MANAGEMENT STRATEGY

Review of the Previous Medium-term Business Plan andthe Current Medium-term Business Plan

From “Full Recovery” to “Regrowth”

Overview of FY2021-FY2023 Medium-term

Review of the previous Medium-term Business Plan (FY2017-FY2021)

We position this Medium-term Business Plan as the period forachieving “full recovery” from the COVID-19 pandemic byreturning our financial figures to fiscal 2019 levels in its final
fiscal year 2023 and for getting back on track for “regrowth”
from fiscal 2024 onward.
The spread of infection still greatly affects society andeconomic activities, and also during the term of the current
Medium-term Business Plan, it is expected to continue to have a
direct impact on each business for the time being.

Medium-term Business Plan (FY2021-FY2023)
The previous Medium-term Business Plan, which started in fiscal 2017, was positioned as the phase of changing the structure tochange our business portfolio and we made steady progress in expanding business domain, converting the business models of
existing businesses, and furthermore, strengthening ESG initiatives.
However, our business environment has changed drastically due to COVID-19, which started to spread in early 2020.
Therefore, we decided to suspend the Medium-term Business Plan a year earlier (fiscal 2020) though it was only half done.
Major achievements
Converted a consolidated subsidiary Parco into a wholly
owned subsidiary through TOB (March 2020).
Strengthened systems to further enhance corporate valueof the Group by seeking synergy.

Growth of Real
Estate Business

Expanded the Real Estate Business by opening GINZA SIX(April 2017) and Ueno Frontier Tower (November 2017).
Built a new business base to change business portfolio.

Innovation ofDepartment Store /Parco

Opened the Daimaru Shinsaibashi store with a hybridbusiness model that combines the transaction by buyingand fixed-term lease (September 2019). Opened Shibuya
PARCO as a symbol of next generation commercial
facilities (November 2019).

Strengthening ofdefensive IT

Formulated the Group IT governance. Strengthened
security by introducing cloud systems and created anenvironment that enables remote working.

Strengthening ofgovernance system

Transitioned from a Company with an Audit & Supervisory
Board to a Company with Three Committees (Nomination,Audit, and Remuneration Committees) (May 2017).
Implemented the reform of the Board of Directors by
separating oversight from execution, increasing thenumber of Outside Directors, etc.

FY2023

Obsolescence ofbusiness model

The performance of the Department Store and Parcodeclined rapidly due to the COVID-19 pandemic.
Obsolescence of their business models that overly
depended on physical stores was accelerated. There isan urgent need to respond to aggressive digitization.

Lack of resiliencein business portfolio

The vulnerability of earnings structure with more than
80% of earnings coming from the Department Storeand SC got revealed all at once due to rapid
environmental changes.
Need to revise resource allocation to correct
overdependence on the Department Store and SC.

Weak promotion
framework, lack ofprofessional talent

Cannot deny the weakness of organizational promotion
framework and the lack of professional talent.
Urgently need to strengthen professional talent indigital and real estate (Developer) areas.

Resolution ofsustainability issues

Inevitably need to address climate change and humanrights issues at the supply chain level.
COVID-19 further increased the importance of safety
and security. Essential to strengthen initiatives from aCSV perspective.

Linkage between the previous Medium-term Business Plan and the current Medium-term Business PlanMajor strategies in the previous Medium-term Business Plan

(1) Multi ServiceRetailer
Strategy

32

Capitalprofitability[Development of new businesses]
Development of new businesses in theservice areas that relieve the frustrationand concern of consumers[Growth of 3 key businesses]
JFR Card
J. Front Design & ConstructionDimples’Review the positioning of 3 key businesses
JFR Card: Strive to contribute to each strategy and achieve independent growth
J. Front Design & Construction: Positioned as Developer segment and strive to grow inconjunction with PSS
Dimples’: Liquidated the business with the Department Store Business → Partially transferredshares of Dimples’ (February 2022)[HD]
Develop investment projects and alliance partners of a certain sizeor larger[Operating companies]
Develop new businesses in the areas around existing businesses(2) Urban Dominant
Strategy[Large-scale development PJ]
Development of GINZA SIX/Ueno FT/
Shibuya/Shinsaibashi[Real estate development]
Expansion of real estate rental business[Coexistence with area](1) Strengthening ofdevelopment asDeveloper Strategy[Large-scale development PJ/real estate development]
Promote large-scale complex redevelopment. Develop the Group’s
unique zones in Shinsaibashi/Nagoya/Fukuoka in each of which adepartment store and Parco adjoin each other [linked to threestrategies (1) to (3)][Coexistence with area]
Inherit the concept. Deliver value to consumers, improve
environmental performance(3) ICT Strategy inresponse to theIoT era

