Section

01

MARUI GROUP’s Vision for Co-Creation Management

Goal of Co-Creation
Management—Expansion ofIntersection between theHappiness of Stakeholders

Customers

Business
partners

Investors

Expansion of
stakeholder interests(happiness)

Communities andSociety     
MARUI GROUP practices co-creation, which is aimed at co-creating the happiness ofall people together with stakeholders. The Company is supported by a wide range ofstakeholders, including customers, shareholders, other investors, business partners,
members of local communities and the greater society, and employees. Although theinterests of these various stakeholders are often seen to be in opposition, the reality isthat there is a significant intersection at which the interests and values of different stakeholders overlap. At MARUI GROUP, we see true corporate value as being able to expand
this intersection between the happiness of all stakeholders.
For this reason, it is crucial that we constantly evolve our business frameworks andpractices based on ongoing stakeholder engagement. Through such engagement andthe new ideas born therein, we will create new value. This is MARUI GROUP’s vision for
innovation and the ideal form of co-creation management that we pursue.

Employees

Corporate value

Intersection of all stakeholder interests

Expansion of this intersection

Improvement of corporate value

02

MARUI GROUP’s View of Corporate Value03

Message from the President

A Step toward a Future of
Creating Corporate Value
Emerging Issue

Hiroshi Aoi
President and Representative Director
Representative Executive Officer     First, let me begin by discussing our performance in thefiscal year ended March 31, 2017, the first year of ourcurrent five-year medium-term management plan.
During this year, we made smooth progress in advancing
this plan, achieving earnings per share (EPS) of ¥80.2,
an increase of 14% year on year, and return on equity(ROE) of 6.7%, up 0.7 percentage point. Both indicators
met their targets. Operating income grew 6%, rising forthe 8th consecutive year, to ¥31.3 billion, and a newrecord was set for cash dividends per share of ¥33, ¥11higher than in the previous fiscal year. In addition, returnon invested capital (ROIC) exceeded weighted average
cost of capital (WACC) as a result of our financial strategies for achieving an optimal capital structure.
Accordingly, we are at last poised to begin creating corporate value. Perhaps a more noteworthy accomplishment was MARUI GROUP’s inclusion in all three of theenvironmental, social, and governance (ESG) investment
indexes adopted by the Government Pension Investment
Fund of Japan in July 2017 (→P.134).
In this manner, MARUI GROUP took a step toward afuture of creating corporate value during the fiscal year
ended March 31, 2017. However, an issue also emerged.
Our total shareholder return (TSR) for this year was anegative 4.5%, well below the Tokyo Stock Price Index
average of 17%. Some may be curious why, despite a
massive increase in per share dividends from ¥22 to ¥33
on the back of a large 14% rise in EPS, the Company’s
TSR fell below the market average.
The reason was most likely that investors and otherstakeholders were unable to fully understand MARUIGROUP’s corporate value, and therefore could not evaluate the Company properly. Based on our interactions withstakeholders to date, we have identified two causes for thedifficulty in properly understanding and evaluating ourcorporate value.

Transition to a Structure in which ROIC Exceeds WACC
(Fiscal year ended March 31, 2017)

Inclusion in ESG Investment andSocially Responsible Investment Indexes

ROIC

3.1%

WACC

3.0%

Note: T
 HE INCLUSION OF MARUI GROUP CO., LTD. IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTEA SPONSORSHIP, ENDORSEMENT OR PROMOTION OF MARUI GROUP CO., LTD. BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI.
MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES.

04

President Aoi on the roof of MARUI GROUP’s Nakano head office05

Message from the President

Message from the President

The first cause is trouble understanding the uniquebusiness model of MARUI GROUP. The second cause is
our failure to clearly describe our future initiatives or, inother words, our measures for addressing risks. In
Co-Creation Management Report 2017, we will endeavor
to more thoroughly explain MARUI GROUP’s businessmodel and the opportunities and threats we face.

