J. Front Retailing
Q & A summary
Results presentation for the fiscal year ended February 28, 2022
Date and time: 16:30 – 17:50 on Tuesday, April 12, 2022

Q. You are finally going on the offensive and will be investing quite a bit in the current
fiscal year. I have been looking at the data file to see what the capital investment
will be, but as you mentioned earlier, I have a feeling that renovation will be themain focus. Could you reiterate how you are going to allocate those investments
and what kind of effects do you expect from those investments?
A. (Yoshimoto)We invested ¥12.6 billion in the last fiscal year and plan to invest ¥34.4 billion in thecurrent fiscal year. In this situation, one thing that is still true is that Developer has had a
lot of investment in the current fiscal year from the beginning. Since we have been
holding back considerably in the last fiscal year, we had only done what we could really
see until last fiscal year, so we still need to do a great deal in the current fiscal year inorder to recover the fully restored figure of the operating profit of ¥40.3 billion in FY2023.
Specifically, we expect to invest ¥21.8 billion of the ¥34.4 billion investment in store
development and sales floor renovation. Half of these are for Developer, and looking at
Department Store, we increased the investment from ¥3.1 billion in the last fiscal year to¥7.5 billion, and Parco has increased its sales floor investment from ¥1.9 billion to ¥3.4
billion. We will make the necessary investments in the current fiscal year in order to be“aggressive,” which we have seen for our future expansion.
At the same time, another axis is system investment. In the last fiscal year, the actual
amount was ¥4.3 billion, but in the current fiscal year, it will be ¥7.8 billion, and this will bedone in a concentrated manner in the current fiscal year. We plan to downsize again to
more than ¥5.0 billion in the next fiscal year.
In that sense, we intend to invest considerably in the current fiscal year in both
hardware and software, and in doing so, we hope to create a system that will directly leadto earnings in FY2023.
For the two years since the COVID-19 pandemic began, we have had our share oftroubles, and we have been thinking about what form our future growth should take.
However, I am confident that there is no mistake in the direction of our three growthstrategies: Developer, Real × Digital, and Prime Life. The idea is to make a solid
investment in the real and digital worlds that we see in this process.
Q. I would like to know about the concept of the Director candidates that you released
today. I believe that Mr. Sawada and Mr. Makiyama will step down from the Boardof Directors to concentrate on the execution of business of the operatingcompanies and that the ratio of Outside Directors will be more than half. The
release states that the purpose of this is to separate the functions of the Board of
Directors from those of business execution. I would like to know the thoughts of Mr.
Yoshimoto such as the background behind these decisions and these candidates
for the Board of Directors.
A. (Yoshimoto)
The J. Front Retailing (the “Company”) places a high priority on governance and hastaken various measures in the past. And I believe that we will be able to reach a certain
goal in this form in the context of my own concept of separating supervision andexecution.
In the current fiscal year’s plan, what we are considering in the execution of the J. Front
Retailing Group (the “Group”) is to make the role of the holding company extremely clear.
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The role of the holding company is to consider what is optimal for the entire Group andconsider growth strategies accordingly. We must also properly allocate management
resources, such as people, goods, and money, to each of our business segments. I think
this will be the main one.
In terms of our relationship with the operating companies, we will have to communicate
more closely with their presidents than before. We will fulfill various things withcommitments while facing each other firmly beyond each idea. I believe this is the kind of
relationship we should have.
In that sense, we will work more closely than ever with Mr. Makiyama, Mr. Sawada, andthe presidents of the operating companies, but we will also consider growth strategies
that are optimized for the whole. In addition, we will firmly consider a good allocation ofpeople, goods, and money. I would like to make the holding company more specific in thisway.
Q. You said quite a spirited “gear change.” The top line of Department Store always
has a higher assumption than other companies in the same industry every year,
and costs also seem to be higher. You were doing well in the results for the firsthalf even though profits were down. I'm wondering if the top line view is stronger
than Takashimaya, which released an earnings report recently, by 10% or more in
the current fiscal year.
On the other hand, you plan to spend quite a bit on expenses and I understandthat you must do it now rather than making small profits this year in order toachieve an operating profit of over ¥40.0 billion for the next fiscal year, a fullrecovery, and growth beyond that. Please tell us how you think about the balance
between the gas pedal and the brake in this context.
A. (Yoshimoto)Since I mentioned a “change of gears,” I personally would like to put a lot of effort into
this area.
I know that the top line view of Department Store is very strong. Especially compared to
FY2019, we still have an unstable element for the inbound ones and we share with the
management of Department Store the fact that we will have a hard time reaching thesenumbers unless we get the numbers excluding inbound back to at least the 2019 base in
FY2023, that is, the next fiscal year. I think it is also true that if the performance ofDepartment Store does not return, it will be very difficult for the Group’s performance toreturn in a significant way.
