Business Structure

History

History

Business Structure

MARUI GROUP of Today

Innovation of Business Str ucture inLine with the Times

Words of Founder Chuji Aoi“Creditability should be built together
with customers”
Unique business model merging retailing and finance“Pioneer spirit of creating opportunities”
Adeptness at evolving and creating innovation in response to
the needs of the times

Japanese Asset Price Bubble

Age of Declining Birthrates and Aging Populations

Accumulation of physical goods

First Great
Innovation

PursuitPursuitof more-fulfillingof more-fulfilling
lifestyles
lifestyles
andandmarketmarketmaturity
maturity

Customers

New families

Customers

Younger generations

Products

Furniture, consumer electronics,
and other durable goods

Products

FashionCredit cards

Akai Card (Red Card) in-housecredit card

Credit cards Japan’s first credit card
StoresVisionMARUI GROUP’s Founding DNA

Over the 86 years since its founding, MARUI GROUP has continued to innovate and evolve its unique business model,
which merges retailing and finance, and the structure of its business in line with changes in the times and in the needsof customers. Currently, finance is becoming the main driver of our growth. However, we retain our stance of notsegregating retailing and finance. Rather, we will share human resources, stores, and data throughout our integrated
business as we seek to improve corporate value by evolving our unique business model merging retailing and finance.
Post-War Japanese Economic Miracle

Definitions of Retailing and
FinanceSecond Great
Innovation

Monthly installment payment
storesStoresThird Great
Innovation

FY2006
Began issuing
EPOS cards
EPS: ¥70.4

1966
Introduced industry’s first computer

All ages (everyone)

Products

Lifestyle proposals

1960
Issued first credit card in Japan

Real estate model

FY2015
Stabilized earnings
structures of stores
EPS: ¥58.9

FY2009Recorded first loss due inpart to financial crisis of 2008
EPS: –¥31.9
FY2007
Revision of
Money Lending
Business Act
EPS: ¥12.9

FY2021
Promotion of financial inclusion
EPS: Target of ¥130 or more

Credit cards Multipurpose EPOS card
StoresDepartment stores
FY1991
Achieved peak
performance
EPS: ¥103.2

Customers

FY2011
Recorded second loss
Commenced massive
business restructuring
EPS: –¥86.4

FY2017
EPS: ¥80.2

Earnings per share (EPS)
1931 Founding

Fiscal year ended
January 31, 1973

Fiscal year ended
January 31, 1980

Fiscal year ended
January 31, 1990

Fiscal year ended
January 31, 2000

Fiscal year ended
March 31, 2006

Fiscal year ended
March 31, 2010

Fiscal year ended
March 31, 2017

Furniture Sales through Installment Payments

Sales of Fashion on Credit

Lifestyle Proposals and Card Shopping Transactions

Founder: Chuji Aoi

Second leader: Tadao Aoi

Third leader: Hiroshi Aoi

Period as president: 1931–1972 (41 years)

Period as president: 1972–2005 (33 years)

Period as president: from 2005

At the time of its founding, MARUI GROUP’s business involved
selling furniture through monthly installment payments. Thesemonthly installment payments entailed both selling furnitureand providing credit, or, in other words, lending money, thus
representing a business model that merges retailing andfinance. In the years that followed, the Company pushedforward with the modernization of the installment payment
system, issuing Japan’s first credit card in 1960 and thenintroducing the industry’s first computer in 1966.

During the period of the post-war Japanese economic miracle,
income levels in Japan rose, leading other stores using themonthly installment payment system to focus on finance.
MARUI GROUP, meanwhile, turned its attention to fashion. Thistransition entailed a bold shift toward younger generations as
the Company’s customer base. We thus came to play a part in
the boom of the DC fashion brand. In addition, we began offering cash advances in 1981. By building upon these strategies,
we were able to achieve our peak performance in 1991.

