MARUI GROUP Co., Ltd.
Financial Results Briefing for the 6 Months Ended
September, 2020
<Questions and Answers＞
Q. Please tell us the number of introductions by lawyers, and the current
situation. Regarding the target for handling around 111% in the second
half of the fiscal year, if this level of handling continues, the balance isbecoming more difficult to grow. In fact, in the first half of the fiscal
year, I think that the overall balance is slightly negative.
In order to increase these balances, will you increase the amounthandled more? Or, as you said before, will you increase the number of
products that will be handled more and more? I have been asking similar
questions every time, so an update from three months ago would be fine,but I would like to hear your current thoughts.
A. Let me talk about the state of interest return first. Interest repayments inthe first half of the fiscal year were ¥2.1 billion, a decrease of 94% YoY.
However, the amount of lawyer intervention, which is a leading
indicator of such intervention, remained almost unchanged at 100% in
the first half of the fiscal year, at 102%.
Accordingly, in the first half of the fiscal year under review, we
increased the reserve for interest repayment by around ¥3.7 billion inlight of the status of the amount received. This is the status of interest
repayment.
In terms of turnover, such as revolving installments, the situation in thefirst half of the year, you were worried about. In the first half of the
fiscal year, shopping transaction value was significantly affected by thecoronavirus, resulting in a YoY decline. The revolving installment
basically moved in line with the transaction value of shopping. In
addition to this extreme decrease in the handling of shopping, there were1

also benefits from the government, and perhaps there was a little leeway
for members to have financial resources.
Therefore, compared to the shopping, the revolving installments havebeen slightly delayed and are now trending.
Nevertheless, this situation has been reversed after bottoming out inAugust in the first half of the fiscal year. As shopping transaction value
has expanded in September and October, the transaction value of therevolving installment has also recovered, and it has now returned to the
100% level.
Therefore, the balance at the beginning of the fiscal year is now
decreasing at the end of the first half of the fiscal year, but we expectthat it will recover to the level at the beginning of the fiscal year by theend of the fiscal year.
Q. In the second half of the fiscal year, it will be about 111%, but if it is
only about 111%, it will depend on what will happen to the various
contents, but it will be difficult to increase the balance. As before, it isdifficult to anticipate a situation in which outstanding balances willgrow steadily.
Will you take measures to expect a further recovery next year and theyear after next from this? Or can you take measures that will beeffective for LTV so that the balance can be taken firmly even if thetransaction does not grow so much? I would like to have yourthoughts.
A. The balance of the revolving installment will basically increase in linewith the transaction value of shopping now. Of course, we willcontinue to change the contents of various services individually, but
we recognize that increasing the transaction value will ultimately leadto an increase in the balance. This level of 111% in the second half ofthe fiscal year has not yet recovered in some areas, particularly Travel& Entertainment. It looks a little lower, but we are firmly on the rightside of the household in particular, paying fixed rent or so on, and weare aiming to recover the balance by steadily increasing the transaction
value of shopping at the same time.
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Q. In connection with the explanation of DX earlier, we were somewhat
surprised by a slight decrease in ecommerce sales in the first half ofthe fiscal year. We know the direction of DX in the future, but why
isn't it leveraged, even though you have a great logistics facility in thefirst place and have a complete fulfillment center? In terms of the trendof the ecommerce in the world, why isn’t there a substantial increase in
the appropriate part of the ecommerce, as you referred to earlier EPOS
Card?
If you proceed with the collaboration that President Aoi explained
earlier, will this grow? You said that you will also invest in logistics inthe future. Isn’t it in-house E-commerce, or will it be shifted to othercompanies' E-commerce? I would appreciate it if you could tell me thecurrent situation in a little more detail.
A. As you pointed out, for Marui's E-commerce, the YoY sales ratio for
the first half was 96%. This is 7% higher than last year's 89%.
However, as you say, while other companies are expanding
significantly in the COVID-19, we are regretting the extremely
difficult results.
As I mentioned earlier, E-commerce has not been able to transform
itself from sales of about ¥20 billion since 10 years ago. We believe
this is because we cannot create uniqueness amid the expansion ofmajor websites and our own websites. I believe that this COVID-19
has clearly clarified the challenges.
Accordingly, in the future we will revise our strategy to create
uniqueness for Marui. I would like to create a new customer
experience from the viewpoint of OMO. What I explained earlier wasthat we are going to create a new E-commerce from now on. This is
not an E-commerce from other companies, but our own E-commerce.
Also, this is just a separate story from the existing E-commerce, andthe content of the existing E-commerce will also be renewed, and a
new rebuilding of the existing E-commerce and the launch of a new
E-commerce will be undertaken. We intend to restructure our strategy
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in this two-pronged manner.
Q.