In this context, I mentioned earlier that in the real and digital areas, we have seen
things that we can expect to see in the future quite strongly, so we will invest in theseareas in the current fiscal year. We would like to try to increase the top line by combining
the real and the digital.
The investment for the Group as a whole (excluding right-of-use assets), which was¥12.6 billion in the last fiscal year, is planned to be ¥34.4 billion in the current fiscal year,
so it is clear that we are placing considerable weight on the current fiscal year. However,
we will thoroughly pursue how we can downsize this investment.
As for costs, it is true that there have been quite a few increasing factors from the
beginning in the current fiscal year. The investment-related increase I mentioned earlier
alone would amount to ¥5.0 billion to ¥6.0 billion in terms of expenses for the current
fiscal year. As a matter of course, we will work to downsize this, and there is also areactionary increase from last fiscal year's transfer from fixed costs, which arose during
the period of business suspension, to other operating expenses. Alternatively, as sales
increase, variable costs will absolutely increase. In this way, the increasing factors would
amount to ¥10.0 billion or more.
On the other hand, we will steadily reduce so-called fixed costs through therestructuring that we are undertaking. What we call fixed costs is the expenses that will2

continue to decrease while operating business and will not be restored. We are doing thisin the actual personnel expenses related in the personnel restructuring and in the othercost related, and we will ensure that this is done.
However, partly due to geopolitical factors, I believe that the current fiscal year's costs
will include price increases for materials, components, and energy. We would like to wellcontrol investment and costs while keeping a close watch on the movements in our stores.
Looking at the figures for April of last year or January and February of this year, it isclear that the Kansai region was greatly affected by the spread of COVID-19, so I think
the damage to the previous year's figures is a bit larger (compared to our competitors) for
the Group that has a strong store base in the Kansai region.
We would like to try to achieve this figure. On the other hand, after our earnings
forecast was announced in October last year, we began to tighten expenses considerably
when we saw that the situation was severe. We will continue to do so without losing thatstance.
Q. Concerning Shopping Center Parco, while Shibuya PARCO has been growing
considerably, the five stores named today are still slowing down in terms ofcurrent trends. In renovating, I think the tenants are quite damaged by the COVID19 pandemic, and I'm not sure if the tenants will be able to come in under goodterms. Is it alright to say that any major renovations have been taking place sincenegotiations with tenants in that area are highly prospective? Since you areplanning to increase the business profit of Shopping Center, I would like to know
how the tenants will change through the renovation and how the profit will be
increased. Or the tenants are quite damaged, and I would also like to know whether
there is a possibility or a risk that the easing of conditions could be prolonged ornot.
A. (Makiyama)
As for the five stores that we plan to grow, in terms of how they fared in FY2019, only
Shibuya PARCO had special factors, but other than that, the original potential they haveis clear. In Ikebukuro PARCO and Nagoya PARCO, we are currently renovating mainly
the ground floor, and we expect to certainly return the floor to its original potential of ¥4.0
billion in operating profit in Nagoya PARCO and ¥2.5 billion in Ikebukuro PARCO by
FY2023, after returning it to 80% of these figures in FY2022.
The strengthening of these two stores alone will lead to quite a profit. The relaxation of
conditions is only for the business categories that have not been able to operate on abusiness basis due to the reduction in hours, mainly in the food and beverage industry.
We also supported a tour counter and a movie theater in entertainment temporarily.
The amount of this relaxation of conditions totals about ¥2.5 billion this year, which ismuch less than last year. We believe that we will be able to bring that back up to 90% by
FY2023, so in that sense, we are certainly in a position to do this.
Also, Shibuya PARCO is growing right now. There is a sense of various changes andevery day it is changing in various ways. So customers absolutely want to experience
them and they see that many things are happening there. And the number of customers
who have such expectation is increasing. Building on that base, we expect it will reach thepotential that had originally been there. The operating profit base for FY2022 is ¥1.1
billion, but we believe that the potential is ¥2.0 billion. Especially, Shibuya PARCO is ourimage hub. By enhancing the image of Shibuya PARCO by renting out the location, socalled plazas and spaces, and holding events using 5G in various facilities, etc., as wellas earning revenue from the lease, various ancillary businesses have been added. The
lease will actually bring it back up to ¥2.0 billion, but I believe there will be more positive
factors than that.
In addition, we are currently working on the renovation of Nagoya PARCO and hoping
to make sure that we can show a positive figure since the elements of Shibuya PARCO
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are now expected in Nagoya PARCO and such a store will be opened this spring.