1. MARUI GROUP’s Business Modelquestion, the organism would have to answer “both.”Although the inquirer would understand better if theEuglena were to say “animal” or “plant,” either answer
would entail denying its own identity. The Euglena cannot
do that, and neither can we. Just as Euglena species havedistinctive value due to their combining the characteristics
of both animals and plants, so too does MARUI GROUP
derive its unique corporate value from blending retailingwith finance.

Identity of Euglena

Reversal of Relationship between
Retailing and Credit Cards

A major characteristic of MARUI GROUP is the uniquebusiness model merging retailing and finance that it has
employed since its founding. For those of us on the insideof the Company, shaping our actions based on this model
is a natural part of everyday business. However, whenviewed from outside of the Company, this model has beendifficult to understand, with the meaning of “merging
retailing and finance” being particularly unclear. In fact, themost common question received from investors waswhether MARUI GROUP was a retailer or a financial company. We would always respond to this question by saying“both,” but, unfortunately, there were few who were able tofully grasp what we meant.
While this may be a bit of an unorthodox comparison,
the situation was similar to someone asking a species ofEuglena whether it is a plant or an animal. Faced with thisLet me go into a little more detail. MARUI GROUP was aretailer with approximately 6.4 million cardholders, andwe grew by having loyal cardholders shop at Marui stores.
Taking a different perspective, however, it could also be
said that MARUI GROUP was a financial company withstores where roughly 200 million customers shopped
each year. Either way, we have grown primarily throughretailing operations by providing credit cards as a tool tooffer customers greater convenience when shopping at
Marui stores.
Today, we are witnessing a shift in consumption fromgoods to experiences, which has also made it necessary
for us to change the relationship between retailing andcredit cards. In light of this trend, we transformed ourbusiness model by transitioning away from our previous
credit card, which was only usable at Marui stores, to a     

Balance Sheet Assets
Billions of yen

600

Fixed assets andother store assets

Increase in card shoppingtransactions following
EPOS card launch

Shift of growth focus fromretailing to credit cards

500

400

300

Credit card

operating receivables
Money Lending Business Act revision
Drop in cash advance transactions

200

100

06

Fiscal year ended
January 31, 1992

Fiscal year ended
March 31, 2006

new multipurpose card that can be used anywhere in theworld. This new card was the EPOS card launched in2006. Since issuing EPOS cards, our number of cardholders
has increased by 1.6 times, from about 4.0 million toaround 6.4 million, and card shopping transactions haverisen by approximately 8 times, from ¥180.0 billion to¥1,390.0 billion. Furthermore, although 100% of cardtransactions used to take place within Marui stores, thisfigure has since dropped below 10%. Previously, credit
cards supported the growth of our retailing operations.
However, as I have explained, this relationship has been
reversed, and now our stores are supporting the growth of
our credit card operations.
This change in business structure is most clearly
apparent on our balance sheet. In the past, the land,
structures, and other fixed assets that had supported
MARUI GROUP’s growth since its inception represented
a majority of assets. Everything changed in the fiscal year
ended March 31, 2014, when the balance of credit card
operating receivables came to account for more than halfof our assets. Since then, this balance has continued torewrite record highs.

Retailing and Finance—
Two Sides of the Same Coin
What I want to make perfectly clear is that this change inbusiness structure—this innovation—did not transform
MARUI GROUP from a retailer to a financial company, butrather that it led to our using the stores of our retailing
operations to drive the growth of our credit card operations. I mentioned that only less than 10% of total credit
card transactions are conducted at Marui stores. However,approximately 80% of cardholders applied at Marui stores,
clearly illustrating how both businesses are in a mutuallycomplementary relationship and are intrinsically linked.
For example, you could say that retailing and financeare two sides of the same coin for MARUI GROUP. If you
stand a coin on its edge and give it a spin, the spinningcoin will appear to take the shape of a sphere. Our business model is like this spinning coin, with no heads ortails, just one sphere of retailing and finance.
By taking a snapshot in time of this sphere, we canreport on our financial condition by showing the twocircles, one for retailing and one for finance, that would be