1. Strengthening of EC
2. Development of LTS-Hub
3. Creation of organization to use ICT(2) Real×Digital StrategyDigital shift[Operating companies]
Strengthen OMO of customer touch points[HD]Realize full use of LTS-Hub → Update the platform as JCDP
Continue to strengthen IT governance(4) Innovation ofexistingbusinesses[Department Store Business innovation]
Making stores attractive, reform of ruraland suburban stores[Parco Business innovation]
Store portfolio transformation(2) Real×Digital Strategy
Making content
attractive[Operating companies]
Continue efforts to make stores attractive. Invest in flagship stores,
promote renovation, find and co-create content

ROE7%

ROICBusinessgrowth

Operating profit¥

40.3 bn

FinancialhealthInterest-bearing
liabilities*1¥

260.0 bn

Sustainability

GHGemissions*2

Business profit

Net D/E-40%

Share of women inmanagement positions

Long-term mega trends

EntireworldPositioning in the current Medium-term Business Plan
(1) Developer Strategy(2) Real×Digital Strategy(3) Prime Life Strategy
Develop new businesses
with 3 strategies

INTEGRATED REPORT 2022

Business Plan

Key performance indicator targets

Major challenges left

Conversion of Parco
into a wholly ownedsubsidiary

In this situation, in order to achieve early earnings recovery,we will address the renovation of flagship stores and digital
investment in one of the key strategies, the Real×Digital Strategy,
and we will focus on the strengthening of customer base basedon department store gaisho in the Prime Life Strategy. And in theDeveloper Strategy, we will increase investment allocation up
front during the term of the current plan as a medium- tolong-term growth driver.
At the same time, we will implement “managementrestructuring” as important measures for full recovery and reduce
fixed costs and interest-bearing liabilities.

5%¥44.0 bn0.6 times
26％

Short-term outlook for changes (mainly impact of COVID-19)

Environmental/food problems
Natural disasters/epidemics becoming common
Realization of sustainable society
Technology progress (AI, 6G, IoT, etc.)
Increasing urbanization
Increasing globalization
Widening income gap (income polarization)

Politics/economy

Concern about prolongation of economic stagnation
Increasing demand for focus on sustainability
Accelerated technology evolution
Changes in urbanization (possibility of decentralization)
Paradigm shift in work style

Society/individual

Increasing awareness of sustainabilityShift to open areas with sparse population,
return to rural areas and nature
Expansion of virtual communication
Increasing importance of human connection

Accelerated depopulation/aging
Japan
specific*1 Lease liabilities are excluded.
*2 Scope 1 and 2 emissions compared to FY2017

Lack of labor force population

Rebuilding of social security system

Renewal of urban infrastructure/transition to a smart city
Maturing consumption

We will continue to live with COVID-19 for the time being andearnings including inbound sales will not return to the 2019 level until FY2023 or later

Important changes in the external environmentSteady urban commercial areas

Merger of digital and real

Polarization of income/consumption

INTEGRATED REPORT 2022

33

MANAGEMENT STRATEGY
Review of the Previous Medium-term Business Plan andthe Current Medium-term Business Plan

Management restructuring

Overall composition of the current Medium-term Business Plan

3 strategies forearnings recovery
and regrowth

1. Real×Digital Strategy

2. Prime Life Strategy

3. Developer Strategy

 epartment Store: Making storesD
attractive and transition to media
commerce with a focus ongenuineness/essenceParco: Rebuilding store brand value
and seeking digital SC platform
Creation/development of newcontent from a CSV perspective

 evelopment of new solution
Dservices that realize high quality
customer experience
Evolution of online gaisho
communication
Evolution of CRM strategy at theGroup level ixed use not limited to commercial
Muse
Launching a circular investment
schemeEntry into semi-urban areas

The Group human resource strategy

Promotion of strategies across the Group by committees for regrowth
Digital Strategy
Committee

Important measures
for full recovery

Developer Strategy
Committee

 ost reduction throughCbusiness model reform arrowing down of aN
business baseCapital policy

Tax policy

 enewal ofR
business management

Human resourcestrategy

 ompletion of the GroupC
workforce restructuring

 ealization of diversity
Rand work-life balance uman resourceHmanagement for regrowth

IT strategy(defensive IT) ebuilding ofR
core systems

 trengthening ofS
the Group IT talent system

Managementrestructuring
Financestrategy

Management basefunction strategy

Prime Life Strategy
Committee

 e will reduce fixed costs by ¥10.0 billion compared with fiscalW
2019 and lower our breakeven point through organization/
workforce restructuring and cost restructuring.
We will increase efficiency by narrowing down the Groupbusinesses based on the future and growth potential of eachbusiness and identifying idle and low-yield assets.

