Greetings from the President

Promoting inclusion will be an
important theme for us as
we advance toward the future.
In response to social changes, we have adopted a perspective emphasizing environmental,social, and governance (ESG) concerns and defined realizing the type of sustainability advocated bythis perspective as our new goal. Accordingly, we are advancing initiatives to transform
our main business into a socially contributing undertaking with eyes to the future.

Hiroshi Aoi
President and Representative Director
Representative Executive Officer02

Greetings from the President1. Commitment to Sustainability and the Future
MARUI GROUP has published a CSR report each year
since 2008. For this latest edition, we chose the name
“Co-Creation Sustainability Report.” This decision was
not just an attempt to shoehorn in a recent buzzword.
Rather, it is an expression of the passion we have held
thus far and our commitment to the future.
You may ask why we changed our focus from CSR tosustainability. One reason can be found in changing
social trends. A trend we are paying particular attention
to is the new emphasis on ESG investment. Investors
have previously tended to view investments from a shortterm perspective, seeing them as a means to make theirmoney work for them. This is especially true in Japan.
The emphasis on ESG investment is an important trend
as it represents an increase in the desire of investors
to endorse good governance and also to value theresolution of environmental and social issues.
The Government Pension Investment Fund, theinstitution with the world’s largest balance of assets,
recently requested that pension fund operators promote
ESG investment. When issuing this request, MARUIGROUP’s Co-Creation Management Report was chosen
as an example of a superior integrated report forfacilitating ESG investment decisions, a fact that wasgreatly encouraging.
At MARUI GROUP, we have continued working totransform our main business into a socially contributingundertaking. As we went about these efforts, however,we were unable to escape the idea that CSR was something separate from our business, something to bepromoted on top of business activities. For this reason,
ESG proved to be a more easily understood evaluation
standard that is more compatible with our desire totransform in this manner.
We thus adopted a perspective that emphasizes ESG
concerns in response to social changes, defining realizing
the type of sustainability advocated by this perspective
as our new goal. We are thus advancing initiatives totransform our main business into a socially contributing
undertaking with eyes to the future based on a timelinethat is even longer than previously used.

2. Transforming Our Main Business into a SociallyContributing Undertaking with Eyes to the Future
Our efforts to achieve sustainability will be detailed inthis report from environmental, social, and governance
perspectives. Rather than focusing on maintaining abalance between these three perspectives, we haveinstead chosen to highlight those areas that we wish totalk most about.

E: Environmental
Reconciliation of Reduction and Profit Improvement
In regard to environmental concerns, we are continuing toimplement the apparel recycling program, but the focusof this program is being shifted from reuse to resource
use reduction.
Apparel is one of MARUI GROUP’s principal productcategories, and some may think that pursuing resource use
reduction with regard to these products would lead to lower
profits. However, I am confident that we can reconcile thiscontradiction between reduction and profit improvement
through our unique initiatives.
MARUI GROUP began offering shoe trade-ins a stepahead of the rest of the industry in 2013. A startlingnumber of customers brought shoes to be traded in, andsome of these shoes had hardly been worn at all.
Wondering why so many customers had so many
unworn shoes, employees staffing the shoe trade-in counter decided to ask. They were shocked by the large numberof customers that had bought shoes based on their design,
but had then given up on wearing them due to a lack of
comfort or pain resulting from size issues.
These employees later transferred to the division
responsible for developing private brand shoes, where they
played a part in creating the Rakuchin Kirei series of shoes,
which have continued to win strong praise from customers
since their launch. More than 3 million pairs of Rakuchin
Kirei series shoes have been sold to date, making this line
an unprecedented hit, and these shoes are now the star ofMARUI GROUP’s private brand lineup. By providing shoesthat not only feature appealing designs but are also03

Greetings from the President

comfortable and match customers’ feet, we should be able
to satisfy our customers while also preventing them frommaking wasteful purchases, effectively contributing toresource use reduction in the process.
MARUI GROUP will take charge in advancing uniqueinitiatives that form an integrated process encompassing
everything from product trade-ins to product development.
These initiatives will further us on our ongoing quest toreconcile resource use reduction with profit improvement.

S: Social
Promotion of Inclusion and Creation of New Demand
With a focus on the inside of the Company, MARUIGROUP has been fostering diversity by promoting­women’s contributions, hiring people with disabilities,
and implementing the profession change system, aunique human resources system that cultivates diversity
in terms of individual talents by allowing employees toexperience various positions within the Group.
Thanks to these efforts, we have been able to earn
recognition in the form of awards from the national
government and various organizations, which will beexplained later on in this report.
Our next step will be to direct these diversity initiatives outside of the Company toward customers andother consumers. Being receptive toward customers’
diversity and promoting inclusion will be an important
theme for us as we advance toward the future.
We have always sought to develop our stores in amanner that ensures they can be enjoyed by all customers,
regardless of their age or gender. Looking ahead to2020, the year of the Tokyo 2020 Olympic andParalympic Games, we will strive to guarantee that a pleasurable store experience can be had by people with andwithout disabilities and by members of the LGBT community and other individuals that do not conform totraditional gender categories.
As for our products, we are developing apparelproducts, private brands in particular, that can satisfy
customers regardless of their physical characteristics.

