7

7

45.0%

15.0%

10

12

12

10.0%
5.0%

0

0.0%

2010

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

2011

2012

2013

2014 (Plan)

28

Medium- to Long-term Management Slogan

The forward-looking statements contained in this presentation are based on information that was available at the time ofrelease of this presentation. Actual results could differ significantly from these projections due to a variety of factors.

Copyright SENSHUKAI Co.,Ltd. All Rights Reserved.

29