Business Strategies

Business Strategies

Retailing

Retailing

Figure 1: Consumption Expenditures (1995 indexed to 100)Social Trends: Shift from Consumption of Goods to Consumption of Experiences
Communications
services
263%

10050
1995

Masao Nakamura

109%
106%

Eating outLeisure
Total
consumption
Food

Experiences

90%
89%

Newspapers andmagazines

71%

Clothing

61%

Goods

2015

Source: F amily Income and Expenditure Survey, Statistics Bureau, Ministry of Internal Affairs and Communications (two-or-more-person households in which head ofhousehold works, “food” excludes “eating out,” “leisure” based on Company data

Director and Managing Executive Officer
Responsible for Retailing Business

RETAILING BUSINESS

Figure 2: Sales Amounts by Store Type (1995 indexed to 100)Social Trends: Strong Performance of Shopping Centers Able to Cater to Consumption of Experiences

Going forward, I aim to further develop the Retailing businesswhile generating synergies with other Group businesses.

Shoppingcenters

136%

Chain stores

82%

Departmentstores

72%

100

As Japanese society matures, the focus of individuals’
values is changing from the accumulation of physicalgoods to the pursuit of more fulfilling lifestyles. Theensuing shift in consumption from goods to experiences isbecoming all the more clear as IT advances, and this trend
can be expected to continue into the future (see Figure 1).
Looking at trends in the amounts of sales by store
type dating back to 1995, we will see that, as sales
decline among store types using the traditional sale orreturn arrangement, performance has been strong for
shopping centers. This is most likely due to the ability ofthese facilities to cater to needs for the consumption ofexperiences (see Figure 2).
In light of this social change, MARUI GROUP’sRetailing business is transitioning toward shopping centersand fixed-term rental contracts (see Figure 3).
This transformation represents a 180-degree turnaway from our prior retailing frameworks in areas ranging
from the form of contracts with business partners to74

store operation methods. Accordingly, the decision toundertake this transformation was monumental.
However, given MARUI GROUP’s goal of developing
stores through co-creation with customers, I am confident
that this transformation will help restore the Retailingbusiness to its former glory.
Promoting the shift toward shopping centers andfixed-term rental contracts for our stores will enable us toexercise increased flexibility in adjusting the balance ofproduct and service categories available at our stores.
This increased flexibility will no doubt be a powerfulasset in developing stores that win customer support
and provide joy. Retailing was the starting point for theGroup’s business, and even the credit card services thatare now supporting our earnings are still steeped in theappeal of retailing. Going forward, I aim to further
develop the Retailing business while generating synergies
with other Group businesses.

5019952015

Source: Japan Council of Shopping Centers, Japan Chain Stores Association, and Japan Department Stores Association

Figure 3: MARUI GROUP’s Business Model Based on Social Changes~2006

Young (people in their 20s)
×Fashion (primarily goods)

2007~2014~

Everyone (all ages)
×Lifestyle (goods and experiences)

Sale or return arrangement(percent commission)

Sale or return arrangement(percent commission)

Fixed-term rental contracts(fixed rent)

Income decrease

Customer needs ≠ Income

Customer needs = Income

75

Business Strategies

RetailingBusiness Strategies

RETAILING BUSINESSKEY POINTS

Earnings Growth through Business StructureTransformation
The transformation of business structures in theRetailing business will be centered on the following
three initiatives. By increasing earnings through thetransition to fixed-term rental contracts and thepromotion of omni-channel retailing, we will target
operating income of more than ¥18.0 billion in thefiscal year ending March 31, 2021.

Hajime Sasaki
Senior Executive Officer
President and Representative Director, MARUI CO., LTD.

Our true worth will be put to the test
in determining how we will provide
customers with value and joy.

Hakata Marui opened in April 201676

Retailing

Our greatest mission in the Retailing business is toonce again return our operations to a growth trajectory. The shift to shopping centers and fixed-term
rental contracts and the promotion of omni-channel
retailing are important strategies for accomplishing
this goal. However, we must remember that thesestrategies are merely a means to an end and not
an end unto themselves. Our ultimate goal should
be to provide customers with products, services,and contact points that earn their support andthereby realize ongoing growth in income.
Accomplishing this goal will require us to act froma forward-looking perspective with a view to fiveand 10 years in the future. It is crucial to think
about how customer lifestyles will change in thefuture. Our true worth will be put to the test in
determining how we will provide customers withvalue and joy amid these changes.
Hakata Marui, a store opened in April 2016,
turned out to be a model example of the direction
we should take with our stores in the future. Goingforward, we will need to steadily create more
successful examples of stores developed throughco-creation processes conducted together withcustomers and business partners as well as withcommunity members, society, and employees.

