J. Front Retailing
Q & A summary
Results presentation for the fiscal year ending February 28, 2021
Date and time: 16:30 – 18: 00 on Tuesday, April 13, 2021

Q. I would like to know what you think about business profit and operating profit plan forthe current period. Do you think it is the minimum level you want to achieve in the firstyear of the medium-term plan? With the external environment remaining unpredictable, I
would like to know what you thought, including about cost control, when formulating theplan.
A. For FY2021, our business is expected to gradually recover, starting this March, though thecurrent condition remains uncertain. We have made a forecast on the assumption that domestic
sales, in particular, will recover in all stores. Sales of Daimaru Matsuzakaya Department Storesincreased 33% from the previous year, just as expected.
Real outcome will be decided by how we will recover from here. We assume that domestic
sales will recover around 10% toward February next year. Currently, with the arrival of April, I
strongly feel our store and gaisho customers’ desire to buy in spite of the tough situation. And I
believe we will be able to certainly improve domestic sales if we make great efforts to implement
these three strategies.
In the meantime, inbound sales were as expected in March but I feel their recovery is moreunpredictable than domestic sales. Concerning the three-year plan, I recognize that increasing
domestic sales to the level close to gross sales in FY2019 by implementing the three growthstrategies will be a great hurdle even if inbound sales are not fully recovered in FY2023.
Q. Slide No. 37 shows your plan to add profits, ¥5.7 billion by “enhancement of appeal ofstores/content” and ¥3.7 billion by “digital shift” under the Real × Digital Strategy. And I
would like you to explain how you will make profits under the Real × Digital Strategy.
A. Concerning the enhancement of appeal of stores/content, it shows that both Department Storeand Parco will invest in the areas which they expect to produce effects in the three-year plan anddecide to strengthen. In that sense, ¥5.7 billion by “enhancement of appeal of stores/content” and¥3.7 billion by “digital shift” are shown among the items whose effects produced by sales floor
renovation and new content can be quantified on the stair chart. We will closely monitor theseKPIs at each measure level. Specific initiatives, including “AnotherADdress”, OMO for cosmetics
and Parco’s initiatives, are listed on the final page. I would really like you to see it. We would liketo increase revenue steadily by implementing these initiatives.
Q. With respect to gross sales for FY2023, you said you would increase domestic sales tothe level close to sales in FY2019. Is the effect of the Real × Digital Strategy included init?
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A. Of course, yes. The effects of these strategies are factored in.
Q. If new initiatives contribute to profit, how much do you think will be realized under theReal × Digital Strategy, that is, by the initiatives presented today?
A. The initiatives presented today are only a small part. We will implement these measures both
physically and digitally. Both Department Store and Parco are considering OMO through “people”
in stores and for gaisho sales. For example, on the information website for gaisho customers(connaissligne), we are working to improve content. Concerning gaisho activities, which werecentered on visit to customers, we will be able to expand various possibilities by changing ourcourse to communicating with customers using digital technologies.
A. On department store sales basis, we expect a positive sales effect of ¥20 billion compared to2020 through “digital shift.” Specifically, current e-commerce sales are slightly over ¥10 billion andexpected to increase ¥15 billion in three years. The effect of OMO for cosmetics is expected to be¥5 billion.
As for connaissligne mentioned before, we added live shopping function and conducted a pilot
trial, which was found to be much more effective than at-home sales. It was demonstrated that wecan sell online by improving content. So we expect to have sales of around ¥10 billion yen
including remote sales in the three-year period.
A. With regard to Parco’s digital shift, Parco, which operates tenant business while Department
Store sells specialized products and serves customers digitally, will get in between tenants toserve customers in stores and digitally and create OMO sales channels that enable sending,serving and selling customers through “people” both physically and online. We are reforming ouronline store by segmenting using AI. In the future, we will cooperate with tenants to create asystem in which we can find where and what products each tenant has in stock.