Let me confirm with you a little. I received an explanation fromPresident Aoi earlier about a new business to be added. In rebuilding
existing ecommerce, are you working together, for example, toco-create with external parties or to utilize external human resources?

A. Of course, that is what I think. We intend to change our business not
only by doing everything on our own, but also by utilizing external
resources.

Q. I think that next month's IR DAY will be postponed, so there will bevarious discussions in the current situation. You talked about investingin the Housing Business. Which areas are you going to review rightnow? I think that you will continue to dialogue with the market andother developments, but what is changing from May, six months ago?
A. IR DAY have been postponed, and now we are reviewing. In 2019, weannounced Vision 2050, our long-term vision. We have set up various
KPIs for it. I was thinking of talking about that progress this time. In
the course of doing so, there have emerged areas where it would bebetter to review them in various ways.
For one example, the reduction of greenhouse gases that Aoi
mentioned earlier. We cited Scope one, two, and three as our KPI.
However, as we do so in many ways, our customers, society, andreduction of CO2 emission are necessary in order for us to have agreater social impact. So, we are now about creating a Scope four.
After we review the KPI which we have set one more time, and when
we are able to achieve the KPI again, we would like to tell you about
the progress. I hope you will wait a little longer.
Q.

Moreover, half a year ago, President Aoi gave an explanation, and thetalk you gave me today brought up new topics such as housing andlogistics. I was expecting to explanation from you at the IR day next
month, but it was postponed. Please tell me if there are any differences4between what I heard about six months ago and what you explained
today.
A. At the financial results briefing in May, we have done so far in termsof a business model that integrates retail and FinTech, In addition tothis, I explained that we will add a new domain of co-creation
investment, and that we intend to create a new business model for the
future by integrating the three elements of retailing, FinTech, and
Co-Creation investment. We explained the progress of our co-creation
investment today.
I am currently in the process of diligently considering the
medium-term management plan for May next year. This coming
medium-term management plan probably 5-years plan. In formulating
this plan, as a matter of course, I think that the impact of COVID-19,
or how we will look at the changes in the environment caused by
COVID-19, will be a major premise when considering the next five
years.
Today, I talked about a large part of the premise there in relation to
COVID-19. In this context, I referred to investment in the housing
sector or investment in distribution centers in part. As I explained
today, the COVID-19 has triggered a change in real estate values thathas already occurred. Is this change going back, or is it irreversible, orwill the change be forever? Those are the controversial topics.
We think that the situation surrounding our flagship stores will become
increasingly challenging as a result of this COVID-19. In response, I
talked about today's rental housing as we review our investment in realestate holdings and review our portfolio. In the medium-term
management plan, I will also discuss investment in logistics.