visible in this picture. A great deal of information can begleaned from this picture. One could take the perspectiveof looking at which circle is larger and which is smaller or
which is heads and which is tails. However, we see suchinformation as only supplementary and not as truly important to MARUI GROUP.
To MARUI GROUP, it is important for the “coin” to spin
more smoothly, gain speed, and ultimately draw a more
powerful and beautiful sphere.
For this reason, we do not segregate retailing andfinance. Rather, we share human resources, stores, anddata throughout our integrated business as we seek toimprove corporate value by evolving our unique businessmodel merging retailing and finance.

2. O pportunities and Threats Facedby MARUI GROUP     

Eight Operating Environment Changes
over the Next Decade
The ability for MARUI GROUP’s business model tocontinue creating corporate value into the future will hingeon our ability to furnish long-term responses to thechanges in the operating environment that will be seen
going forward.
I would therefore like to discuss the long-term operating environment changes we expect to see over the next
decade. Specifically, we have identified eight majorchanges projected to occur. In this report, we will look at
how these changes will unfold going forward, examine theopportunities and threats they will present for our business, and explain how MARUI GROUP intends to respond.
(1) Transition to e-commerce(2) Shift from goods to experiences(3) Emergence of a sharing economy(4) Declining birthrate and aging population(5) Increase in demand from inbound travelers(6) Rise of cashless payment methods(7) Change of focus from saving to investment(8) End of era of low interest rates


Fiscal year ended Fiscal year ended
March 31, 2014 March 31, 201707

Message from the President

Message from the President

Opportunities and Threats for the
Retailing Business
For the Retailing business, we see opportunities in the
projected increase in demand from inbound travelers.
However, we will also have to face numerous threats, thegreatest of which may be the transition to e-commerce.
As e-commerce becomes more prominent going forward,
it can be expected that conventional retailing businesses
selling goods at stores will begin to decline, a trend that isalready apparent in the United States and China. This
trend will be compounded by the shift from the consumption of goods to the consumption of experiences, which
will decrease demand for goods. This decrease is currently
visible with regard to apparel products, which have been
undergoing a noted decline in demand in recent years.

doubt be replaced by e-commerce sales, to place moreemphasis on tenants that provide dining, services, experiences, and other offerings that cannot be supplied via
e-commerce. The expansion of omni-channel retailing will
be conducted to deliver new value to consumers by evolving our retailing business in a manner that is complementary to e-commerce.
Meanwhile, we look to address the declining birthrate
and aging population by expanding our customer baseand increasing customer numbers through diversity andinclusion initiatives targeting customers. These initiatives
will include providing products, commercial facilities, andservices that can be enjoyed by all customers, regardlessof their age; physical characteristics, or if they have adisability; or gender, which will entail catering to members

At the same time, we project the emergence of a sharing
economy. “Sharing” also means a reduction in the consumption of goods, making it a threat to retail businesses.
Meanwhile, the declining birthrate and aging population
will result in a decrease in the number of consumers.
We have formulated two main measures for responding
to these changes. One measure is the transition to shopping centers and fixed-term rental contracts that we havebeen advancing under the medium-term management
plan or, in other words, the transformation of our businessmodel from focusing on a department store model toutilizing a real estate model. The other measure is the
expansion of omni-channel retailing. The transition to
shopping centers and fixed-term rental contracts entails
deemphasizing apparel tenants, whose services will noof the LGBT community. As for the emergence of a sharing
economy, we will respond by creating new businesses toexpand the scope of our operations.

Opportunities and Threats for the
FinTech Business
The greatest opportunities for the FinTech business will
come from the rise of cashless payment methods. The
transition to e-commerce, the shift from consumption of
goods to consumption of experiences, and the emergenceof a sharing economy will all contribute to the rise of cashless payment methods. Credit cards are a major componentof the FinTech business. In the credit card market, the riseof cashless payments has contributed to the continuationof 7% average annual growth rates over the past decade.

