Now the Group Is Facing a Turning Point.
First of All, Change the Management
by Implementing Governance Reform.
Would you explain about an overview
of business results for ﬁscal year 2016?
Consolidated net sales of J. Front Retailing were ¥1,108.5 billion,
down 4.7% year on year. Consolidated operating proﬁt, consolidated
ordinary proﬁt and consolidated proﬁt were ¥44.5 billion, down 7.2%
year on year, ¥44.4 billion, down 7.3% year on year, and ¥26.9
billion, up 2.4% year on year, respectively. As a result, ROE, which
we deﬁne as an important management indicator, was 6.8%.
Looking at results by segment, the Department Store Business
was aﬀected by signiﬁcant reduction in sales ﬂoor area of theShinsaibashi store for the reconstruction of its main building, and indowntown stores, sales to Japanese aﬄuent customers and duty-free

YAMAMOTO Ryoichi
Director, President and Representative Executive Oﬃcersales to foreign tourists, which had driven sales, were considerably
sluggish in the ﬁrst half of the ﬁscal year due to steep fall in stock
prices and exchange rate ﬂuctuations. After the U.S. presidential
election in November, in reversal, stock prices rose and the yen
weakened. Accordingly, the consumption of Japanese aﬄuentcustomers and foreign tourists recovered sharply. On the other hand,at suburban stores, sales mainly of clothing remained sluggish. As aresult, net sales were down 4.6% year on year and operating proﬁt
was down 14.6%.

Artistʼs impression of main building of Daimaru Shinsaibashi store

16

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As for the Parco Business, while sales were boosted by the new
opening of Sendai Parco 2 in July, Shibuya Parco temporarilyclosed in August for rebuilding and Chiba Parco closed in
November. As a result, compared to the previous year, net sales
decreased by 2.7% and operating proﬁt slightly declined by 0.5%.
The Credit Business increased net sales by 4.3% and operating

Ginza Six

Fukuoka Parco

Artistʼs impression of new south wingof Matsuzakaya Ueno store

Artistʼs impression of Shibuya Parcoproﬁt by 5.2%. The Wholesale Business and Other Businesses
decreased net sales but increased operating proﬁt by 16.3% and2.7%, respectively, due to higher proﬁtability.
We paid a year-end dividend of ¥14 per share as planned. The
annual dividend including the interim dividend of ¥14 was ¥28 pershare, up ¥1 year on year, marking the sixth consecutive year ofincrease.

With regard to the Urban Dominant Strategy, we
implemented four big redevelopment projects, including the

The previous three-year Medium-term
Plan was completed in ﬁscal year 2016.
Would you look back at its outcome?
Positioning the Medium-term Business Plan for ﬁscal years 2014

opening of a new commercial complex Ginza Six, the rebuildingof the south wing of the Ueno store, the rebuilding of the mainbuilding of the Shinsaibashi store and the rebuilding of Shibuya
Parco, to make real estates proﬁtable.

to 2016 as a phase of building a foundation for dramatic

We also aggressively addressed corporate governance reform

growth in the future, the Company committed to strengthening its

by strengthening the operation of the Board of Directors andbusiness.

holding the meetings of the Governance Committee. In order toWith regard to the Department Store Business as a corefurther strengthen governance, we decided to transition from aexisting business, in order to build a new department store model,

company with Audit & Supervisory Board to a company with

the Nagoya store conducted a massive renovation in three

three committees.

phases, while each store reduced bloated women s clothing area

As for numerical results, however, consolidated operating

to the right size and started to introduce new categories andproﬁt, consolidated operating margin and consolidated ROA, all of

curated areas. In terms of low cost operation, SGA ratio reachedwhich we position as important indicators, were below the target.

a level below 20% due to human resource restructuring.

Consolidated ROA was above the original target. But it was

The Parco Business steadily expanded management ﬂoor area

boosted by reversal of deferred tax liabilities due to reduction of

by increasing the ﬂoor area of Fukuoka Parco, opening Sendai

corporate income tax rate, and in real terms excluding this factor,

Parco 2 and three Zero Gate stores.

it stayed at the planned level.

Integrated Report 201717

anticipation of changes in the environment surrounding us over

What problems newly emerged?

the next 10 and 20 years and in order to provide new forms ofvalue with respect to lifestyles as well as means of seeking

The biggest cause for the failure to meet the target was a lack ofenjoyment, we newly developed the Group Vision phrased as

responsiveness to environmental changes. In addition to that, weCreate and Bring to Life New Happiness.

recognize that the Group s business structure overly dependent

To achieve this vision, with the Medium-term Business Planon the Department Store Business is a signiﬁcant challenge.

starting in this ﬁscal year as a starting point, we will drasticallyFurthermore, it cannot be denied that we are slow to respond toalter the course of the management to discontinuous growth,advanced technologies and fundamentally lack the ability towhich is not an extension of the past, and promote new initiatives.

