J. Front Retailing
Q & A summary
Results presentation for the first six months of the fiscal year ending February 28, 2021
Date and time: 16:30 – 17: 30 on Tuesday, October 13, 2020

Q. Thank you for detailed explanation. There was strong wording “full recovery” in yourpresentation. What does “full recovery” mean? Does it mean the profit level or the“business structure reform” you mentioned today? I would like to know your thought inusing the phrase “full recovery.”A. I mentioned “full recovery” strongly conscious of “an early recovery to the FY2019 profit level.”That is, I think a recovery to the previous fiscal year’s profit level is one of our targets. The time
when we will achieve it may change depending on changes in an external environment. However,I have strong aspirations to recover as soon as possible under the next Medium-term Business
Plan for FY2021 to 2023. At present, we are not in a situation where we can reach this profit level.
However, we would like to become a company that can reach this profit level as soon as possibleby getting the three priority polices, which I mentioned earlier, done.
Q. I understood what you said including the management’s thoughts. Concerning the“merger with digital” and the “merger with Parco” you explained today, I think the only
keyword you did not explain is the “card finance business.” For example, as a matter ofcourse, unless Parco card and JFR card are merged though they are separate cards, I do
not think you will truly be able to pursue the Group’s digital strategy and customer strategy.
I would like to know what discussions are being had by the management.
A. Concerning earnings forecast for the current fiscal year, I recognize the Credit and FinanceBusiness greatly differs from the current Medium-term Business Plan. We expect its performance
to be sluggish this fiscal year due to various factors including card renewal. It is expected to post aloss of ¥0.4 billion in the second half but the management has had enough discussion regarding
what the card business should be in the future. I would like to clarify the materials to be grown inthe Group businesses such as Parco and Hakata Daimaru as well as organic growth about whichwe have been thinking from the beginning when we release the next Medium-term Business Planin April next year. We would like to continue to discuss the business with a sense of crisis,
including whether we will keep its position as the Group’s growth driver.
Q. I think it will become a big profit driver if the merger will succeed and I expect so.
Q. Seeing only the Department Store Business, I think it is excellent that it posted profit inspite of sales decrease of 20%-plus in the second quarter. You said earlier that you would

promote a fixed-term lease model to “lower the break-even point.” On the other hand, I
understand cost reduction by increasing fixed-term lease, which is planned for the current
period, was already included in the plan made at the beginning of the period. Therefore, I
see that cost reduction is progressing further ahead of the original plan. Is myunderstanding correct that their major causes include the decrease of events, thereduction of variable costs and the postponements of investments? Or if the break-evenpoint was lowered due to the reduction of fixed costs, how did you change in the first half?
You talked about the reforms of work styles and organization and I would like to know thequalitative progress and results of your initiatives in this six-month period.
A. I will talk about the whole picture. Business profit improved by ¥8.2 billion from the forecast
released in June. Of the amount, ¥4.1 billion was due to the improvement of gross profit and theremaining ¥4.1 billion was due to the reduction of SGA. You asked about the reduction of SGA. I
think we made a solid forecast and we strived to streamline all costs without exceptions. AnOutside Director said, “We see a cash outflow of ¥0.1 billion every day. What do you think of thissituation?” In this situation, I think we addressed the emergency.
In detail, mainly Daimaru Matsuzakaya reduced by ¥3 billion, of which personnel expenses
decreased by ¥1 billion, advertising expenses by ¥0.4 billion, commission charges by ¥0.8 billion,
and investments by ¥0.5 billion. As we cannot reduce costs to this level only by decreasing
variable costs, we also reduced many of the costs ordinarily considered as fixed costs in the shortterm. As for sales activities, we cancelled those that may threaten the safety and security ofcustomers, the promotions that may lead to a loss, etc. in the second quarter. In that sense, I think
we could achieve this because we reduced even the costs considered as a matter of course
previously in the short term.
In the meantime, I do not think of simply continuing such cost reduction. In the first half, wecancelled most of gaisho events in hotels, and also Hokkaido fairs. Now they are coming back.
We need to go forward based on the main premise of the safety and security of customers. In away, we were forced to be patient in the first half, but I would like to consider what we will use in
the long term and what we will do to spend money more efficiently based on these experiences.
I said earlier that we would like to reduce costs by more than ¥10 billion, which is the target ofour structural reform. I think there is no doubt that such cost reduction achieved in these few
months will become its cornerstone.
Q. I understand costs are somewhat variable in the second half. You posted a businessprofit of ¥4.1 billion on a consolidated basis only in the second quarter but expect it to be¥0.95 billion in the second half. I understand your second half plan is based on the forecast
released in June due to uncertainty about the future. On the other hand, I would like toknow the causes of cost increase compared to the first half that you see at present.
A. In the second half, costs associated with the opening of Shinsaibashi PARCO will arise. We will