Opportunities and Threats to Be Faced by the Retailing Business over the Next Decade

Opportunities and Threats to Be Faced by the FinTech Business over the Next Decade

Present

Present
Opportunities

Increase in demand from inbound travelers
Inbound travelers: 20 million → Approx. 40 million

Rise of cashless payment methods

Transition to e-commerce

Opportunities

1. Transition to e-commerce; 2. Shift from goods to experiences;
3. Emergence of a sharing economy
Continuation of 7% average annual growth rates in line with the past decade

Ratio of e-commerce sales: 5% → 20%

Change of focus from saving to investment

Shift from goods to experiences

Portion of family financial assets represented by stocks and investment trust­receivables: 15% in Japan, and 30%–50% in Europe and U.S.

Threats

Continuation of 3% reductions in apparel product selling prices

Emergence of a sharing economy

Sharing economy usage ratio: 2% → 10%

Rise of cashless payment methods (cash advances)
Potential contraction of cash advance market

Threats

Declining birthrate and aging population

Working-age population: 71 million (7% reduction)

Transition to shopping centers and fixed-term rental

Improve business profitability by transitioning from a department store model
to a real estate model

Diversity and inclusion initiatives targeting customers

→P.32

→P.34

Compatibility with sharing economy through new businesses (goods, space)
10 yearsfromnow

New businesses (variety of financial services)

→P.40

Increase in cardholders; Usage of EPOS card as main card

→P.38

MARUI GROUP’s Response

Create business model integrating stores, credit cards, and the Internet

Emergence of payment options other than credit cards
MARUI GROUP’s Response

Expansion of omni-channel retailing

Rise of cashless payment methods (diversification of payment methods)→P.24

10 yearsfromnow
Note: Information on measures related to (8) End of era of low interest rates can be found on page 80.

08

09

Message from the President

Message from the President

We expect this 7% trend to be sustained going forward as
infrastructure is installed in preparation for the Tokyo
2020 Olympic and Paralympic Games. On the other hand,
the rise of cashless payments presents the threat of contraction in the cash advance market. In addition, technological progress could stimulate the diversification of
payment methods and consequently detract from thecredit card market.
Our responses to these trends include the shift in ourbusiness model from an in-house credit card to a multipurpose credit card—the EPOS card—which took place in2006, as well as the redefinition of our credit card services
business as the FinTech business, which was described in
our medium-term management plan. As the diversificationof payment methods detracts from the credit card market,
MARUI GROUP will evolve its operations into a FinTechbusiness in order to transform this threat into an opportunity while at the same time expanding the scope of its
business. This move will also enable us to take advantageof the opportunities presented by the change in people’s
focus from saving to investment.

Immunity to Downside Risks and Growth
Investments
To summarize, we will first transition to a real estate model
for stores in the Retailing business in order to part ways
with the declining department store model. This transition
will change the source of our earnings from product sales
to rent revenues, effectively guaranteeing stable earnings
that are almost completely unaffected by weather, trends,
inbound demand, or other external factors. Moreover, by
utilizing fixed-term rental contracts, we will be able toincrease the value of our shopping centers by periodicallyreplacing tenants, thereby realizing steady growth.
Compared to the prior department store model, thisreal estate model will lack in its ability to capitalize on
upside risks. However, it will be almost immune to downside risks, which is our main aim. During past periods ofGrowth Investments under Medium-Term Management Plan (5 Years)
Investment Policy
Rather than focusing on pure investment, engage in investments and alliances that
contribute to expansion and innovation of main business

