Sanyodo Holdings Inc.

Dependence on Toppan Co., Ltd. as the primary supplier has reached 53.4% of total procurement volume. A basic transaction agreement and a capital and business alliance agreement have been concluded to maintain a stable trading relationship. However, if this trading relationship becomes difficult to continue, it may cause significant disruption to procurement and affect business performance and financial condition. If securing alternative suppliers proves difficult, there is a risk that the stability of product supply could be undermined.

Since merchandise procurement for the Reuse Business is centered on purchases from general customers, it is structurally difficult to secure planned procurement volumes. Amid growing environmental awareness, new entrants into the reuse sector have increased, intensifying competition, and if sufficient quantity and quality of merchandise cannot be secured, business performance may be affected. Although the Company is working to build a stable merchandise purchasing system, there is a risk that the deteriorating competitive environment will continue.

The Company continues to invest in the launch of new businesses such as Toreka-kan and the used hobby business, and needs to maintain a certain level of investment. Since recovering investment in new businesses generally takes several years, if reaching the expected profit level is delayed relative to plan, it may affect business performance. While new businesses are being promoted in response to changing customer needs, there is a risk of profit pressure due to upfront investment.

The Company has developed a system environment for merchandise management and store operations, with key systems located at an external data center and measures implemented against unauthorized access, viruses, and vulnerabilities. However, if a cyberattack, including ransomware, or a system failure occurs, it could lead to business suspension, recovery costs, and loss of social trust due to information leaks, potentially affecting business performance. There are limits to how the Company can respond to unforeseen events, and continuous strengthening of security is required.

The Company is working to expand the opening of hybrid bookstores and reuse shops, but if it is unable to secure suitable properties as planned, or if the renewal of existing store leases does not proceed as expected, business performance may be affected. Rising real estate prices, chronic labor shortages in the construction industry, and rising construction material prices are also factors pushing up store opening costs. These changes in the external environment risk causing delays in store opening plans and increased costs.

The Company leases properties for many of its stores, and as of the end of the consolidated fiscal year under review, the balance of lease deposits (including ¥90 million in construction cooperation funds) reached ¥882 million. There is a risk that security deposits or construction cooperation funds may become unrecoverable due to the lessor's financial insolvency or other reasons. In addition, in the case of early termination for reasons attributable to the Company, there is a possibility of waiving the right to claim a refund or having to pay a penalty.

If new properties meet the criteria for impairment loss recognition due to declines in fixed asset prices or continued deterioration in store profitability, this may affect business performance and financial condition. Accounting estimates used in preparing financial statements involve uncertainty, and there is a risk that actual results may differ from estimates. In particular, for the Group, which operates multiple stores, deterioration in profitability at individual stores could lead to impairment recognition.

The buying and selling of reuse products is subject to regulation under the Secondhand Dealer Act, and the Company has established its own rules, such as restrictions on purchasing from minors, in order to comply with this law. If thorough operational management is not maintained, there is a possibility of revocation of the secondhand dealer license or receipt of a business suspension order, which would have a significant impact on business performance. The Company must also simultaneously comply with multiple other laws and regulations, including those concerning personal information protection, copyright, food sanitation, and youth protection ordinances.

The Company's core products—newly published books, magazines, and new CDs—are subject to the resale price maintenance system, under which fixed pricing is maintained. The Japan Fair Trade Commission indicated in 2001 that it would maintain the system for the time being, but if the system is revised or abolished in the future, intensified price competition could affect business performance. While a change in the system would affect the entire industry, the impact on the Group, whose core products are books and CDs, would be particularly significant.

Transportation via the Company's own logistics center is outsourced to external providers, and if stable delivery cannot be ensured due to factors such as a severe shortage of truck drivers, business performance may be affected. Disruptions in logistics could lead to delays in product supply and stockouts, directly hindering store operations. Because the logistics system relies on external outsourcing, it is structurally susceptible to the outsourced provider's business conditions and industry-wide labor shortages.