collect information or the sensitivity to information.
The environment surrounding consumption is changing fasterthan before. It is diﬃcult to say that we, as a retail business groupmainly consisting of department stores and Parco, can respond tosuch changes quickly and suﬃciently. And our achievements

The term for the new Medium-term Business Plan is the ﬁve years up

during the three years of the Medium-term Business Plan did not

until ﬁscal year 2021 when returns from large redevelopment

reach a satisfactory level both quantitatively and qualitatively. If

projects we are currently working on will be generated. During the

we remain as we are, we will not be able to maintain the statusperiod, we aim at realization of dramatic growth. And by positioning

quo let alone respond to changes. It is inevitable that growth will

the period as a phase of the Group s structural change forreach its limit. We have increased our awareness that the Groupdiscontinuous growth, we will expand our business domain.

is facing a big turning point now.

That is to say, during the ﬁve-year period, the Group will take one
step away from its past approach as a multifaceted retailer focusing◆ Illustrative curve for discontinuous growth

Sales

on retail business to act as a Multi Service Retailer expanding into

50

ye a

rs

Turning point
to alterthe course of
the management

en

e

xt

Gro

h
wt

he
ver t
ve o
cur

years
past 50

th
Grow

h
er t
e ov
curv

New Group Vision
Present

new business ﬁelds and realize bold review of its business portfolio.
Speciﬁcally, we will strengthen our business by expanding theReal Estate Business through the full implementation of the Urban
Dominant Strategy, innovating the core Department Store Business

Limit of as-is extension
As-is extension

18

What is the main aim of the
new Medium-term Plan?

Time axis

and Parco Business, entering new businesses and promoting ICT
strategy, and at the same time, we will tackle business operation
reform and governance reform, which support these initiatives.

Therefore, considering what kinds of roles we will be able to

By steadily carrying them out so as to generate positive results,

play and how we will be able to contribute to society in

we aim to increase IFRS-based consolidated operating proﬁt by

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¥14.2 billion compared to ﬁscal year 2016 to ¥56 billion andexchange facility Kanze Nohgakudo on the 3rd basement ﬂoor. It

achieve consolidated ROE of 8% or higher in ﬁscal year 2021,

has also a tour bus bay and a rooftop garden, which is open to thewhich is the ﬁnal year of the Medium-term Plan.

region. It can accept stranded people at the time of disaster. Thus

Over these ﬁve years, we aim to achieve operating cash ﬂow of

the complex contributes to enhancing convenience, amenity andmore than ¥260 billion, and from the amount, we would like todisaster prevention functions in the area. I believe that you can feel

allocate ¥200 billion to capital investment and growth investment toa part of the discontinuous growth at which the Company aims.

innovate existing businesses and transform our business portfolio.

The new south wing of the Ueno store, which is scheduled toWith regard to investment recovery, we set determination methods

open this fall, will be a commercial complex with Parco on the 1st

and quantitative criteria by type of case, e.g. the payback period

to 6th ﬂoors, a cinema complex on the 7th to 10th ﬂoors andmethod for store renovation, the NPV method for development

sophisticated oﬃces on the 12th to 22th ﬂoors. Parco in the south

investment and the DCF method for M&A, and add qualitative

wing is conscious of slightly older people as its target as well as its

criteria such as business strategy and regional contribution so thatexisting target customers. Therefore, we think that it will contribute

we can determine in a comprehensive manner.

to tapping a new market in the area. In fall 2019, the new mainbuilding of the Daimaru Shinsaibashi store and new Shibuya Parco

Ginza Six opened at last.
How will you develop theʻ Urban Dominant Strategy forgrowing with local communities,
which is represented by this project?

are scheduled to open.
In addition to these big redevelopment projects, using ouradvantage of operating stores in good downtown locations, wewill expand our real estate management ﬂoor area mainly around
existing department stores in Shinsaibashi, Kobe and Ueno incooperation with Parco through the development of our own

Four big redevelopment projects in Ginza, Ueno, Shinsaibashi andproperties and the lease and acquisition of external properties. We

Shibuya, which were launched in the previous Medium-term Plan,

will create bustle by developing real estates around existing stores

bloomed or will bloom one by one as new commercial complexes

with existing stores at the core and establishing dominance as theduring the period of the current Medium-term Business Plan,

Group in the areas. And we will return such bustle to existingdrawing new crowds to these areas as well as greatly contributing

stores again for their own growth.

to revenue.
First of all, Ginza Six has commercial space consisting of 241
brands, 122 brands of which are positioned as ﬂagship stores. It
was born as an innovative luxury mall without any peer not just inJapan but also in the world. The building itself is a mixed-use
facility with oﬃces on the 7th to 13th ﬂoors and a cultural andGinza Six (Opening day)Integrated Report 201719

This year marks the 10th anniversary of
J. Front Retailing and the 300th anniversaryof the foundation of Daimaru,
a department store chain.
These milestones are exactly the turning point.
We will carve out a new future not by remaining as we are but
through discontinuous growth. This direction provided by theGroup. I think the DNA, which enables us to respond to thesechanges, has been passed down to the Group as its strength.