<Human resource management for regrowth>To secure human resources that will carry out the keystrategies, we will strengthen employee skills development andthe recruitment of professional talent from outside the Group,
while working to establish frameworks and systems that enable
their maximum utilization throughout the Group.

The Group’s strengths are “commercial production capability,”“good customer base,” “partners including suppliers andcreators” and “real estate assets in major cities.” Considering
these strengths and medium- to long-term environmental
changes, we have decided to focus our initiatives for growth on“three key strategies” in the current Medium-term Business Plan.

1. Real×Digital Strategy
 e will convert physical stores into spaces not only for making
Wpurchases, but also for encountering attractive products andservices, and enjoying high quality customer experiences.
With use of digital technologies based on stores, we willtransform the business model into one that provides newexperience value beyond time and space.
We will sophisticate customer data analysis and the use ofdigital tools for individual sales staff, gaisho staff, and buyers todeepen the relationships with customers.
In addition to sales revenue, we will diversify revenue streams,
such as real estate-related revenue and commission revenue
through the use of digital technologies.

2. Prime Life Strategy
 e will further strengthen our proposals for consumers whoW
value culture and art and enjoy fulfilling, sustainable lifestyles.
We will enhance our content by utilizing the Group’s
entertainment and art, as well as developing new products and34

INTEGRATED REPORT 2022

services that provide premium experiences through allianceswith other companies.
We will promote the acquisition of customers beyond
department store gaisho , such as the new rich in Japan andaffluent people in Asia, for example, through alliances withother companies.
Using digital technologies to sophisticate our customer
management, we will maximize the lifetime value of good
customers by capturing insight into our diversifying customers
to strengthen our proposal capabilities.
We will expand our pool of loyal customers by offering new
payment methods and developing high added value financial
services through customer life planning.

3. Developer Strategy
 e will maximize the value of the Group’s real estate assets. InW
complex redevelopment and so forth, we will rightsize theDepartment Store and PARCO and make use of relaxed building
volume restrictions. We will increase the share of noncommercial applications to increase profitability.
In the development of large-scale complexes in key areas, wewill contribute to attracting crowds to the areas by making themattractive in a way that respects local individuality in terms ofhistory and the environment to increase consumer mindshare.
 e will diversify revenue streams by acquiring and developingW
new real estate, organizing private placement funds, andengaging in asset management. In addition, we will expand ourdevelopment area to include semi-urban areas.

Policy on alliances, M&As, and wing expansion
 e will aggressively engage in alliances with other companies
Wand business acquisitions to create new businesses andexpand our capabilities, which will contribute to expanding thescale and accelerating the speed of our three key strategies.

Capital investment plan breakdownby segment

Cash flow allocation

Capital investment
Investing CF

Store renovation, DX, etc.

¥90.0 bnThree strategies<Promotion of diversity & inclusion, realization of work-life
integration>
We will conduct various measures based on materialities, suchas assignment and development aimed at women’sempowerment, work style reforms, employment of people withdisabilities, and LGBT-related initiatives, to enable individualemployees to demonstrate their individuality and abilities tothe fullest.

FY2021-FY2023
total 3-year
investment¥90.0 bn

Growth investment
M&A, alliance

Operating CF¥190.0 bn

Improvement of balance sheet
FCF¥100.0 bn*CF numbers are total for the three-year period fromFY2021 to FY2023.
*Depreciation related to right-of-use assets is included.

Portfolio reform
The share of retail business including theDepartment Store and Parco is expected
to remain 80% or more when we achieve
full recovery in fiscal 2023. However, wewill reduce the share to around 60% infiscal 2030. On the other hand, we would
like to increase the share of otherbusinesses including the Developer, thePayment and Finance, and new
businesses to around 40%. Throughthese initiatives, we will change ourportfolio to a highly resilient one.

Increasing shareholders’ equity
Reducing interest-bearing liabilities

Return to shareholders
 argeting dividend payout ratio of at least 30％TConsidering share buyback as appropriate“Operating profit” share of each segment
Department StoreSCDeveloper
Payment and Finance
Other (including consolidation adjustments)7.0% ¥ 40.2 bn
4.7%

9.8%

¥ 40.3 bn
11%

23.6%

25%

54.9%

57%

FY2019FY2023
Forecast

Department Store Business¥30.0 bn

SC Business¥14.0 bn

Developer Business¥30.0 bn

Payment and Finance Business¥1.5 bnOther¥4.5 bn

Growth investment¥10.0 bn

¥ 80.0 bn

40%

Developer
Payment and Finance
Other

60%

Department
Store SC

1%
6%FY2030Image

INTEGRATED REPORT 2022

35