Q. Looking ahead, Co-Creation investment will increase, and even more in
real estate, it will shift from stores to logistics facilities and leasing. On
the other hand, although store closures have been reported recently.
Next, I think that the portfolio of assets will change dramaticallybecause of the decrease in trade receivables and store assets, and the5increase in logistics and housing, and the increase in intangible costs.
Will total investment or total assets have a benchmark to some extent
and be replaced within it? Or, if there is any growth, is it increasingly,
aggressively increasing assets as a driver? Please tell us about thebalance.
A. I think that the review of the portfolio and the content of the balance
sheet will be one of the key points of the next medium-term
management plan, which we are currently reviewing. Accordingly, we
would like to put together some indicators in relation to this.
However, in terms of the direction, basically, there is no change in thisdirection of shifting management from tangible fixed assets tointangible assets, rather intangible investment to greater extent, which
I mentioned in May.
Therefore, as I mentioned earlier, the completion of the fixed-termlease will create about ¥15 billion in investment capacity over five
years. Therefore, we spend money on rental housing or logistics, where
we can expect opportunities, but we do not intend to increase fixed
assets. This means maintaining the status quo.
Since the Co-Creation investment startup investment department isincreasing, as intangible investment and intangible assets increase, wewill move toward the direction that the next medium-term
management plan aims to achieve through the trinity in Retailing,
FinTech, and Co-Creation investment.
Q. We have an image that customers come to our stores to issue credit cards,
but as we have seen in the case of rent, in the sense of continuously
acquiring new customers and customers who pay LTV, is it okay tojudge that the direction of reorganizing assets is more correct?
Is it fair to say that the next five-year midterm plan will make a big
announcement?
A. Store is a significant hub for recruitment of our new membership, but it's
no different to be an important interface with the card membership. On
the other hand, the ratio of new members at stores to new cardholders
has declined to less than one third. Conversely, we have shifted to a6

system that allows more than two thirds of new members to recruitoutside stores. As a result, if almost 100% of new members join fromour stores as in the past, the number of new members will decrease if thenumbers of new stores decrease. However, this constraint has notdiminished considerably, but it has been eased.
On the other hand, as I mentioned earlier, the risk of vacancy rates forcommercial facilities is not limited to ours but may also rise after
COVID-19. I think we will have to assume this, so we have already
decided to close in Ikebukuro Marui and Shizuoka Marui. We willcontinue to monitor the efficiency of our stores without having to havetoo optimistic and hopeful observations, and we will continue to operate
our stores so that we can maximize the value of our stores as a whole.

Q. That you have come up with forecast for FY2021 this time, but if you
look only at the second half of the fiscal year, I think the budget
decreases about \3 billion for operating income in the second half of the
fiscal year. The liquidation, et cetera, were carried out to a very large
extent in the first half of the fiscal year. I think that the impact ofcoronavirus was in the fourth quarter of the second half of the fiscal year.
In the second half of last year, profits declined by nearly 10%, and thiswill lead to a double-digit decline.
Please tell us if it unavoidable because I am looking closely at the top
line or if there are any technical factors around here.
A. There are no special factors.
In the second half of the year, the Retail Business is looking at a trend of
80%. Although it certainly fell last year in March, we assume atransaction value of 88% for the second half even if we take this into
account. In addition to this being a factor in the decline in profits, as
explained in the first quarter, FinTech's profits have a lagging effect. We
expect FinTech's profits to decline as the tough situation in the firstquarter will appear in the second half of this year.
In the second half of the fiscal year, the 110% rate will be set as a profit
from the next fiscal year onward. In this sense, both FinTech and Retail7will face a slightly tougher situation in the second half of this year, so wewill forecast that a profit will go down in the second half of the fiscal
year, and there is no further reason for this.
Q.

I want to confirm that the underlying trend is an organic trend, andsince last year, in the middle of February, especially in March, it has
fallen and the so-called budget figure is 111% for shopping, and 88%
for retailing?