Due to the impacts of the 2006 revision of the Money Lending
Business Act and the 2008 financial crisis, MARUI GROUP
was forced to record losses on two occasions. In light of thisdevelopment, we undertook a massive business restructuring.
In terms of customers, we drastically realigned our focus fromcatering primarily to younger generations to developing abusiness that wins the favor of customers of all ages. The launchof the multipurpose EPOS card in 2006 brought further change
as our earnings began to come less from cash advances and

20

Fiscal year ending
March 31, 2021

more from card shopping transactions. In 2014, we started
transitioning our stores toward real estate-model shopping
centers to enable them to provide experiences in addition to
the physical goods they had conventionally sold. This business structure transformation stabilized the earnings ofstores, allowing them to realize immunity to downside risks.
In addition, the transformation made it possible to undertakeco-creation store development initiatives with customers andincrease the number of visiting customers and purchases.
21

Business Structure

MARUI GROUP of Today

Reverse in Relationship between
Retailing and Finance

FinTech Business* : 84%

Retailing Business* : 16%2IT, etc.

MARUI GROUP of Today

Definitions of Retailing and
Finance

VisionBusiness Model Innovations

MARUI GROUP previously has been a retailer with finance functions, and the role of credit cards has thus been to
support stores. This relationship began to change with the launch of the EPOS card in 2006, after which card transactions started to increase rapidly. Although MARUI GROUP’s business model continued to be a merger of retailingand finance, the relationship between these functions was reversed, with finance becoming the main proponent ofgrowth. Today, our 31 nationwide stores are supporting the growth of credit cards as application centers.

2

History

Business Structure

MARUI GROUP’s business model has undergone innovations in three areas in response to changes in customer
consumption patterns: the rise of e-commerce and cashless payment methods, the declining birthrate and aging ofsociety, and other long-term social trends. By reinventing our business model, we will achieve immunity to downside risks while building a growth foundation capable of taking advantage of upside risks.
Customer base innovation

Change in focus from younger generations to all ages and inclusion of all customers

Retailing innovation

 hift from consignment buying system to real estate model for earnings structure andSpromotion of omni-channel retailing

Credit card innovation

 ransition from in-house card to multipurpose card and expansion of business scopeT
to include FinTech

Product sales

0.4%

3.5%

Services

Consignment sales

9.2%

6.5%

Cash advances

Tenant sales and others

6.6%

4.7%

Immunity to Downside Risks
Downside
Risk

Upside Risk Growth Foundation

UpsideRisk

Related business

1.2%

Card shopping

67.9%
Total Group Transactions*1¥1,933,685 million

Transition from Department Store Model toReal Estate Model

Evolution from In-House Card toMultipurpose Card

The transition from department stores that procureand sell products to real estate-model shopping
centers that receive payments from renting space
has stabilized earnings in the Retailing business.
Moreover, this transition has made it possible tointroduce more tenants offering food, services,and experiences.

Having received a direct license from Visa
Worldwide Japan Co., Ltd., we were able to evolve
our in-house card into a multipurpose credit card
usable anywhere in the world. Since then, card
shopping transactions have been expanding rapidly
in conjunction with customers’ shopping, posting
average annual growth rates of 17% and driving theoverall growth of MARUI GROUP.

Unique Omni-Channel Retailing Strategy
MARUI GROUP is gradually replacing its specialty
shops, which primarily deal in private brand products, with try-on stores, which integrate stores,
credit cards, and the Internet. These stores use acompletely new scheme in which customers canfreely try on samples and then make purchases
through the Company’s e-commerce website.
In the fiscal year ended March 31, 2017, total Group transactions*1 amounted to ¥1,933.7 billion, of which ¥326.3 billion,
or approximately 16%, was attributable to the Retailing business, with the remaining 84%, or ¥1,723.3 billion, coming fromthe FinTech business. In this manner, the FinTech business is currently driving the overall growth of MARUI GROUP.

Redefinition of Credit Card Services as
FinTechMARUI GROUP redefined its prior Credit Card
Services business as the FinTech business with theaim of providing financial services that can be usedby all. Offerings in this redefined business will
include various services, including new services that
respond to the diversification of payment methods
following the rise of cashless payment methods.

*1 Total Group transactions exclude intersegment transactions.
*2 Ratios are prior to eliminations.