Target Investment Areas

Investment-Based Alliances*strong economic growth, department store models operating with consignment agreements were able to exploit
upside risks over long periods of time. Today, the situationis quite the opposite. Not only are we in a period of low
economic growth, but stores that sell products are also
exposed to significant long-term risks arising fromchanges in consumer needs and the spread of e-commerce.
Next, we will pursue the creation of new value bytransitioning to a business model that can grow by taking
advantage of the e-commerce trend. Specifically, we will
promote omni-channel retailing to build a complementary
relationship between our retailing operations and our
e-commerce operations and provide value that cannot be
replaced solely by e-commerce. This approach will be
adopted in all conventional, product-selling retailing
operations, including Marui stores and private brands andeven tenants. In addition, we will capitalize on the greater
degree of freedom in stores granted by the real estatemodel to develop new, sharing businesses. These businesses will not be limited to sharing goods, but will also
include sharing spaces to foster communities amongcustomers and thereby respond to changes in lifestyles
and needs.
Under the current medium-term management plan, we
intend to invest ¥30.0 billion in new businesses leading
up to the fiscal year ending March 31, 2021. We havealready begun investments and collaboration aimed atadvancing omni-channel retailing, sharing economy, and
FinTech initiatives through open innovation.

forward-looking business model we envision for our
FinTech business.
Our quest to create value for the future has only justbegun. In this report, we have taken every possible angle
toward explaining the business model we are targeting,but I am aware that these explanations may still be insufficient. For this reason, we hope that investors will provide
us with their frank opinions as professionals.
We also desire to co-create corporate value throughengagement with our customers, business partners,
members of local communities and the greater society,employees, and all of our other stakeholders. I lookforward to your ongoing support and understanding.

August 2017

Hiroshi Aoi
President and Representative Director
Representative Executive Officer

Forward-Looking Business Models

Growth investments¥30.0 billionof ¥90.0 billion in
growth investments
to be conducted in
new businesses

FinTechPayment
services / Assetmanagement

Investments within MARUI GROUP
Investment Standards: ROI of more than 10%
Sharing
economyGoods / Space

Investments in venture companies that share
our vision and possess advanced technologies
Investment Standards: IRR of more than 30%

E-commerce
Investments in venture capital firms thatpossess vast, sharing networks anddiscerning eyes
Investment Standards: IRR of more than 15%* Investment in and collaboration with applicable companies
to be conducted based on investment standards by the
Research Department and the New Business Development
Department

10

MARUI GROUP aims to develop an unprecedented,
forward-looking retailing business model that is unlike
department stores, shopping malls, train station buildings,
fashion retail complexes, specialty shops, or anything else
seen before. By evolving our retail stores from a forwardlooking perspective, we anticipate that synergies can becreated with our FinTech business. There is only one financial
company in the world with stores where roughly 200
million customers shop each year, and that is MARUIGROUP. We plan to promote financial inclusion throughthe use of these stores, our approximately 6.4 million
cardholders, and big data that links our retailing operations with our credit card operations. Simultaneously
growing our credit card operations will create the

Messages from President Aoi can be accessed through the following links.
Fiscal Year Ended March 31, 2015:
Co-Creation Management Declarationwww.0101maruigroup.co.jp/en/ir/message/ceo_2015.html
Fiscal Year Ended March 31, 2016:
Co-Creation Management from a Corporate Value Perspective
www.0101maruigroup.co.jp/en/ir/message/ceo_2016.html

11Dialogue 01

Dialogue 01
A Company that Profits and Grows Structurally

Kazushige Okuno
Managing Director (CIO)
Norinchukin Value Investments Co., Ltd. (left)

Hiroshi Aoi
President and Representative Director
Representative Executive Officer
MARUI GROUP CO., LTD. (right)

A Company that
Profits and

12

The desire to see a company’s
corporate value improve is sharedby entrepreneurs and investors.
Although both parties are
partners in creating value, the roles
they play in this process arefundamentally different.
However, it is out of the interplay
between this shared perspective
and these differences that
entrepreneurs and investors areable to engage in a frank dialectic
to further their mutual growth andcontribute to the long-term
interests of society.