A. That's right. As Aoi explained earlier in the second half of the year.

Q. About how retail stores should be. I think that you will increase thenumber of experience-oriented stores that do not sell goods, and thatyou will increase the number of stores that do not sell goods up toaround 60% in five years, how is the progress?
After the fixed-term loan, I think that the COVID-19 situation will
result in contract renewals of about one third each. There are manydifficult issues, so I think there may be some requests from wage
reduction. Please tell me as much as possible.
A. Regarding the progress of the experience type, the composition of thisexperience-type tenant was 30% at the end of FY2018. This has
expanded to 38% by the end of the previous fiscal year. However, due
to the impact of coronavirus, negotiations for store openings have
temporarily stopped, so I think that it will be delayed switching
between six months and a year or so. The desire to open stores for
product-selling tenants has declined significantly but players in thisexperience-type business, particularly those in the online business, arebecoming increasingly positive about store openings. Later, by March
2024, the goal of reversing this configuration and extending it to up to
60% will be unchanged.
Another point is how the contract is being renewed. In other words, I
think you are worried about the current negotiation situation regarding
the risk that the tenant will cancel. In this regard, I know that there isan expiration of 66,200 square meters in this fiscal year, but it is now
8that about 80% of these will be able to update the contract. This is theresult of our efforts to deal with tenants, including the recent reduction
and waiver of rent. However, as there are still risks in the future, wewould like to keep a close eye on them.
Q. I would like to ask you more about the contract renewal. You said that
80% will renew. Could you tell us whether or not the rent setting forthis 80% is the same as that for the past, and what became the case for20%?
A. For 80%, there has been no value down, that is, a drop in rents. The
contracts are for the same or more rent as now. 20% of the tenants will
be withdrawn upon the expiration of the contract, and the tenants will
go out of the contract. However, in comparison with the past, morethan 20% people usually withdraw, so this fact that even this corona
sickness is calm at 20% maybe answer for your worries.
Q.

Do you mean that you would like to change these areas intoexperiential ones as much as possible?

A. That's right. As I explained earlier, the risks are certainly increasing in
the future, but I believe that this is an opportunity. The fact that there isa tenant withdrawal means that we can replace a new tenant there, so
we would like to take advantage of this and turn it around.

Q. About your approach to earnings in the FinTech Business. The impactof the balance will appear somewhat later. On the other hand, in thecurrent fiscal year, there are no more costs for issuing cards than forrecruiting new members. On the other hand, considering the fact thatthe volume of transactions has improved from the bottom, what shouldbe the earnings perspective of the Fintech Business for the next fiscal
year? Please tell me your comments about it.
A. About the outlook for this fiscal year, the overall earnings of FinTech
will increase. Looking at the details, although it is a little, we see a
decline in revenue. The main reason for this decrease in sales is that9the growth in shopping transaction value was extremely harsh, and in
addition, the Cash Advance Business has been extremely sluggish.
Regarding revolving settlement, although it has been decreasing due tothe accumulation of balances at the beginning of the fiscal year, it isforecast that it will be almost flat on the profitability side.
What will happen to this situation in the next fiscal year? For the next
fiscal year, while we do not see at all what the impact of COVID-19
will be, it will be in the form of a forecast for the next fiscal year, andthere remains a sense of uncertainty. If the current environment
continues, we expect a double-digit increase in shopping transaction
value to be sufficient for the next fiscal year due to a reaction to thecurrent fiscal year and the emergency situation in April and May.
Accordingly, we believe there is the potential for a significant increase
in merchant commissions in the next fiscal year compared to thecurrent fiscal year.
With regard to the revolving settlement, which is recorded as sales interms of the balance, although the accumulation of the balance iscertain, from the perspective of earnings, the forecast is for only aslight increase in sales.
We forecast that cash advances will continue to be sluggish in the next
fiscal year. As a whole, we anticipate a steady increase in sales for the
next fiscal year, although sales will decrease in the current fiscal year.
On the other hand, with regard to expenses, since they will be in the
future and not fixed, I cannot say anything. As for new cards, thenumber of new members declined from the previous fiscal year toabout 200,000 due to the suspension of operations at stores this fiscal
year. There is uncertainty about the extent to which this will recover,but it will be a steady upfront investment in the future, so we intend to
steadily increase the number of new members, so I think that the costof issuing cards will increase accordingly.
Regarding the operating income of the results, we are carefully
examining the total expenses so far, so I would like to report it at alater date and at the time of settlement of accounts.