Almost all of the PARCO stores nationwide, especially the flagship stores, intentionallyhave pop-up shops so that they can be operated in a variety of ways. It doesn’t mean that
there are not many tenant candidates, but on the contrary, there is a long queue fortenant candidates in the Shibuya area, including luxury shops, who are eager to betenants.
Q. I have a question about cost restructuring and management restructuring on page
33 of your presentation materials. To a certain extent, these are also projected in
the current fiscal year's plan. For example, is it correct to say that there is still
more that can be done in a single fiscal year to further reduce fixed costs?
A. (Yoshimoto)I think so. Our plan is to reduce fixed costs by ¥10.0 billion over three years, andinitially, we were thinking of reducing by ¥3.0 billion in the last fiscal year, ¥4.0 billion in
the current fiscal year, and ¥3.0 billion in the final fiscal year.
Although we believe we were able to help reduce fixed costs by about ¥4.3 billion in thelast fiscal year, we are seeing a lot of what we need to do to meet our ¥4.0 billion target
for the current fiscal year.
The current fiscal year's target of ¥4.0 billion is a bit of a large bar, so we will have towork a little harder, but we are now working on this part of the project, in terms of both
personnel expenses and other expenses.
To be more specific, personnel restructuring will be a major factor, but if we want tolower personnel expenses, we absolutely must proceed with both tasks at the same time.
What it means is to create a small group structure. At the same time as reducing thenumber of employees to a small number, the sales floor or workplace that can be
operated with that number of employees must be firmly assembled. I think we have to doboth of these things.
In the last fiscal year, the department store group also conducted personnel
restructuring, and some sales areas are now temporarily short of personnel. When it
comes to such places, we have to temporarily reinforce our staff there. This is done within
the variable costs and I think our approach to personnel restructuring is to match thepersonnel and organizational structure as much as possible and to do so speedily,
without waste and without loss.
Even without personnel restructuring, about 200 to 300 of our employees who workaround department stores leave their jobs each year. We will work to reduce the costs ofthese efforts at the same time, which is the approach we have been taking all along.
As I mentioned earlier, we would like to rethink of human resources as the target of ourinvestment. And especially, we would like to work hard to reskill the younger and moreexperienced employees.
In terms of costs, we will not just reduce fixed costs by ¥4.0 billion in the current fiscal
year and ¥3.0 billion in the next fiscal year but also thoroughly address any variablefactors in sales or investment for reduction.
Q. Concerning the Real×Digital Strategy, I think you mentioned that you are starting tosee a lot in this area and would like to step on the gas pedal as well. As for what
you are actually starting to see, for example, an increase in gaisho sales on page
28 and the expansion of the OMO on page 27, is it correct to say that sales toluxury customers are not increasing temporarily, but rather that you have a good
response that will allow you to increase sales on a regular basis?
A. (Yoshimoto)We think so. Of course, this is true in terms of categories, but I also mentioned GINZASIX and the Daimaru Kobe store in my explanation. GINZA SIX has many customers who4do not see it as a department store, so it may not be so easy to expand horizontally, but
in the case of the Kobe store, I believe it is the best example for us to follow.
In that sense, the Kobe store is on the flip side of, say, the Tokyo store or the Umeda
store, and these terminal stores, looking at the figure for FY2023, are only about 85% ofdomestic sales excluding inbound sales. In other words, we expect a decrease of about
15% to remain.
Looking at the categories, I think we have to assume that the situation will remain quite
severe for fashion products, interior goods, and other mid-priced items. In this way, we
have a clear picture of the areas where we will thoroughly expand sales through gaisho
sales, luxury brands, and various sales promotions using digital technology, and I think it
is important to make the first move toward these areas in FY2023.
Mr. Nishisaka, who is closer to the department stores, would like to talk a little about
this.
A. (Nishisaka)First of all, let me explain how the Real×Digital Strategy is moving, especially whenviewed from the product category axis. The results for FY2021 show that the category
known as luxury has already exceeded the FY2019 level by more than double digits.
Meanwhile, art is also on par with FY2019 and up 50% against FY2020. Watches are also
above the FY2019 level.
As we reported earlier on the case of GINZA SIX, where the number of young affluent
customers is increasing, Daimaru Matsuzakaya as a whole is seeing an increase in thenumber of young customers, a growth in purchase volume, and an increase in sales
share. And the number of new gaisho customers is also increasing. These categories are
growing against the backdrop of such a strengthened customer base.
On the other hand, we are also working to match our strategy with that of our suppliers,
who are also formulating strategies to open new stores within narrowly defined areas, andwe are aiming to open one store per area in the Kobe and Sapporo areas by firmly
adjusting our strengths to their strategies.
I believe that recently the reason for this support from customers is not simply in luxury
products, but rather in the context of sustainability, craftsmanship itself, or the solidity of
its intrinsic value. I think that is likewise true of watches, and art has been very popularpartly due to their asset value. The art market in Japan is said to be ¥250.0 billion, but it isstill a small market compared to the world as a whole. So I think that there is still room for
growth.