Grows Structurally

13

Dialogue 01

Dialogue 01

A Company that Profits and Grows Structurally

A Company that Profits and Grows Structurally

Dialectic with Companies from the Perspectiveof a Long-Term Investor     
Aoi: Mr. Okuno, your idea regarding long-term capital
allocation—that entrepreneurs and long-term investors
should be on the same side, but not on the same team—is very intriguing. An effective dialectic can be generated
due to both parties being on different teams on the sameside, that is to say, working for the same goal, and thisdialectic can enhance corporate value. In other words,
the returns of long-term investment contribute to theinterests of both parties.
Okuno: There are, of course, long-term investors that
seek to improve the corporate value of investment targets by joining the same team as these companies. It is
not so much that either approach is better, but is rather
that both approaches entail judging entrepreneurs bydifferent perspectives.
Aoi: Long-term investors that join the same team andthose that stay on different teams may have differing
investment styles, but I believe that they both share theperspective of creating something together with the companies in which they invest. MARUI GROUP’s corporate
philosophy is founded on the concept of creating together,or co-creation. Accordingly, I see corporate value as being
best created through close-knit relationships with investors, or by encouraging co-creation with both parties on
the same team. Your investment style, Mr. Okuno, represents a 180-degree turn from this idea.
Okuno: I have been conducting long-term investment incompanies, both domestic and overseas, for a decade.
Over this time, I have learned that quality companies sharesomething fundamental. Some may call this something
the essence of their business or their nature, but I refer toit as their “structure.” As investors, we survey various
industries and select the most “structurally robust companies” from these industries to invest in. The leaders ofcompanies will change over time. It is as Warren Buffett isalways saying; rather than focusing on leaders, it is betterto invest in companies that would still be successful even
if they did not have a leader.

Kazushige Okuno
Managing Director (CIO)
Norinchukin Value Investments Co., Ltd.

14

Entrepreneurs and long-term investors both decide towhich businesses they will allocate their capital by judging
the economic feasibility of each business, looking at thevalue they provide, their competitiveness, and the longterm trends then can expect to see. As seen in theacquisition of Sankyo Seiki Mfg. Co., Ltd., by NIDECCORPORATION, it is possible to alter the structure ofentire industries by allocating resources to peripheralbusinesses, all the while maintaining the strengths thatkeep a business running. Investors do not actively influence the structures of industries. However, if we can see
the logic behind a company’s earning mechanisms, we will
allocate resources to that company. As a result, we cometo invest in various companies regardless of their industry
or country. The desire to see a company’s corporate value
improve is shared by entrepreneurs and investors. With
this passion as a foundation, it is the interplay between
this shared perspective and the differences of both parties that enable them to engage in a frank dialectic.

Business Built on a Combination of Financeand Retailing Expertise     
Aoi: When I was in North America as part of our investor
relations activities, an institutional investor described
MARUI GROUP as having a “bad industry, but good management.” Although this individual was in favor of the new
business model we are creating, he stated that we may bein a bad industry in reference to our involvement in theretailing, department store, and credit card industries aswell as to our relatively low stock price. This investor was
unable to understand our unique position even when
I explained that MARUI GROUP’s credit card transactions
have been growing by 17% on average over the past
10 years and how our ratio of delinquent debt is thelowest in the industry at 1.45%.
Okuno: I personally feel that neither the retail industry nor
the financial industry is inherently a “bad industry.” Inthese industries, corporate managers are united in their
sentiment that connections with customers are of utmost
importance to providing value.

After graduating from the Faculty of Law at Kyoto University, Mr. Kazushige Okuno joined The
Long-Term Credit Bank of Japan in 1992. He later took positions at LTCB Securities and then
UBS Securities. In 2003, he joined The Norinchukin Bank and also received a Master’s in
Finance from the London Business School. Mr. Okuno started a project to manage a proprietaryinternal fund of long-term concentrated portfolios in 2007. This project was transferred to The
Norinchukin Trust and Banking Co., Ltd., in 2009, where Mr. Okuno provided fund advisory
services for other institutional investors, including pension funds. In 2014, he was reassigned toNorinchukin Value Investments Co., Ltd., a specialized company concentrating on the investment advisory business, where he remains today.