also incur the costs of the Credit and Finance Business. We will actively implement sales activities
in the second half. However, we revised down sales forecast for the Department Store and ParcoBusinesses because they have a risk while planning to reduce SGA by slightly more than ¥2billion. I recognize we cannot be so much optimistic about this planned value.
The key is to what direction customers’ purchasing activities will change. Based on the basic
recognition that it is difficult to expect the contribution of inbound sales in the current second half,
we would like to make particular efforts so that regular customers and gaisho customers, inparticular, will shop as before. At present I see our cost plan is not easy.
Q. I would like to know the impact of certainly visible opening costs of Shinsaibashi
PARCO, the costs of the Credit and Finance Business, etc. I think you explained the costsof the Credit and Finance Business will be ¥0.4 billion but I would like to confirm with you.
A. The costs of the Credit and Finance Business and the Parco Business will be approximately¥0.4 billion and ¥1.8 billion, respectively.
Q. You said, “The current COVID-19 gives us an good opportunity to change our mindset.
We will take this opportunity to change various things.” In this respect, how has themindset of people in each layer, particularly sales people, for whom “selling in stores
every day is no longer a matter of course,” and the middle management people changed?
Will they be able to unite as one to move forward toward reforms? Or are there somedifferences among layers?
A. Concerning mindset, I would like to tell what I felt at the front line of department stores until
recently. At first, I felt it would be difficult to unify as far as people working close to customers instores. Currently, however, I think a sense of crisis spreads as far as the front line people. Mr.
Sawada will provide a supplementary explanation regarding the current state of initiatives using
digital technology, for example, apps, connaissligne for gaisho customers, and live stream, which
are implemented mainly by gaisho staff and people in stores.
A. Concerning sales people in stores, customer traffic deceases to around 60% of the previous
year’s level and we created a “blog shopping” system to communicate with distant customers andencourage them to see and buy products. Specifically, sales people in stores introduce a productto customers and if they like it, they can buy it on our e-commerce website. The amount of
information posted on these blogs has increased dramatically in the first and second quarters
when COVID-19 spread.
As for gaisho sales, customers did not want us to visit them and we could not do anything at first.
Then we made various trials to approach customers using Zoom and webinars. They worked welland sales are increasing. Some initiatives have already started. For example, gaisho managers
stream live in collaboration with luxury shops to show new products. We recognize it will becomemore convenient for customers if we create an easy payment system. We will hold large gaisho
events next week and the week after but it will be difficult for customers to visit the venue as
before. Therefore, we will provide a webinar or stream live in the venue at the same time. Forcustomers who do not have iPad, we will lend one free of charge. We are making various trials
from the standpoint of “overcoming the restrictions of time and place.”
For sales promotion, we provide information digitally. In the past, we sent postcards tocustomers, but currently, some stores do not use paper almost at all and switch to digitalpromotion. Thereby costs have decreased significantly. People in the head office work from homenormally, and accordingly, the management style has been changing.
Q. You said recovery to the FY2019 performance level will be one of your targets in the next
Medium-term Business Plan. In FY2019, however, it had been less than a half year sinceShibuya PARCO and the main building of the Daimaru Shinsaibashi opened. In the current
period, Shinsaibashi PARCO will open and if Shibuya PARCO, Shinsaibashi PARCO andthe main building of the Daimaru Shinsaibashi store operate all year, I think they will have acertain impact. How much increase in profit do you expect compared to FY2019?
A. As you said, the main building of the Daimaru Shinsaibashi store operated for a half year andShibuya PARCO for around three months. Taking the Daimaru Shinsaibashi store as an example,
about 40% of sales were from inbound tourists. We created a store that has an extremely low
break-even point. However, inbound sales were lost and stores in the entire Shinsaibashi area
were forced to close due to COVID-19. The situation was really difficult until August. We cannot
decide the degree of sales recovery in the future all by ourselves but I don’t think the FY 2019
level is low for the Daimaru Shinsaibashi store in this changing environment.
While Shibuya PARCO had a positive effect due to full operation, there was a special factor
such as an increase in profit due to compensation for business in FY2019. Stores in the Shibuya
area were also requested to close and its share of inbound sales was larger than other PARCOstores. We aim to recover to the FY 2019 level but the environment is greatly changing and is notthe same as before. Therefore, we need to increase profit through initiatives for regular customers
and the use of digital technology even if recovery of inbound sales is delayed. And we should try
to build a new business model for the Department Store and Parco Businesses.

End