I think we will earn more revenue digitally in the future. Recently, online store sales are
significantly increasing, exceeding ¥0.1 billion in one month last December. Furthermore, we will
activate products by adding game factors and amusement using the latest digital technologies sothat digital customer service will function well. I would like to implement the Real × Digital
Strategy in such a way.
Q. I had the impression that business profit for FY2021, the first year, is lower than
expected and that you will need to increase substantially during the following two-year
period. Though fixed costs are expected to decrease due to structural reform, I think you
will need to substantially increase business profit to achieve its target of ¥4.4 billion inFY2023. I would like you to give a supplementary explanation on how you will produce
profits in the next period and the period after next.
A. Slide No. 38 shows a path to full recovery of PL up to FY2023. We expect a step-by-stepincrease of operating profit to ¥11 billion in FY2021, ¥26 billion in FY2022, and ¥40.3 billion in2

FY2023. In order to “achieve full recovery” in this plan, we need to not only expect sales recovery
but also newly acquire sales. As a matter of course, this plan requires investment. Therefore, wecannot make a bullish forecast for the first year. Last October, we wished to achieve ¥40.3 billion
a little earlier in the three-year period. However, seeing the current condition, we can hardly
expect it to recover. it is also difficult to forecast inbound sales, which were ¥60 billion in FY2019,
for the three-year period.
In this unpredictable situation, concerning this plan, we are in a position to achieve the target by
implementing the measures of the three growth strategies. We plan to concentrate investment inthose that can be expected to produce effects steadily within the scope of depreciation in thethree-year period.
Concerning structural reform, those we expect to produce great effects this fiscal year include
overhaul of advertising and offices, which can be carried out soon. Organization and HR structurereform will work mainly in FY2022 and beyond. With these efforts, we will achieve numericaltargets.
Q. In FY2021, the portion of SGA and cost of sales reclassified to “other expenses” in theprevious period will come back. While sales will not recover enough, costs will return.
When the impact of COVID-19 is mitigated and sales recover, you will be able to achieve“full recovery.” Is this understanding correct?
A. Gross sales are expected to be ¥105 billion in FY2021. Though it is difficult to forecast when
COVID-19 will come to an end, we will steadily promote the growth strategy and structural reform.
Q. With respect to cash flow on slide No. 55, I think that operating CF numbers include
right-of-use assets depreciation and that FCF numbers include the repayment of leaseliabilities. I would like to know the level of real FCF excluding these effects.
A. It is expected to be positive at around ¥30 billion on an IFRS basis in FY2021. As you said,however, due to the annual repayment of lease liabilities of around ¥28 to 29 billion, real FCF isexpected to be slightly over ¥1 billion in FY2021, around ¥30 billion in total for three years.
Q. As FCF also provides funds for improving corporate value, I would very much like to ask
you to keep it positive.
A. Certainly. We will remain committed to keeping FCF positive as we did in the past.
Q. With regard to the Real × Digital Strategy, what customer segment are you targeting?
Your measures for affluent people are clear. However, are you targeting a wide range ofcustomers or narrowing down target customers, for example, by age and fashion
sensitivity? It is like preaching to the choir, but in a digital world, you will incur a lot ofadvertising expenses without proper segmentation, which will result in no effect. Real
stores cost nothing because customers visit them. However, a digital world costs much.
What do you think about that?
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A. We need to seriously consider to what customers, what products, and how we will provide in a
department store business model. But it is true that the situation varies by store. The top
performing store of ours is the Kobe store. In the environment in which it is better to drive to theneighboring Kobe area, not the Osaka area, due to COVID-19, the store has a full assortment of
currently popular brands of luxury items, watches, cosmetics, etc. Such a store is easy to narrow
down a target. On the other hand, the Tokyo and Umeda stores, which have various customers,have difficulty.
We do not think of implementing the Real × Digital Strategy in all merchandise categories atthe same time. We will concentrate investment in the categories that can be expected to produce
effects, including cosmetics, art and watches, in both stores and a digital world.