2223

Business Structure

MARUI GROUP of TodayBusiness Structure

Retailing Business Earnings Structure
The Retailing business has previously used a model
based on the consignment buying system, which entails
procuring and selling products, meaning that revenue
was dependent on product sales. To address thisdependency, we are transitioning to a real estate model,
which involves gaining rent revenues from renting out
space, and will thus stabilize earnings. We aim to convert 100% of applicable floor space to this model by thefiscal year ending March 31, 2019. As we transition tothis real estate model by shifting toward shopping centers and fixed-term rental contracts, the amount ofconsignment revenues from tenants will decrease while
rent revenues from fixed-term rental tenants will
increase. Accordingly, the change in the earnings structure of the Retailing business is apparent when looking
at the distributions of sales under the consignment
buying system, rent revenue, and other items.
In conjunction with the transition to the real estatemodel, the key performance indicator (KPI) for specialty
stores, which primarily deal in co-creation private brandproducts, was changed from operating income margin to
net operating income yield (NOI yield), which indicatesthe anticipated yield in comparison to average market
rent fees. We have hurdle rates of NOI yield of more than
4% for urban stores and more than 7% for suburban
stores. Based on these rates, we will monitor real estatemarket prices in relation to specialty shops along withincome improvements in order to maximize asset efficiency for sales floors, storage space, and other assets.
This KPI is linked not only to income in a given year but
also to corporate value, as it incorporates consideration
for medium-to-long-term income from EPOS card

31 (25 Marui stores, 6 Modi stores)
Specialty stores primarily dealing in co-creation
private brands

Omni-channel
retailing

MARUI Internet shopping “marui web channel”
Short-term event try-on stores

Facility management anddistribution

Store renovation, advertising,property management
Building management
Distribution, IT, etc.

Distribution of Consignment Revenues andRent Revenue
FY2015FY2016FY2017

Consignment revenues

Rent revenue and others

applications and registrations for e-commerce sites.
Utilizing this indicator, we examine specialty shops todetermine which should remain open and which should
be closed.

Previously: Earnings Structure Based on Consignment Buying System
Deliver product

TenantPay procurement costs
after purchase bycustomerMarui store• Marui sales staff• Business partner sales staff

MARUI GROUP of Today

FinTech Business Earnings Structure

Overview of Operations
StoresHistory

While the Japanese credit card industry has been experiencing average annual growth of 7% in card transactions,
the FinTech business has been enjoying average annual
growth rates of 17% in transactions using its core EPOS
card. Looking at operating receivables, the amount of
installment sales accounts receivable (revolving andinstallment payments) exceeded the amount of operatingloans outstanding in the fiscal year ended March 31,
2013, illustrating the shift in the earnings structure of thisbusiness from cash advances to card shopping transactions. Today, card shopping transactions account for
approximately 81% of total transactions in the FinTechbusiness while cash advances only equate to around 8%.
The growth of credit card businesses is dependent on
increases in cardholder numbers, the ratio of cardholders
that remain active users, and the amount of transactions
per one card. We issue EPOS cards to around 700,000
new applicants each year, of which approximately 80%
apply through MARUI GROUP stores or e-commerce sites.
Located predominately in major cities with high people
traffic nationwide, the MARUI GROUP’s stores are integral
to acquiring new applicants. In addition, the transition to
the real estate model for stores in the Retailing business
reduces the amount of staff required to operate eachstore, enabling us to reallocate this staff to Epos Card Co.,
Ltd. We are thus able to position staff with extensive customer service experience and a retailing mind-set at EPOS
card application centers in the external facilities of collaboration partners, where these full-time staff members
will work to acquire new applicants. Looking at other areasof the FinTech business, revenues from housing and otherrent guarantee services have recently been rising in light ofDistribution of EPOS Card Applications by Venue(FY2017)
Sell productCustomer
Pay for product21.8%

Marui andModi stores

63.7%

Pay rent• Business partner tenant• MARUI GROUP specialty store• EPOS card application center

