J.FRONT RETAILING Co.,Ltd.

Our group, whose core business is the Department Store Business, faces fundamental changes in the industry structure, including the rise of e-commerce, entry from other business formats, shrinking consumer markets, and rising fixed costs. Maintaining and expanding profitability through continuation of the conventional business model alone is difficult. Failure to respond appropriately may result in deteriorating business performance and accounting/tax risks such as impairment of fixed assets. As countermeasures, the company is advancing preemptive investment in the Developer Business and restructuring its business portfolio through M&A and utilization of business succession funds and CVC.

Due to the declining working population and increasing talent mobility, competition to acquire excellent talent is intensifying, creating a risk that it will become difficult to continuously secure the quality and quantity of talent. Falling behind in the talent acquisition competition or losing excellent talent could hinder the promotion of business strategy and the creation of innovation, and also lead to a decline in employee motivation. As countermeasures, the company has established a group-wide "Talent Management Policy" and is working to strengthen the hiring of specialized talent (207 people in 2024), improve the ratio of female managers (26.2% in 2024), and promote active talent exchange within the group.

Technological innovation, including generative AI, is changing the way work is conducted, and new digital technologies and services are affecting consumer lifestyles and existing business models. Failure to respond appropriately could result in delays in business transformation, loss of business opportunities, and reduced operational efficiency. As countermeasures, the company introduced an original generative AI chat in spring 2024, is promoting the creation of experiential value using XR/VR, and is advancing a transition of its system architecture based on the "Group System Philosophy."

In addition to the heightened risk of massive earthquakes such as the Nankai Trough earthquake and a directly-hit earthquake in the Tokyo metropolitan area, there is an increasing frequency and scale of natural disasters due to abnormal weather, as well as the possibility of new pandemics occurring. Should these risks materialize, significant disruption to business operations could occur, including human casualties, suspension of business activities, supply chain disruption, and facility repair costs. As countermeasures, the company has established a system to secure critical operations and infrastructure based on its business continuity plan, conducts regular drills, and has built a response system based on its "Novel Infectious Disease Response Manual."

The worsening of environmental issues such as global warming, ocean pollution, and loss of biodiversity is affecting business activities over the long term, and failure to respond carries the risk of stakeholder alienation and a decline in ratings and brand strength. The company is working toward achieving net zero by 2050 by thoroughly promoting energy conservation and expanding the shift to renewable energy (target of 75% by 2030, 90% by 2040), while also entering the reuse business through a joint venture with Komehyo and expanding circular-type businesses.

Against the backdrop of advancing legislation on human rights due diligence, particularly in Europe, companies are increasingly required to address human rights risks such as forced labor, harassment, and excessive working hours. Failure to respond carries the risk of reputational decline and loss of corporate value due to boycotts. This risk was initially classified as a "Group Annual Risk," but was elevated to a "Group Key Risk" during the medium-term management plan period in light of its impact. As countermeasures, the company continues to implement human rights due diligence in accordance with the UN "Guiding Principles on Business and Human Rights," and is promoting assessments of business partners and employee education.

With the entrenchment of remote work and the expansion of cloud usage, methods of cyberattacks and unauthorized access have become more diverse and sophisticated, deepening cyber risk for our group, which holds a large amount of customer and personal information. If important information were to leak externally or a large-scale service outage were to occur, it could result in a loss of social trust as well as an impact on business performance and financial condition. As countermeasures, the company has established JFR-CSIRT, is expanding multi-factor authentication, building a security-oriented network, and continuing e-learning and targeted attack email drills for all employees.

Against the backdrop of global economic conditions and policies, uncertainty in exchange rates, interest rates, and stock prices is increasing. In particular, rising interest rates could significantly affect the Developer Business, while exchange rate fluctuations could significantly affect inbound consumption. During phases of large-scale investment accompanying growth strategy promotion, increased funding demand could raise interest expenses, and if funding cannot be raised as planned, it could delay business portfolio reform or lead to a contraction of corporate activities. As countermeasures, the company has introduced a mechanism to raise the ratio of long-term fixed-rate financing, and is working to curb financial expenses through appropriate selection of financing methods in new fundraising phases.

Due to the shrinking domestic consumer population from population decline, the shift of the leading consumer segment to the MZ generation, and the progressing global polarization of income disparity, there is a risk that the conventional target volume segment will decrease, shrinking the domestic market size. As countermeasures, focusing on providing new value to high-quality, high-spending consumer segments (the MZ generation, affluent individuals, inbound visitors, etc.), the company is leveraging group synergies in seven key areas—Sapporo, Tokyo, Nagoya, Kyoto, Osaka, Kobe, and Fukuoka—to expand the foundation of its Department Store, Shopping Center, Developer, and Payment & Finance Businesses.

The materialization of geopolitical risks, including the conflict in Ukraine, has led to countries hoarding resources, food, and advanced technology, creating a risk of impact on prices, supply chains, and consumer behavior. This could threaten the safety of employees on overseas assignment or business trips, and the stable operation of overseas businesses, and could also affect our group's earnings through a sharp decline in inbound consumption. As countermeasures, the company is building and strengthening its overseas crisis management system based on its "Overseas Safety Countermeasures Manual," and is reviewing business continuity plans at overseas locations of Daimaru Matsuzakaya, Daimaru Kogyo, PARCO, and others.