You seem to accelerate governance reform
initiatives including a change of the organizational
structure and a review of the remuneration
system to make it closely linked to performance.
What makes you do so?

Group does not deny the tradition fostered in the long
histories of 300 years of Daimaru and over 400 years of

In order to respond to changes in the environment surrounding

Matsuzakaya. Or rather, by capitalizing on our strengths suchour business, I think we have to speed up decision making to

as tradition and trust, which it is not easy to acquire, andaccelerate the cycle of plan and do. Our business will not

blending innovation into them, we will strive to create a newpresent any problems if we will be able to survive over the next

business group, which is inimitable anywhere in the world.

50 years by staying the same as past 50 years without taking a

Both Daimaru and Matsuzakaya started as kimono dealers.

risk and taking the challenge of developing new areas. Actually,

It is only because they have responded appropriately to the

however, I cannot help be skeptical of whether there will bechanging times that they could overcome many crises andsustainable growth curve at a level that meets stakeholders

continue to develop up to today. Consumption will signiﬁcantly

expectations. In that way, the Company is facing a big turningchange in line with unavoidable great changes in social

point and I think we need to change the management ﬁrst in all

structure such as population decline and an aging population

aspects for discontinuous growth, which is not thewith fewer children. Consumers are expected to hold theircontinuation of the status quo.

purse strings more tightly and consumption in general andconsumption by a single person will be increasingly polarized.
In terms of the quality of consumption, we will see a stronger
shift from product-based consumption to service-based
consumption or experience-based consumption. ICT will
also be increasingly applied. As for new movements, we needto pay close attention to the sharing economy, in whichpeople borrow or lend products, places, techniques and others.
Now is the time for us to respond to these unprecedented greatchanges in society and we see it as a big turning point for the20

In the past, our reforms were focused on on-site operations

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such as sales activities and cost structure. From now on, we in

What do you think about shareholder return?

the management team will change ourselves with the intentionof facing the tough environment as professional corporate
managers. With this stance, the Company decided to transition

With a focus on shareholder return, we increased dividends for six

to a company with three committees. By creating three statutory

consecutive years while seeking to achieve sustainable proﬁt

committees, the assessment of the management team members

growth. Also in the ﬁscal year ending February 28, 2018, we arewill be left to the committee, not at the absolute discretion ofplanning to increase dividends. Our basic policy is to maintain

President, and audits, which had been based on individual

stable dividend payments and appropriately return proﬁts targeting a

independence among Audit & Supervisory Board Members

dividend payout ratio of at least 30% in consideration of proﬁt level,

previously, will be performed within the strict organization audit

future capital investment and free cash ﬂow trends while striving toframework. Thereby we will separate management frommaintain and improve a sound ﬁnancial condition. We will also

execution to speed up decision making. My recognition is thatconsider share buyback as appropriate for the purpose of improving

otherwise we will not be able to survive as a company in thiscapital eﬃciency and ﬂexibly implementing our capital policy.

age of rapid change.
In order to commit to achieving an 8% ROE, I think we need

◆ Annual dividend per year
*Annual dividend per year is shown on a post-share consolidation basis.
(Yen)

to review the accounting standards themselves and manage the30

Company based on the fair evaluation of asset value. This is25

why we voluntarily applied IFRS. With regard to the remuneration

20

system for Directors and Executive Oﬃcers, we designed a new
system which contributes to the sustainable growth of the Groupand the medium- to long-term enhancement of corporate value
and is closely linked to performance, which motivates ExecutiveOﬃcers to accomplish management strategies and management
plans and achieve the Company s performance targets.

Ordinary dividend

35

Commemorative dividend
30
2

15
10
5
0

16

14

14

16

18

22

25

27

28

FY
2008

FY
2009

FY
2010

FY
2011

FY
2012

FY
2013

FY
2014

FY
2015

FY
2016

30
FY
2017

(forecast)

Based on the new Group Vision, the Company has just steered
the management in the direction of drastically changing the course

We also reviewed our shareholders meeting as a venue forof the Group s business by developing the Medium-term Businessdialogue and revised the Articles of Incorporation so that

Plan for the realization of the Vision, applying IFRS andinstitutional investors who are beneﬁcial shareholders will betransitioning to a company with three committees. Instead ofable to attend a shareholders meeting from the next time.

remaining as we are, we will take on the challenge of changing ourThus we in the management team will implement various

business portfolio as a Multi Service Retailer beyond thereforms and produce steady results from them with the intention

traditional framework of retailing for sustainable growth and theof changing ourselves ﬁrst in all aspects.

enhancement of corporate value.

Integrated Report 201721