Marui and Modi stores

24

Overview of Operations
Credit cards

Financial services

IT

EPOS card
ROOM iD advanced-payment rent guarantee
service
ROOM GUARD Be comprehensive renters’
insurance plans
System development

Transition in Earnings Structure from Cash Advances
to Card Shopping
Card shopping transactions
Installment sales accounts receivable(revolving and installment payments)¥255.5 billion

Cash advances transactions
Operating loans outstanding¥140.6 billion

FY2010FY2013

FY2017the scheduled massive revision to the Civil Code pertaining to credit, which will be the first revision of this naturein 120 years. We also plan to grow the FinTech businessby increasing service revenues and expanding insurance
service and other existing high-margin operations that do
not require invested capital.

Distribution of Group Employees by Business

FY2014FY2015

11.4%

Going Forward: Earnings Structure Based on Real Estate Model
TenantVisionFY2013Collaboration partner
facilities and companies

EPOS Net

Rent space

Definitions of Retailing and
Finance

FY2016
Provide product, service,experience, etc.

MARUI Internet shopping“marui web channel”

Customer
Pay for product, service,experience, etc.

3.1%

Inside MARUI GROUP stores

78.2%

FY2017■ FinTech business ■ Retailing business ■ Administration, others

25

Business Structure

Definitions of Retailing and Finance

MARUI GROUP’s Retail-Nature
Business That is Attentive to the
Needs of Individual Customers
Since its founding, MARUI GROUP has remained committed to identifying the needs of individual customers basedon their lifestyles, striving to attentively cater to these needs with fine-tuned responses. As the Internet spreads toevery facet of our lives, MARUI GROUP will seek to evolve its retail-nature business to provide value that meets­customer expectations through combinations of financial and non-financial services.

Combinations of Financial and Non-Financial Services
In May 2017, Nobuchika Mori, commissioner of the
Financial Services Agency, delivered a speech entitled“Will FinTech create shared values?” During this speech,
Commissioner Mori stated that “Current product line-ups
differ from player to player, but none at the moment has a
combination of a wide range of financial and non-financial
services that can meet the customers’ needs, be it a financial institution or otherwise.” If one were to view MARUIGROUP’s FinTech business as a provider of “financial

services” and the Company’s Retailing business as a supplier of “non-financial services,” then MARUI GROUP
could be described as a “conglomerate that combines awide range of financial and non-financial services to offer
fulfilling lifestyles to all customers.” This would be an
accurate way of explaining the business model merging
retailing and finance that MARUI GROUP has developedsince its founding.

History

Business Structure

MARUI GROUP of Today

Definitions of Retailing and
Finance

VisionCustomer-Oriented Retail-Nature BusinessLeading Role as a New Player in the FinTech Market

In the past, there have been some who have looked at theindividual products and services offered by MARUIGROUP and have been led to believe that the Company’sbusiness model was divided into retailing and finance
operations. However, we see it differently. To us, retailingand finance are like two sides of the same coin, and thesetwo concepts cannot be separated from one another in
MARUI GROUP’s business. For example, EPOS cards andother financial services are provided through the retailstores that serve as our physical bases for card issuing,
and our credit cards are primarily used for shopping purposes. As such, EPOS cards can be seen as a financial
service intrinsically linked to non-financial services.
When looking at MARUI GROUP’s business from theperspective of the functions it provides customers, as
opposed to the perspective of a business operator, it isclear that both the Company’s financial services and its
non-financial services are inherently retail in nature as
they cater to consumers instead of companies. We see theideal form of MARUI GROUP’s retail-nature business as
being one that seeks to identify the needs of individual
customers based on their lifestyles in order to furnish
attentive and fine-tuned responses. By providing combinations of financial and non-financial services based on
this vision, we aim to contribute to the realization of aprosperous and inclusive society in which happiness isavailable to all.