In particular, the younger and wealthier people respond very well to contemporary art,
especially that represented by Banksy. The investment plan mentioned earlier is basedon the strategy of aggressively investing in our strong categories including thosementioned above in the current Medium-term Plan to secure further overwhelming
superiority.
In digital services, we launched new services in the current fiscal year, including thesecond half of last fiscal year, to be exact.
One is ARToVILLA, which started on January 7. This is not just digital media, but more
and more people such as those who are familiar with various art forms, architects,
designers, or those who make a business out of art itself are being cast on the board tosend out all kinds of information. Such new way of enjoying art is becoming more andmore popular.
Since its release in January, we have already received more than ¥100 million sales
online, and the response has been extremely high. In addition, young people who are notour existing customers are using the service. In this way, it leads to customer
development.
In addition, we released a cosmetics website called DEPACO in March. By not simply
selling cosmetics through e-commerce but extending the power of people using digitaltechnology, we are starting to see our unique OMO, or use of digital technology, which is5not comprehensive or algorithmic. We are considering launching a third or fourth service
in the future.
Q. Regarding fixed costs, I remember that about 20 years ago, when the baby boomers
entered their 50s, department stores were divided into two groups: those that cut
costs by hundreds of millions of yen through restructuring in personnel expenses
and those that did nothing and got in big trouble. The bubble generation and baby
boomers are now entering their 50s, and there is a strong push for personnel
expenses due to the age structure of the workforce. Under these circumstances,
your company is in an environment where it is easy to implement restructuring,
including attrition, but since you are already implementing restructuring ahead ofothers, do you feel that they are not having much effect on your company? Orrather are you implementing this restructuring using such things as a tailwind?
Assuming such a view is correct, please briefly explain for how many more years
the effect, or rather the reduction in fixed costs, is possible and whether it can becontinued.
A. (Yoshimoto)We have been working on sales reform since around 1998 at the end of the 20th
century to reduce fixed costs, not only personnel expenses, and have continued to do sofor a long time. In that sense, we are a highly streamlined organization, so it is difficult toadvance all at once, but as I mentioned earlier, we have accumulated a certain amount ofknow-how. We also have a systematic approach in our organization, and we will continue
to work on these issues in the field. I believe that the disposition to work without being told
to do so is ingrained in us.
I believe what we need to do now is to support and assist the entire Company andGroup as a whole in promoting such awareness at all workplaces.
As I mentioned earlier, we implemented restructuring in the last fiscal year. There are
now a little more than the usual number of retirees in the department store organization.
This is something that each of us has been working on while also thinking about our own
future and providing various kinds of support. At the same time, we have continued tobuild an organization to operate department stores, shopping centers, etc. as a moreproductive organization for the future. However, it is quite difficult to accelerate theprocess all at once, so if half of the ¥10.0 billion in fixed cost reductions I mentioned
earlier is to be done in personnel expenses-related areas, I think it will be necessary tocome up with about half of that amount in the plan and get it done.
Naturally, bonuses and other payments will rise as business recovers, so we will takethis into account. As I mentioned earlier, our organization’s greatest strength is that suchdisposition permeates in each of workplaces and that we are able to move well when
instructed. Even without instructions, we can move well. I think this is the kind of
constitution we need to have.
However, if you are looking for a big result all at once, you have to do it in a very
systematic way.
Q. From a longer view of profit growth, your company has historically redeveloped its
own properties and then added products and content to increase the profit levelsignificantly. From that perspective, I think that once the revitalization of Nagoya
Matsuzakaya is complete, the next large-scale location will be needed tosignificantly improve the profit level. What are your views at this point on suchseeding for the future?
A. (Yoshimoto)In the Developer Business, we are now sorting out the higher-level concepts of what
direction we should take with regard to what we currently own, lease, or will acquire in the6future in our CRE. I would like to have a chance to talk about this somewhere in the near
future.
From the standpoint of our potential, Shinsaibashi has achieved a certain level ofsuccess, but I believe it still has a potential to grow in the future. As you say about
Nagoya, there are many possibilities.
In the form of Tokyo, Nagoya, and Osaka, we would like to consider this in the Tokyo
area as well. Fukuoka is also an area where both Daimaru Matsuzakaya Department
Stores and Parco are strong. I mentioned earlier that Kobe is the strongest zone and wewill consider our near future in these areas.
We are looking for a direction where we can contribute to the development of each areawith our uniqueness. We want to create the stores that can make money. We want tocreate the areas that can make money. We would like to move forward with this in mind.
We would like to have an opportunity to share our Developer Strategy and vision as soon
as possible.
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