MonotaRO Co.,Ltd.

Due to the proliferation of internet sales and the development of price comparison sites, if competitors expand into areas overlapping with the Company's product lineup, price competition may intensify and profitability may decline. Currently, the overlap ratio with competitors is low across approximately 28 million SKUs handled, but an increase in competitors' internet sales offerings could lead to a decline in gross profit margin. The Group is responding through expansion of product lineup and differentiation through pricing.

If existing mail-order businesses enter the indirect materials for factories field, or existing indirect materials sales businesses expand into mail-order sales formats, competition may intensify and adversely affect the Group's financial position and business results. Furthermore, if new business models with dynamic pricing capabilities emerge, and competitors set customer-specific prices below the Company's prices, the Group faces the risk of falling behind in responding to competitive pricing, as it does not set individual prices by customer. The Group addresses this through a differentiation strategy leveraging first-mover advantage, but the emergence of competitors with superior business models could materially impact business results.

The Group's net sales depend on the number of registered members, usage rate, and average purchase amount, and part of the Group's business growth is premised on steady growth in the number of registered members. If growth in the number of members slows due to changes in social and economic conditions, intensifying competition, or diminishing effectiveness of marketing methods, this could lead to a slowdown in the pace of sales growth or an increase in marketing expenses. The Group continuously measures the effectiveness of marketing methods by type while implementing measures to acquire new customers and retain existing customers.

Product procurement costs may rise due to surging raw material and fuel prices, the impact of foreign exchange rates from yen depreciation, and rising transportation costs. In the fiscal year under review, the ratio of imported products in purchases was 6.2%, more than half of which are settled in foreign currencies such as US dollars. Since the Group does not, in principle, hedge through forward exchange contracts or similar means, it faces the risk of procurement costs being directly pushed up during periods of yen depreciation. The Group responds through changing suppliers, improving loading efficiency, and periodically reviewing selling prices, but if cost increases precede price revisions, gross profit margin will decline.

In the consolidated balance sheet for the fiscal year ended December 2025, merchandise of ¥21,321 million (11.0% of total assets) was recorded, and if actual sales conditions deviate significantly from projections, there is a risk of price markdowns or inventory valuation losses. In particular, for bulk purchases such as imported products and Private Brand Products, errors in demand forecasting can easily lead to excess inventory. The Group strives to maintain appropriate inventory levels through the use of an order forecasting system and periodic identification and reduction of non-performing inventory.

More than 70% of shipping operations depend on three facilities: the Kasama Distribution Center, the Inagawa Distribution Center, and the Ibaraki Central Satellite Center, creating risk due to the concentration of operational functions. If a large-scale disaster or similar event exceeding response capacity occurs, shipping operations could halt, potentially causing material adverse effects on the Group's financial position and business results. The Group continuously develops response systems for such risk events, but complete preparation for disasters exceeding assumptions is difficult.

More than 99% of order acceptance occurs via the internet, making the system a critical infrastructure fundamental to business continuity. If a system failure occurs due to cyberattacks, unauthorized access, computer virus infection, human error, equipment failure, or defects in third-party service provision, this could result in transaction processing errors or delays, information leaks, business suspension, damage to social credibility, and additional response costs. The Group implements appropriate design, testing, and security measures, but recognizes that complete prevention is difficult.

As the Group adopts a membership registration system, it holds a large amount of customer information and personal information, including payment information. If an information leak occurs, this could result in legal risks including violations of the Personal Information Protection Act and damage to social credibility. Since many customers are sole proprietors, the scope of impact from a leak could be extensive. While the Group has established a strict information management system, it is difficult to reduce leak risk to zero even with thorough preventive measures.

The Group is subject to a wide range of laws and regulations, including the Act on Specified Commercial Transactions, the Act against Unjustifiable Premiums and Misleading Representations, the Product Liability Act, the Consumer Contract Act, trade-related laws, and intellectual property-related laws. Legal violations or legal amendments and new legislation could adversely affect business activities, financial position, and business results. There is also a risk of lawsuits related to the Unfair Competition Prevention Act, Product Liability Act, and similar laws, which could result in damage claims or requests for injunctions against sales. The Group responds through employee training, compliance system development, and cooperation with retained legal counsel, but recognizes that it is difficult to fully grasp the legal status across all business areas.

The parent company, W.W. Grainger, Inc., holds 50.34% of the Company's voting rights through Grainger International, Inc. and Grainger Global Holdings, Inc., and changes in Grainger's management policy or business strategy could affect the Group's business development, financial position, and business results. Currently, the Grainger group has no policy to independently develop business in Japan, and no competitive relationship has arisen, but a future change in policy cannot be ruled out. The Group maintains cooperation through personal ties, such as the appointment of one director and the fact that the Chairman and Representative Executive Officer concurrently serves as Managing Director in charge of Grainger's online business.