Business Model

Business Model▶ Special Report】Awareness from COVID-19

How Will We Use “Awareness” from COVID-19?
01
Vulnerability of business modelA state of emergency was declared for the first time on April 7,2020 due to the spread of the COVID-19 infection and Daimaru,
Matsuzakaya and Parco in the Group were forced to close theirstores for a long time to reduce the flow of people. Approximately
300 million customers visited the physical stores of the Department
Store and Parco every year and they offered value through products
and services every day. However, no matter how good a lineup ofgoods and services we have, we cannot do anything unless wecan open physical stores. If the flow of people declines rapidly orstops, uncertainty about performance due to opportunity loss will
increase at once. We were made aware how vulnerable the corebusinesses of the Group overly dependent on physical stores, whichare “constrained by time and place,” are. If we can eliminate these
constraints, we will have a lot of opportunities.

02
Concern about the advantage of urban location
One of the Groupʼs strengths is to have stores in urban primelocations. For example, the Daimaru Tokyo store and the Daimaru
Osaka Umeda store are located in the massive terminal buildings of
the Tokyo Station and the Osaka Station, respectively, and they arestrongly supported by the rail traffic of business people and office
workers who commute to the surrounding offices or travel on businessand tourists. However, the situation has drastically changed due tothe COVID-19 pandemic and traffic to urban stores decreased rapidly.
Tourists may return some day but we cannot deny the possibility that
expanded remote working and decreased business trips will become
new normal in the medium- to long-term. On the other hand, it is also
true that the areas surrounding both the Tokyo Station and the Osaka
Station are being actively developed even now. We need to correctly
understand the facts and behavior changes and calmly rethink what
our stores should be from a medium- to long-term perspective.

03
Delay in digital response
The Department Store is rebuilding their e-commerce by narrowing
down the categories to their strong gifts, depachika (department
store basement floor) food products and beauty products. Basically,
except for gift items, inventory control and shipment wereincorporated into store operation. Therefore, though there was ademand, we could not move products after the first temporary storeclosure. And then, by strengthening our measures, for example, by
keeping products exclusively for e-commerce in stock outside thestores, the Department Storeʼs e-commerce sales finally exceeded¥10 billion. In the meantime, the Group owes its strength to physicalstoresʼ communication and service capabilities. It also became clearthat the medium- to long-term direction we aim for is OMO, that is,using the strengths of physical stores and merging digital with them,rather than expanding e-commerce with a full line-up.

2404
Lack of resilience of business portfolio
The Department Store Business and the Parco Businessaccounted for about 80% of the Groupʼs operating profit
in fiscal 2019. These two segments were most severely
damaged by the current COVID-19 pandemic and we cannot
deny that it showed the current unbalanced portfolio carries
a great risk in our ability to respond to rapid environmental
changes. It is the issue we continue to address since theprevious medium-term plan and its urgency has becomeclearer. Though retail is expected to grow to a certain
extent, we will expand the domains such as the Developer
and the Payment and Finance using synergy without overly
depending on retail. While providing a medium- to longterm outlook for the Group in our business portfolio, inorder to realize it, we think we need to work on the portfolio
reform and the balance sheet reform with a focus on capitalprofitability through optimal resource allocation.

06
Renewed awareness of consideration
for safety and securityNeedless to say, it is our great responsibility to create theenvironment that enables safe and secure shopping. The current
COVID-19 pandemic made it clear that our effort to carry out
this responsibility is not enough. Customers could not shop when
physical stores were closed and customers could not go out
for fear of infection even if they wanted to go shopping. How
much of such frustration and concern could we relieve? At thesame time, can workers on the sales front line including thosefrom suppliers work safely and securely in the situation in which
they cannot avoid a certain contact with people? These are theGroupʼs priority material issues. It is certain that the recheck ofoperation process from the standpoints of safety and security was
not only the effort to reduce risk but also gave an opportunity toreview existing business model to make it stronger.

05
Importance of person-to-person
communication
When we were forced to close stores due to the COVID-19
pandemic last year, real communication with customers wassuspended for about two months. Communication between
customers and sales people based on the relations of trust
underlies the core retail business of the Group. Throughsuch communication, we provide highly satisfactory buying
experience and we pick up not yet visible needs and wants
through conversation with customers. In the past, basically,
communication was conducted in real places. But theCOVID-19 pandemic rapidly drove use of digital devices in theGroup and we feel we can communicate online as satisfactorily
as in real places. What is more important than digital literacy
are so-called “human warmth” of sales people who can offer
enough support to customers and human resources.

07
Attention to all stakeholders
The stakeholders of the Group include customers,
shareholders, business partners, employees andcommunities. The outcome resulting from businessactivities leads to value for all the stakeholders. If it isinevitable that the core businesses become lackluster andperform poorly because they cannot attract customers
actively, uncertainty about the future of the company willgrow. In order to avoid such a chain of events, we needto provide clear messages, including specific safety andsecurity measures in stores, enough financial arrangements
for corporate survival and the clear vision for the future,
timely with what is important for individual stakeholders
in mind. In this situation, we think it is also important for
employees to foster a healthy sense of crisis.

Integrated Report 2021

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