I have learned that quality companies share something
fundamental. I refer to it as their “structure.”    Kazushige Okuno

I have previously viewed MARUI GROUP as a retailer,
but I now think that the Company may actually be a financial company with retail operations. MARUI GROUP’s store
network enables it to gather information on customer
needs. Here, I see the business model of a financial company that understands retailing, or perhaps a retailer that
understands finance. This model is complemented by
MARUI GROUP’s profession change system, which allows
employees from retailing or finance backgrounds to be
relocated to other Group companies. MARUI GROUP is
unprecedented in having finance field connections withcustomers, despite being a retailer. I have high praise for
the Company’s business, which merges retailing andfinance. However, I also see a need to translate this business into concrete numbers or present it as a clear business model.
Aoi: We have continued to develop this business based ontacitly held knowledge, and it is therefore not uncommon
for people to request that we put forth a clear picture ofour business model. Our business model underwent a
drastic change when we sought to pull our retail stores outof a bad industry through business structure transformation. However, at a glance, our stores may not appear to bevery different from the department store model we had
employed previously. While one could say that it is enoughso long as our credit card operations grow and profit, if allof our business knowledge is tacit, we will not be able tofurnish an effective response should the operating environment change. It is therefore crucial that we transform
this tacit knowledge into explicit knowledge so that we cancontinue accurately transmitting it to new generations of
employees. This process will be vital to maintaining ourstrengths. If our knowledge can be transmitted in this way,
the Company will become structurally profitable, which is,in essence, the same as being structurally capable ofgrowing with a manager.
Okuno: That is part of what makes business models interesting. Business models are templates. Whether or notinvestors will be in favor of a business model is determined by whether or not that business model can belogically linked to numbers. This is an important fact toreflect upon.

Breakthrough Achieved by Merging Retailingand Finance     Okuno: It is also important for business models to bepredicated on some sort of major breakthrough. Looking
at MARUI GROUP as a financial company with sales
floors, I see numerous possibilities, such as providing

15

Dialogue 01

Dialogue 01

A Company that Profits and Grows Structurally

A Company that Profits and Grows Structurally

Our task going forward will be to find ways to link
the knowledge, expertise, and other wellsprings ofdifferentiation we have ­cultivated to date to thegrowth of our c­ ustomer base.
    Hiroshi Aoi

surplus capacity as a service. Businesses that are built on
fixed assets, such as commercial facilities, are inherently
sharing economies.
Aoi: We are transitioning to a real estate model for operating our stores. Under this model, our directly managed
sales floors function more as showrooms, with our main
focus being on e-commerce operations. Treating ourstores as real estate means that we do not need to sell
products like a department store; all we need to do is rent
space. For example, we could introduce tenants such as
shared offices, co-working spaces, or classrooms. We aim
to transform the sharing economy born out of such tenants into a new business.
Okuno: Changes to your business model will unlock awider range of opportunities, but will also expose you tothe risk of more competitors encroaching on your market.
For this reason, it is important for the Company to havethoroughly entrenched strengths. I suspect that MARUIGROUP’s main strength lies in its cardholder base.
Moreover, the cards you provide are equipped with IC
chips, which can be seen as a technology with the potential to create various new business opportunities.

16

Aoi: If we only provide functions that can be easily imitated, we will soon be overwhelmed by the competition,
making it impossible to grow or to secure sufficient profit
margins. We are thus looking to create a unique, membership-based business by combining our retailing operations
with our credit cards. This model will open up the possibility of offering membership and other subscription services, which we will in turn contribute to the growth ofcredit cards if we can encourage users to pay theirmonthly subscription fees with our credit cards. If customers continue using our cards, the inherent value of thesecards will grow, and our profit margins will increase rapidly. In this manner, I see success in business as hinging
on the degree to which a company is able to combine a
number of unique offerings.