Gaisho staff and sales staff in stores are our valuable assets. Particularly, we have operated
gaisho business mainly by visiting customers. To advance communication with customers digitallyas well as physically will be our big challenge. We already have in place a platform for target
gaisho customers that staff can approach with hypotheses. And we would like to improve it.
Q. I would like to ask Mr. Sawada and Mr. Makiyama. While you have been engaged inmanagement for one year amid the COVID-19 pandemic, did you renew awareness of thestrengths of Department Store and Parco, respectively? And how are they reflected in theMedium-term Business Plan?
A. It was very clearly recognized amid the COVID-19 pandemic that people can live every day
without department stores. In other words, it has become clear that a department store is not aplace that sells essentials. How much value other than use value is provided is important forcustomers. Department stores can compete enough concerning the products and brands thathave contexts that create value behind them and I think they will become our major battlefields.
They include underground food floors called depachika, beauty and luxury in a broad sense. On
the other hand, staple product categories are shrinking in stages.
The beauty adviser appearing in the video of cosmetics OMO presented in the link list attachedto the presentation material is our employee. Development of more and more human resourceswho have expertise and knowledge to deliver value and use of digital technologies by thesehuman resources enable establishment of relations with many customers beyond time and place.
This plan presents “media commerce focused on people.” And I recognize that we need totransform ourselves into a human media company. We can expand categories and content as ourstrengths through “people” online as well as physically. We will create online and real storesfeaturing people.
A. Please see the examples listed on slide No. 59. We have set Parco’s purpose of “cuttingthrough the world with sensibility.” Over the past year, we have accelerated use of digitaltechnologies in addition to real stores based on sustainability using our strengths of having
various external networks in Parco-like way. We developed new sales floors not by shifting fromproducts to experiences but adding Parco’s production capability between them. Parco creates4new value by being involved as a producer instead of supporting and managing tenants. We
established “one and only” Shibuya PARCO, and advanced it with Shinsaibashi PARCO. Ourconfidence that we have received support from many customers including Department Store’scustomers has led to such action.
Q. SGA of Daimaru Matsuzakaya Department Stores is planned to increase ¥20 billion thisfiscal year. What are structural reform costs of ¥6 billion and where are they included inthis numerical plan? When will fixed costs reduction of ¥10 billion take effect in thethree-year period?
A. Structural reform costs of ¥6 billion are included in “other expenses,” not SGA. We will reduce
fixed costs through business model reform, preceded by “other expenses.” Their effects will beshown as reduction of both cost of sales and SGA. On the other hand, an increase in SGA for thisfiscal year is mainly attributable to a reaction to the portion of fixed costs associated with store
closure, etc., which were reclassified in the previous year, and cost increase in proportion to sales
increase due to our sales recovery efforts.
Concerning the accuracy of structural reform, we estimated on a yearly and monthly basis toachieve the reduction target of ¥10 billion. Our yearly reduction targets are ¥3 billion in FY2021,¥4 billion in FY2022, and ¥3 billion in FY2023.
Q. Why did you separate the SC Business and the Developer Business? They look thesame for us. What company will grow as the core of the Developer Business?
A. Looking ahead to regrowth as a group, we position the Developer Business as a growthbusiness. The Real Estate Business, which had been included in Daimaru Matsuzakaya, wasintegrated into Parco in September last year. At the same time, employees who worked for theReal Estate Business of Department Store are working there.
Both Department Store and Parco focused on commercial business in the past. But I think we
can use our real estate more effectively beyond the framework of commercial business tomaximize our real estate value. Our properties concentrate in Shinsaibashi and Nagoya. However,in an integrated manner as a group, I think not only conventional commercial development but
new area development will be possible.
Q. You told about the development of the site of Kumamoto PARCO. Won’t you be able toconduct it more flexibly unless the SC and the Developer are separated?
A. The SC Business will mainly operate under the trade name of Parco. The SC Business will bededicated to increasing value as commercial facilities. The Developer Business will promote not
only commercial but mixed use development.
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