2. Promotion of Omni-Channel Retailing
For specialty stores and private brands, we will
optimize sales floor area and implement other­selection and concentration measures. We will also
expand the scope of our operations by creating
unique business models, such as the try-on storesthat leverage our bolstered accessory lineups forInternet sales and Group expertise, to grow earnings.
3. Development of Facility Management andDistribution Operations
We aim to expand our business-to-business facility
management and distribution operations by combining the operations of the prior Retailing-Related
Services segment, which include store renovation,
distribution, building management, and IT (systemdevelopment) operations, with our unique expertise
related to real-time management of store andInternet inventories.

1. Transition to Shopping Centers and
Fixed-Term Rental Contracts
We are renovating existing stores as part of the tran­
sition. We plan to convert almost all of our stores,
excluding certain stores that will not be converted
based on requests from the owners, to fixed-term
contracts by March 31, 2019. At Hakata Marui, thefirst new store to be established under this model, wedeployed fixed-term rental tenants and competitive
directly operated specialty shops in a balancedmanner. This store is thus expected to achieve returnon investment*1 of 12% and net operating income
yield*2 of more than 4%. Hakata Marui will be positioned as a model for future co-creation initiatives.

*1 Indicator of how much income is generated in comparison to theinvestment necessary for conducting business activities*2 Indicator of earnings potential of real estate calculated by dividing net
operating income by real estate market value

Factors Affecting Operating Income in Retailing Segment
Operating income to begenerated throughomni-channel retailing
Income improvementsfrom transition toshopping center /fixed-term rental contracts
Operating income of former
Retailing-Related Services(newly included due tobusiness reorganization)
Operating income offormer Retailing andStore Operation+¥2.7billion–¥2.5
billionIncome decline at
non-shopping center /fixed rental stores¥6.0billion¥3.0billion¥1.0billion

Operating income of facility
management anddistribution(newly included due tobusiness reorganization)

More than¥18.0billion¥7.9billion

FY2016FY2021 (Projection)

77Business Strategies

Business Strategies

FinTechFinTechFigure 1: Card Shopping Transaction Trends and Future Credit Card Market
EPOS Card transaction volume growth exceeding industry growth; further growth to be pursued going forward

Average annual growth rate for EPOS Card
up to the fiscal year ended March 31, 2016:20%

Projected annual industry growth rate:

EPOS Card

8%

Average annual industry growth rate:

7%

Industry

Toshikazu Takimoto

Credit transaction volume(Industry)Managing Executive Officer
Responsible for FinTech Business

FY2012FY2016FY2021¥38 trillion¥50 trillion¥70–¥80 trillion

Source: C onsumer Credit Statistics from Japan (FY2015), Japan Consumer Credit Association for data from the fiscal years ended March 31, 2012–2016, preliminary
calculation by MARUI GROUP for the fiscal year ending March 31, 2021

FINTECH BUSINESSIn the transition from Credit Card Services to FinTech,
we are pursuing new possibilities through co-creation with customers.

Figure 2: Comparison with Competitors (Figures from FY2016, segment based; Source: MARUI GROUP)Only one-fourth as many cardholders as other companies but incredibly high revenues per active card

Cardholders

The Japanese credit card market is still developing. It is
expected that the installation of infrastructure leading up
to the Tokyo 2020 Olympic and Paralympic Games will
stimulate average annual growth of 8% in this market
and that annual transaction amounts will increase fromthe current ¥50 trillion to more than ¥70 trillion. The
growth of EPOS card transactions is particularly strong,
exceeding the industry average, and we will target furthergrowth in the future (see Figure 1).
The number of cardholders of EPOS Card wasroughly one-fourth that of other retail-type credit cardcompanies, standing at only 6.1 million on March 31,
2016. Similarly, while EPOS card transactions have risen
above ¥1 trillion, those of other companies’ cards
amount to more than ¥4 trillion. Nonetheless, theamount of operating income per active EPOS card is
exceptionally high in comparison to rival cards, makingfor impressive profit margins (see Figure 2).
In consideration of the growth potential of the credit
card market and the strengths of EPOS cards, MARUIGROUP embarked on a new endeavor in its credit card
operations by undertaking the transition to the FinTech78

business in April 2016. We have thus redefined, andeffectively expanded, the target scope of our businesswith the aim of realizing ongoing growth. We will continue to evolve our services to make them easy to use bya wider range of customers, regardless of the differencesin their income level or the region in which they live. To
customers, the appeal of EPOS cards can be found in theever-expanding range of unique services and benefits
that make customers feel they made the right decision inusing their card, provide peace of mind, and offer small
joys. Recently, we have been collaborating with animeand video game companies to step up initiatives for
expanding the range of cardholders among the younger
generation, our primary target demographic. From abusiness perspective, we will strive to increase operating
income and boost capital efficiency. These goals will beaccomplished in part by developing a highly uniquebusiness through further coordination with other Group
companies, such as M & C SYSTEMS, which is lending
its strengths in system development. In addition, we willleverage our customer assets and expertise to expand
our financial service operations (see Figure 3).