Multi-Party, Two-Way Communication via
the Internet     
Okuno: When viewing a business model from an abstract
perspective, there are no doubt elements that will change
and others that will not. In identifying these elements, it isimportant not to be constrained by past history or successes, but instead to continually observe the situationfrom a fresh perspective. One area in which change will
occur pertains to the Internet. We have never before seen
an era that has been so interconnected by the Internet.
This new era is giving rise to a global trend toward individualism, with specific needs originating directly fromindividual people. Accordingly, it is no longer sufficient forcompanies to mass-produce a small lineup of products,
which has previously been the norm.
Aoi: That view really resonates with me. In order to share
our long-term operating environment analyses with Group
employees, we chose to hold a meeting at which we discussed the main differences from the 20th century that
we expect to see in the 21st century. The conclusion wereached was that the biggest difference would be thepresence of the Internet and the resulting changes informs of communication. In the past, communication has
generally been in the form of one-on-one communication
or of transmission for one individual to a “large group ofothers.” However, the advent of the Internet enabled twoway communication to take place between multiple parties. This new form of communication will likely result in
the emergence of consumer-to-consumer businessmodels that differ from traditional business-to-consumer
models. One example of such a model can be seen in
peer-to-peer Internet sales applications.
Okuno: I believe that one of MARUI GROUP’s strengths
lies in its connections with customers. These connections
could make it possible to, for example, issue straightbonds, which are normally aimed at professional investors,
to standard consumers. If this were to be done, it would
mean that both the asset and liability portions of the balance sheet would be directly connected to customers.
Given that it is when companies cannot pay back theirdebt that they go bankrupt, diversifying funding sources is
crucial to a company’s survival. The era of multi-party,
two-way communication via the Internet makes suchdiversification possible.

Alternative and Inclusion Perspectives for
Viewing Demographic Trends     
Okuno: Another change will be a decline in growth potential as a result of demographic trends. The fact that Japan’s
population of approximately 126.8 million people will
decline going forward seems self-evident, but is this actually true? Judging by this projected decline in population,
it would seem that Japan’s retail industry is doomed to fail.
However, if we look at urban areas, for example, we canfind areas in which the population is actually growing.
Institutional investors view demographic trends from thisalternative perspective when conducting investments, andthis perspective leads us to understand trends differently.
MARUI GROUP’s business model is interesting in how its
stores are concentrated in urban areas.
Aoi: At MARUI GROUP, we view demographic trends, suchas the aging and shrinking population and the decline in
the birthrate, from a perspective of inclusion. As such, we
aim to be a forerunner in the development of operations
that are inclusive of differently abled individuals, nonJapanese people, and members of the LGBT communityof people of all ages and genders. In the past, our credit
card services operations have sought to serve youths andyoung adults as well as people in the low- and middleincome brackets, demographics that were unable to takeadvantage of existing financial services. This experiencehas given us a sort of template to work from in promoting
inclusion. Taking your alternative perspective to demographic trends, it will be enough if the number of ourcustomers increases, even if the overall population declines.
Accordingly, our task going forward will be to find ways
to link the knowledge, expertise, and other wellspringsof differentiation we have cultivated to date to the growthof our customer base.
Okuno: In terms of creating value, entrepreneurs seek tocreate 1 from 0, while long-term investors, such as myself,
strive to efficiently grow the 1 created by entrepreneurs to
100. Conversely, if we provide equity to a company thatwill go from 0 to -1, this will quickly be transformed to a-100. In the most extreme cases, such as the financial
crisis of 2008, this -100 can bear the risk of setting off aglobal recession. In light of this risk, I always endeavor to
identify whether an entrepreneur will create 1 or -1
through my interactions with them. This is one way that
long-term investors contribute to a better world. I hopethat MARUI GROUP will remain a company that creates 1’s.
Aoi: To look at the same idea from a different perspective,
if a company chooses the wrong investor to become
engaged with, it will run the risk of being led in a baddirection. I enjoyed having this frank conversation with you
today. It was a clash of ideas between professionals of thebest possible kind and very refreshing. Looking ahead,I hope to pursue the type of mutual growth with investors
that you speak of in order to contribute to the long-term
interests of society.

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