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Q. As DX continues to evolve, you talked of specialized E-commerce, butwill multiple deployments start from scratch? In that case, it would
seem that something would be a very large investment. In addition, if
there is no specialization or anyone doing it, various areas are doing it
in various fields, so I wonder if there are such fields left. We would
like you to comment on multiple developments of this specialized
E-commerce.
A. With regard to the schedule, I am currently considering about five or
more of them. I am currently thinking about five or so area themes.
Some we have been working on development for quite some time,some we have been working on for several months, and some that wehave started working on since October. In any event, we would like tothoroughly determine whether or not we will commercialize theproduct by around six months or so and whether or not we will make afull-scale investment. As of May, I think we can report on what kind of
new products we will be launching.
With regard to investment, we do not think of any major investment.
As I explained earlier, even for the construction, operation, andupgrade of E-commerce, there is now an outstanding system that canbe developed very inexpensively and is very agile with very external
services. By utilizing such services, we would like to start with small
investments with little investment.
Regarding whether there are areas that other companies do not deal
with I do not intend to say that there is none. There are no areas which
could be as much as billions of yen that we intend to deploy. We intend
to specialize in such things. So, I have heard about it as a theme, but I
would like to have that kind of strategic thinking about whether wewill do it in E-commerce or in OMO. I hope you will look forward toit.
Q. Are the areas of specialization in E-commerce that you just mentioned
coming from areas where your company has been doing business, suchas product sales and ideas obtained through hands-on activities in
Retailing?
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A.

Well, as you are aware, we don't have much focus on categories,
business categories, or industries. We look at how the customer
demand changes due to changes in customers and the world. We are avery focused Company that looks at this and develops businesses that
respond to this new demand and changes.
Therefore, we want these types of services to help our customers
enrich their lives and to help them realize their full potential. Or a newlifestyle that customers want to devote themselves to consumption on
services or products. In this sense, we would like to develop
specialized E-commerce based on the theme of variation.

Q. I'd like to confirm the factor of the decline in retail profits in thesecond quarter of this fiscal year. Retail sales was ¥3.3 billion, whose
factor of decline, a special factor, is the COVID-19 impact. I don't
know if it will be here, but is it because of the decline in sales caused
due to the coronavirus impact and the decline in sales? I don't know
how the Omni-Channel and the platform are included in this report.
please let me know.
Aside from this, I think the financial statements also contains figures. I
think there is a portion of the fixed costs during the store's shutdown
that has been reclassified as a special loss at ¥6.6 billion in retail. I
don't know whether this is a rebate to a fairly fixed expense when we
return to normal accounting status next year. Depending on the
profitability of the Retail Business, I think there is a real risk of an
operating loss. What do you think about this?
A. first question the decline in retail profits is ¥3.3 billion, and you thinkthat the Omni-Channel or platform is included in this breakdown.
Although the platform is in this, it is a very small number, and most of
the stores will be negative. In terms of Omni-Channel, they are within
this category, but this is also impacted by around 5% of the total. This
will have a minor impact. The reason for the decline in profits was thatthe transaction value declined due to coronavirus, which resulted in anegative income, which is ¥3.3 billion.
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Another issue is the ¥6.5 billion, which was recorded as a special loss.
It will certainly return that amount in the next fiscal year. In fact, when
we were closed in April and May, we have also reduced or waived
their expenses for 100% of our business partners. Therefore, theamount will normally return if we are able to operate the business.
Since the amount of fixed costs recorded as extraordinary losses isabout ¥2 billion, we would not lose money if we were operating.

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