04

This undertaking entails going beyond simply focusing
on product design; it emphasizes comfort and, more
importantly, greatly expands the range of sizes available.
The fashion industry has traditionally targeted individuals whose bodies were of “standard” size, developing
and supplying products for them. Those people withlarger or smaller bodies did not have products made forthem. Among the customers we queried with this regard
were many that, due to their small body size, wereunable to find high heels in their size and were thus
forced to wear sneakers. We also spoke to several
customers that wore children’s clothing because there
was nothing in their size. Such concerns are shared bysmall- and large-bodied individuals and members of
the LGBT community.
Examining the reason why the apparel industry only
provides “standard” sizes, one possible reason could beinventory efficiency issues. Increasing the number ofsizes means increasing inventories, which in turn leads tohigher risk of inventory losses and lower profit margins.
This, of course, is an issue MARUI GROUP will need toovercome. We are looking to address this issue by
creating systems that manage individual items in realtime, utilizing in-house distribution centers, developing
omni-channel sales floors that do not require inventories,and pursuing other innovations.
A society in which only people with “standard” bodysizes can enjoy fashion and in which everyone else isneglected cannot be viewed to be a flourishing society.
For this reason, we will work to expand the range of sizesof our various apparel products and make them more
comfortable to ensure that they can be enjoyed by everyone,
regardless of their physical characteristics. The provisionof such forward-looking fashion products will no doubt
help promote inclusion and create new demand.
With regard to our credit card services, we havepromoted inclusion since the time of the Company’s
founding by developing a unique business model ofproviding credit cards for youths. As we move forward,
we will evolve our credit card services business into aFinTech business, a move that will greatly increase thebusiness scope. When people think of FinTech, many ofGreetings from the President

them focus on how technologies are used in this field. AtMARUI GROUP, however, we see the fundamental aspectof FinTech as being its mission to promote financial
inclusion by supplying financial services to everyone.
The finance industry has traditionally catered primarily
to the wealthy. However, as FinTech burgeons on theglobal stage, companies operating in this field are being
charged with the mission of delivering financial services
that can be used by youths and everyone else, not just thewealthy. MARUI GROUP has taken the initiative in advocating this type of inclusion in Japan’s credit card ­industry.
As such, we can fully endorse this mission. We are thus
working together with FinTech companies and promoting
open innovations to help further financial inclusion thatmakes financial services available to everyone.

G: GovernanceCorporate Governance for All Stakeholders
As for corporate governance, in April 2016 we halved thenumber of internal directors from eight to four, making
for a slim Board of Directors in which the two external
directors represent one-third of the entire membership.
This move allowed for better progress in discussionsof management issues that delve deeper into the issues
at hand.
In addition, we established the IR Department inOctober 2015 to facilitate efforts to co-create ourcorporate value together with shareholders and otherinvestors. This was followed by the establishment ofthe ESG Promotion Department in October 2016,
which is meant to enhance non-financial information
disclosure and other activities for communicating withlong-term investors.
We are also implementing other improvements to ourcorporate governance systems and how they are operated
with the goal of making MARUI GROUP an expert on theforefront of governance. For more information, I would
like to refer readers to Co-Creation Management Report
2016, the discussion between our two external directors
in particular.

While we are still in the process of determining whatsteps we should take next, we do know that we want toevolve the General Meeting of Shareholders. Much progress has been seen in evolving the boards of directors ofJapanese companies, MARUI GROUP included. However,
the general meeting of shareholders, which functions as
the highest authority within companies, still remains
unchanged at many companies, leaving much room forimprovement. With regard to discussions with private
shareholders, for example, it seems possible that small
meetings could be held with these shareholders in asimilar fashion as is done with institutional investors.
Looking at boards of directors, in some countries,
such as Germany and Sweden, employee representatives
attend board meetings, and some companies havecustomer representatives participate as part of an advisoryboard. At MARUI GROUP, we view corporate value as
being born out of the harmony between the interests andthe happiness of all of our stakeholders. We thus believethat corporate governance systems should be madefor the sake of all stakeholders. The Company will work
to promote stakeholder inclusion to realize suchgovernance systems.
Most of all, we realize that the aid of all of our stakeholders will be indispensable in resolving the issues
MARUI GROUP faces and in furthering its evolution.
I would therefore like to ask that readers of this reportfeel free to offer any opinions and requests you may
have. We hope to make MARUI GROUP into a better
company by engaging with our stakeholders, and I hope
we can look forward to your support in the future.

November 201605