Card Transactions*1

Operating Income¥4,530.0 billion ¥4,470.0 billion
25.6 million

25.9 million¥22.0 billion¥1,310.0 billion

6.1 million
EPOS Card¥37.0 billion

Company A

Company B

EPOS Card¥7.0 billion
Company A

Company B

EPOS Card

Company A

Company B*1 Total for card shopping and cash advance transactions

Operating Income per Active Card

Revenue¥19,600

Expenses¥13,900
Revenue¥13,700
Income ¥5,700

Expenses¥13,300Income ¥400

Company A

EPOS CardRevenue¥10,100Expenses¥7,800
Income ¥2,300

Company B

Figure 3: FinTech Growth Strategies
Expand cardholder
numbers
×Improve usage ratio
and amounts

1. Expand business scope to continually grow credit card operations
2. Promote highly unique businesses through collaboration
with other Group companies

Increase operating income andimprove capital efficiency

3. Increase service revenues by leveraging customer assets
and expertise79

Business Strategies

FinTechBusiness Strategies

FINTECH BUSINESSKEY POINTS

FinTech Business Growth Strategies

our system for high-speed issuance of cards via
tablets and our patented credit card application app.
These frameworks help us limit costs while realizing
high card usage ratios.

In the FinTech business, we will expand the scope ofcollaboration with anime and video game companies
and increase card usage rates and amounts, thereby
targeting total transaction volumes of ¥2,500.0
billion in the fiscal year ending March 31, 2021, 1.7
times higher than the level in the fiscal year ended
March 31, 2016. The strengths of the FinTech business, which centers on EPOS cards, are as follows.

Yoshinori Saito
Senior Executive Officer
President and Representative Director, Epos Card Co., Ltd.

I hope to develop EPOS cards into
cards that offer users joy anda sense of wonder.

80

FinTechThe expansion of the scope of the FinTech businessdriven by the EPOS card is supporting growth incardholder numbers and increases in usage ratios
and amounts. Over the past several years, we havebeen successful in achieving a massive increasein the number of cardholders in Kyushu throughefforts positioning this area as a strategic region
in preparation for the opening of Hakata Marui. In
addition, we have been collaborating with various
commercial facilities and companies to grow thenumber of cards issued outside of the Group,
realizing a rise in cardholder numbers outside ofbusiness areas of Marui stores. Today, the numberof EPOS card fans is on the increase across Japan,
and the benefits are appearing steadily.
I hope to develop EPOS cards into cards thatoffer users joy and a sense of wonder with theirability to be used in a variety of everyday life situations. This quest will be supported by MARUIGROUP’s sophisticated systems, which arefounded on its unique credit management expertiseand IT. By leveraging such strengths well into thefuture, we will continue to offer joy to customers
while growing our business.

3. Unique Credit Expertise and Customer Assets
Since its founding, MARUI GROUP has operated
under the basic belief that creditability should bebuilt together with customers. As opposed to being
assigned based on a customer’s age, profession, orincome, we feel that credit should be shaped
through a customer’s usage and payment records.
This belief is one of the reasons that our cardholder
base is characterized by a large number of young
people, who tend to have large demand for credit,and women.

1. Ability to Improve Value for Collaboration
Partners through Personnel with RetailingExperience
EPOS card application centers are staffed by full-time
personnel that possess both retailing and card expertise. Such personnel are able to provide fine-tuned
support to partners through means including offering
advice on how sales staff can encourage customers
to use or apply for credit cards. This support can help
create fans of partner facilities, thereby improving
the value of collaboration for our partners.

4. In-House Development of Systems
Our ability to exercise the strengths of the FinTechbusiness is supported by MARUI GROUP’s uniquebusiness model that integrates the operation of thisbusiness with that of the Retailing business. In addition, by working together with the Group’s systemdevelopment company, we have created an in-housestructure capable of developing more than 100
systems a year. This type of inter-Group coordination
drives the swift evolution of our business model.

2. IT Frameworks
EPOS cards are IC-chip-embedded VISA cards thatcan be issued on-the-spot at stores and are immediately usable. We have also introduced other frameworks taking advantage of cutting-edge IT, such as

FinTech: Medium-Term Transaction Volume and Operating Income Targets
Total transactions of FinTech Business¥2,500.0 billion–

Cardholders

8.0 million–¥2,000.0 billion–

7.0 million–¥1,724.0 billion

6.4 million
FY2017
Operating¥25.5 billion
incomeFY2018

FY2019¥30.0 billion–

FY2020

FY2021¥40.0 billion–81