J. Front Retailing
Financial results for the first six months of the fiscal year ending February 28, 2019
Q & A summary at results presentation
Date and time: 16:30 – 17:40 on Tuesday, October 9, 2018

【Department Store Business】
Q. I want to know about your department store sales projections for 2H. While you are cautious
due to natural disasters in September, your sales target for 2H is a little higher than thebeginning of the year. China strengthened customs checks during the recent Anniversary ofFounding and I am afraid they will further tighten regulations. Could you tell me about your 2H
projections including sales to inbound tourists?
A. Some stores were forced to temporarily close or change their business hours due to Typhoons Nos.
21 and 24 and the Hokkaido Eastern Iburi Earthquake in September. However, Kansai Airport, which
was most severely affected and about whose future there were concerns, recovered early andcurrently our sales have recovered to almost the same level as the previous year. During theAnniversary of Founding, total sales and tax-free sales remained almost at the same level as theprevious year. We expect tax-free sales in the Kansai area in 2H to recover to 10% higher than theprevious year as originally planned. Though we downward revised 2H forecast for the Sapporo store,
which is in the aftermath of the earthquake, flagship stores including the Shinsaibashi, Tokyo andNagoya stores, which strengthen their efforts toward 2H, are expected to grow sales more thanoriginally planned. In spite of the impact of natural disasters in September, we recognize that we will
be able to achieve the target by steadily responding to the markets for the affluent as well as inboundtourists.
【Urban Dominant Strategy (redevelopment project)】
Q. You explained that “profits” of the new main building of the Shinsaibashi store and Shibuya
Parco “in fiscal year 2019,” which is their first year, will be “limited.” Could you tell me about
your plan that will contribute to revenue after that, if any?
A. The project team is discussing the revenue plan for the new main building of the Shinsaibashi store. In
the new main building, while showing the future direction of department store in its product mix, brandlineup, services and environment, we would like to realize a new ideal form of department store modelby working on structural changes to pull out of traditional department stores. The contents of revenue
including contracts are under close scrutiny and please allow us to explain again after finalizing thedetails.
As for the Shibuya Parco project, its progress is the same as the new main building of theShinsaibashi store and the timing of its opening has yet to be determined. The number of seats of the“Parco Theater,” which will be the core of the Entertainment Business, will be increased by half and1

we are sure that its full operation throughout a year will produce revenue. The details of product sales
have been almost fixed. We would like to announce them later from the perspective of creating
Parco-like pleasant environment and shops. We thank you for your patience.
【ICT strategy】
Q. Specifically, what services will you provide in the Department Store and Parco by integrating
the customer data of the Department Store and Parco and using AI? Do you intend to evolve
the recommendations according to the buying history of each customer you have done untilnow?
A. We can capture customer attributes such as age and gender and buying history by collecting
customer data through our existing cards but we cannot capture other information. Using applications,
we will be able to capture the buying behavior of customers in a more accurate manner. For example,
by linking the applications of the Department Store and Parco each other, we will be able to capture
more detailed customer information. Furthermore, import of chats with customers into the database
will improve the accuracy of information. They will improve the accuracy of CRM and enable us toaccurately provide information necessary for each customer. In addition, we would like to consider
how we will use thus collected information for marketing. The Group’s strength is having goodcustomers and we aim to not simply seek the volume of customer data but compile a high quality
database of customer information. Using high quality data, we will improve the accuracy of approach
to affluent customers and pursue the possibility of providing unprecedented services as new
businesses.
【Credit and Finance Business Strategy】
Q. Could you tell me specifically about what and how you will change to operate in-house in theFinance Business?
A. Currently credit management is performed in-house but admission screening, credit monitoring andbilling are outsourced. It was considered more efficient to outsource these operations when the cardcompany was established. Now that information systems have been developed, however, we think
there is room to consider the possibility of operating in-house in a safe manner and at low cost. We
have not yet determined the advisability of self-operation, and specifically, what areas will be operated
in-house and we will study and examine this matter.
Q. You explained that you will expand the business after active upfront expenditure andinvestment. Will actual additional expenditure and investment occur and what timeline haveyou set to recover them?
A. The Credit and Finance Business has five strategic actions. The first is the “improvement ofoperations.” We will review outsourced operations to reduce cost. The second is the “review of cardproducts.” We are striving to enhance the appeal of our card products and preparing to issue newcards jointly with the Department Store. The third is the “review of commission rates imposed on2

merchants in the Group.” We are preparing to acquire merchants in-house. The fourth is the “reviewof systems.” We are studying whether we can operate in-house. And the fifth is to invite external
human resources to examine and implement these actions.
These five actions/directions have been determined and converted into specific tasks. Therefore,
the costs to be incurred in the near future include the employment of professional people, consulting
fee to implement these operations in the future, customer questionnaire to issue new cards and theestablishment of Tokyo office. We would like to make a calm decision on system investment including
investment return.
【IFRS 16】
Q. New lease accounting standards will be introduced under IFRS 16 next fiscal year. Could tellme what changes will occur in your assets and liabilities from next fiscal year?
A. At this point, we are in the process of estimating the effect of recognizing lease assets and not at thestage for giving you specific figures yet. Figures calculated according to the utilization periods anddiscount rates of lease assets will vary greatly. We recognize that IFRS 16 will have a great impact on
the companies that adopt IFRS. The Group has established a project including Parco and the project
team is making such an estimate. Toward the adoption beginning in fiscal year 2019, we would like to
get accurate figures within the current year.
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