In the aforementioned speech, Financial Services Agency
Commissioner Mori explains “As financial services become
more sophisticated along with the advance of FinTech, thecustomers will not be able to assess the technologies
behind the services they enjoy, and rather, they are likely
to select services based on their trust in companies andtheir employees who provide the services.” As artificial
intelligence, virtual currency, and other sophisticatedfinancial and non-financial services emerge, the competitiveness of financial institutions and other companies will
hinge on their ability to provide services that customers
judge as both valuable and trustworthy.
The history of MARUI GROUP was built together withcustomers. Beginning with monthly installment payment
sales and thus including consulting with customers about
payments, there has never been a clear distinction
between our financial and non-financial services. At thesame time, MARUI GROUP has been a trailblazer in providing services powered by advanced technologies, issuing Japan’s first credit cards and introducing the industry’s
first computer. The Company has thus evolved to possess
physical stores that serve as points of contact with customers as well as both financial and non-financial services. We are confident that MARUI GROUP will be able towin customer trust and play a leading role as a new player
in the FinTech market.

Definition of Business from a Business Operator
Perspective

Definition of MARUI GROUP’s BusinessExcerpts from “Will FinTech create shared values?” Speech Delivered by Financial Services Agency
Commissioner Nobuchika Mori in May 2017

“Current product line-ups differ from player to player, but none at the
moment has a combination of a wide range of financial and non-financial
services that can meet the customers’ needs, be it a financial institution
or otherwise.”Finance

Consumers

MARUI GROUP’s
Retail-Nature
Business

Retailing(department
stores, etc.)

Non-Financial Services

26

Companies

Consumers

Source: “Will FinTech create shared values?”, Financial Services Agency
www.fsa.go.jp/common/conference/danwa/20170525/01.pdf

Financial Services(credit cardcompanies, etc.)

Companies“As financial services become more sophisticated along with the advanceof FinTech, the customers will not be able to assess the technologies
behind the services they enjoy, and rather, they are likely to select services based on their trust in companies and their employees who provide
the services.”

Financial Services

Non-Financial Services

27

Business Structure

VisionHistory

Business Structure

Co-Creation Management
Business Model

MARUI GROUP of Today

Definitions of Retailing and
Finance

VisionMembers of LGBT community
representing a¥5,940 billion market

One 13inpeople in JapanMARUI GROUP strives to develop a business that turns issues into value through co-creation with
its various stakeholders. Japan is known for the various challenges it faces as a developed nation, in its aging
population and declining birthrate, and this country has a population of approximately 126.8 million diverse
individuals. It is the goal of MARUI GROUP to contribute to the realization of a prosperous and inclusive
society in which no one is excluded and happiness is available to all. The path to accomplishing this goalis MARUI GROUP’s vision for a co-creation management business model.

Total Group transactions

Differently abled individuals
in Japan

1,933.7 billion¥

8.6 million

Rakuchin Kirei series shoes
Total aggregate sales ofover

3.5 million
pairs

Customers visiting
Marui and Modi storesa yearSenior citizens
over age 65 in Japan

200

Approx.
millionFacilities

Unique Characteristics of
MARUI GROUP Realized throughIntegrated Group Management

 ransition to e-commerceTShift from goods to experiences
Emergence of a sharing economy
Declining birthrate andaging population
Increase in demand frominbound travelers
Rise of cashless payment methods
Change of focus from saving
to investment
End of era of low interest rates

Retailing

Finance

Rakuchin Kirei series

Management Base110
Creation of
New Demand

Value Creation

A Flourishing andInclusive Society
Offering
Happiness to All

EPOS cardholder
base comprising
primarily youths andyoung adults

6.36 million

Founding DNA“Creditability should be built
together with customers”“Pioneer spirit of creating opportunities”→P.92

Approx.
millionCustomer BaseMARUI GROUP
e-commerce sites

Customer-Focused Employees
Co-Creation Management

17%

Customers visiting
MARUI GROUP
e-commerce sites
a yearPrivate brandproducts

Changes inCustomers andSociety

34.8 million
Average annual growth rate
for EPOS card

Industry-leading income
per EPOS card

6,500

¥

Youths and adults aged
15 to 39 in Japan

Credit cards

33.7 million
Industry’s lowest ratio ofdelinquent debt
boasted by EPOS cards

1.45%
Non-Japanese individuals
living in Japan

2.3 million
28

As of March 31, 201729