Business Model

Business Model▶Risk Management

Corporate risk matrix

Link Risk to Strategy
Board of Directors
Oversight

ReportAudit Committee

ReportPresident and Representative Executive Officer

ReportRisk Management Committee

Operating companies

Instruction/report

Secretariat

Risk Management Committee

External
environment
analysisInternalenvironment
analysis

Medium-term management risks（Update every 3 to 5 years）

The Group Medium-term
Business Plan

Risk map

Extract risks exhaustively（Update every year）●Stategy●Finance●Hazard●Operation（Updateevery year）

long-term megatrends forecast for 2030 and the impact ofmanagement over the medium term are reflected in theCOVID-19 and back casting to avoid short-term thinking. (SeeMedium-term Business Plan as “corporate risks.”

page 73 for the list of 82 risks of the Group.)

22

Environment

StrategyriskChanges in consumer
behavior after COVID-19

about
13 Uncertainty
non-Japanese market

6

Decline of existing
business models

2Frequent natural
disasters / epidemics

7

Increasing importance offinancing managementof work style, HR/organization
10 Progressreforms in the new normal era

importance of
14 Increasing
information security

8

Need for cost structure that can
respond to environmental changes

ItemImpact

Decline of existing
business models

VerysevereAdvanced sustainability
management

VerysevereResponse to increasingly
accelerating digitalization

VerysevereUrban decentralization(Rebalancing between
urban and rural areas)

SevereChanges in consumer
behavior after COVID-19

SevereAccelerating reorganizationand M&A beyond industry
boundaries

Impact of COVID-19●Economic slump due to prolonged COVID-19
Short ●Growing concern about unemployment and inflation
term ●Evaporation of demand and supply●Financial crisis in response to continuing easy monetary policy
Economy/●Growing demand for sustainability-oriented managementcompanies Long ●Accelerating technological evolution

term ●Rebuilding of global supply chain●Changing urbanization●Paradigm change of organizations and work styles●Population growth in emerging countries●Increasingly aging population●Widening gaps between the rich and the poor andbetween social classes●Global warming●Accelerating switch to renewable energy●Resource depletion

4●Rising unemployment / decreasing income / anxiety about the future

Short ●Avoiding the 3 Cs (closed spaces / crowds / close contact)term ●Consumer trends emerging from COVID-19 (stay-at-Financerisk

home consumption, neighborhood consumption)

Society/individuals

Advanced sustainabilitymanagement

Ⅲ. Risk associated with the enhancement of resilience amid major crises becoming common

D Response to risks

risk management. Extremely important risks in the GroupʼsTechnology

Accelerating reorganization andM&A beyond industry boundaries

9High Moderate Low
Preparedness

We extracted a total of 14 “corporate risks” including●DX accelerated by 6G●Practical use of self-driving cars
●Establishment of digital economic zone

in customers, particularly, declining
12 Changes
birthrate and aging population / longevity（Update every year）

Minor

strategy risks, finance risks and hazard risks by factoring inSociety

Urban decentralization (Rebalancing
between urban and rural areas)

1

Annual action plan

We position risk as the starting point of strategy and link risk

Economy5Categoryto strategy so that we can enhance corporate value through●Progress of globalization●Global economyʼs shift to Asia
●Establishment of stakeholder capitalism

3income11 Accelerating
polarizationC A Monitoring/report

Geopolitics

Ⅱ. Risk associated with the provision of new customer experience (the development of new business models)

SevereModerate

P Identification/evaluation of risks●US-China struggle for supremacy, leaderless●Rise of state capitalism countries●Increasing occurrence of pandemics

Ⅰ. Risk associated with the development of new markets（Update every 3 to 5 years）

The Group risk list

Long-term megatrends for 2030

Response to internal environment (risks to be addressed as a business)

Response to increasingly
accelerating digitalization

Ⅳ. Risk associated with the enhancement of resilience through drastic organizational/structural reforms

Corporate risks and measures

ImpactInterview withmanagement

Corporate risks

Rebuilding of basis for
growth and revenue

Instruction

ReportCreation of new value, gaining ofcompetitive advantage

The Group defines risk as “uncertainty that affects theachievement of business management goals and has both apositive side and a negative side.” We believe a company willgrow in a sustainable way if the positive side and the negativeside of risk are addressed properly.
For risk management, we have formed the Risk Management
Committee, as an advisory body to the President andRepresentative Executive Officer, which is chaired by the President
and Representative Executive Officer and comprises ExecutiveOfficers and others. The committee has a secretariat headed by
an officer in charge of risk management. The secretariat shares
important matters decided by the committee with operatingcompanies to promote enterprise risk management (ERM).

Response to external environment●Growing awareness of realizing a sustainable society●Investment in safety and security such as healthcare and insurance●Increasing importance of rural areas
Long ●Expansion of virtual consumption and virtual communication
term ●Increasing importance of physical things (person-toperson connections and places)●Epidemics and disasters becoming new normal

Hazardrisk

Outlook fornext FY

Negative side

Positive side

●Decreased

vitality of the ●Regrowth by radically changing
entire Group due to the weak
the business models of the core
performance of core businesses
businesses●Defection of investors andshareholders, lower rating due
to a delay in taking action●Sluggish growth of the entireGroup●Declining competitiveness●Sustainable growth by steadyaction

Measures●Enhancing the appeal of content, merging

with digital, enhancing the appeal ofstores by enhancing environmental value,and enhancing the asset value of large
urban stores●Realizing Well-Being Life by promoting 7
materiality issues including “realization ofdecarbonized society”●Changing business models through OMO(Online Merges with Offline)of existing businesses●Improving communication physically and●Renewing awareness of real
digitally
person-to-person connections●Changing operations through digitalization●Changing the business models●Strengthening epidemic prevention and●Decline in conventional urban
contactless services in urban stores●Business in response to urban●Real estate development in urban andcommercial facilitiesʼ ability todecentralization

attract customers●Poorperformance due toa failure to meet consumer ●New market developmentneeds

semi-urban areas for not only commercial
but also mixed use●Rightsizing commodities●Enhancing customer satisfaction throughOMO●Strengthening art, culture and ethicalproducts●Increasing the resilience of business

Severe●Hostile takeover of the Group

Progress of work style,
HR/organization reforms inthe new normal era

Severe●Talent drain●Losing the war for talent

Accelerating income
polarization

Severeportfolio●Overhaul of business portfolio●Creatingnew businesses through●Corporate growth using M＆A
M＆A and business alliance with othercompanies●Creating innovation by changing

corporate culture●Strengthening mid-career employment●Improving flexibility in work styles●Changing to a sustainable organization●Rightsizing products/services in volume
performance due to ●Emergence of new affluent
price ranges●Deep cultivation of affluent market withshrinkage of volume marketmarketdiverse approaches●Poor●Deep cultivation of high quality childrenʼsChanges in customers,
particularly, declining
birthrate and aging
population / longevity

SevereUncertainty about
non-Japanese market

Severe●Shrinkage of domestic market●Expansion of senior market

market●Creationof safe and secure store
environment●Strengthening art/culture/wellness●Prolonged significant decrease ●Acquisition of foreign demandin inbound sales

with new approach●Business failure due to a lackdevelopment by ●Centralizing the Groupʼs financing andsecuring funds for investment
improving fund efficiency●Diversifying financing methods
in growth areas

Severe●Sluggish

Need for cost structurethat can respond toenvironmental changes

Verysevere●Business survival crisis●Business portfolio realignment●Delay in performance recovery ●Investment in growth businesses

Frequent natural
disasters / epidemics

Veryseveregrowth due tofinancing on unfavorable terms●Damageto the lives
customers and employees●Business continuity crisis

commerce●Business

Increasing importance offinancing managementof funds●Review of inbound strategy●Strengthening cross-border EC and live

●Cost reduction through business model

reform●Narrowing down business baseof ●Contribution to ensuring the ●Development of manuals for “businesssafety and security of localcontinuity” and “response to infections”●Continuously conducting BCP training
communities●Development of Information Securityof social credibility
Policy and IT Governance Policy
and operating loss due to●Promotion of smooth digital ●Promotion of transition to cloud-based
the leakage of importanttransformation (DX)systems
information●Improvement of information literacy●Delay/stagnation of operations
through education/training●LossIncreasing importance ofinformation securitySevere

Integrated Report 202123