Isetan Mitsukoshi Holdings Ltd.

As societal issues such as climate change and human rights violations become more severe, insufficient promotion of sustainability management by the Group could lead to a decline in stakeholder trust, weakened market competitiveness, deterioration of the fund-raising environment, and impacts on human resource acquisition. In particular, delays in decarbonization initiatives could affect financial condition through stricter environmental regulations and rising energy costs. As countermeasures, the Group has established a Sustainability Promotion Committee chaired by the CEO, endorsed the TCFD recommendations, set a target of reducing greenhouse gas emissions (Scope 1 and 2) by 42% by 2030 compared to FY2023, and is conducting human rights due diligence.

If DX promotion lags behind the acceleration of digitalization and technological innovation, it may become difficult to respond to changes in customer purchasing behavior, potentially leading to reduced market competitiveness and deteriorating profitability. There are also inherent risks such as stagnation in management and operational efficiency due to a shortage of digital talent, disruption to physical store and online operations due to system failures, employee SNS troubles, and confidential information leaks or third-party rights infringement due to inappropriate AI use. As countermeasures, the Group is advancing seamless integration of physical store and online customer experiences, establishing specialized organizations and developing digital talent, formulating and disseminating social media guidelines, and making e-learning mandatory before use of AI systems.

As the existing department store mass-marketing business model declines amid the progress of the declining birthrate and aging population, polarization of consumption, and digitalization, delays in transformation could adversely affect business performance and financial condition. In addition, rising labor, materials, and energy costs due to inflation, a tight labor market, and supply chain disruptions could hinder the promotion of transformation. As countermeasures, the Group is advancing a business model transformation from a "venue business" to an "individual customer business" based on the Medium-Term Management Plan (FY2025-FY2030), and continuously implementing three reforms: organizational and personnel reform, revenue and cost structure reform, and store structure reform.

Amid intensifying competition for talent due to the declining working-age population caused by the falling birthrate and aging population, if the Group fails to secure and develop specialized talent and management talent to drive growth in the department store, real estate, financial, and related businesses as planned, this could affect the achievement of management goals and business growth. As countermeasures, the Group is promoting two-way communication through workshops and other means during recruitment, human capital investment based on the "Isetan Mitsukoshi Group Human Capital Management Policy," strategic secondment policies and support for developing specialized skills, and expanding harassment prevention, working hour management, and work-life balance support systems to improve employee engagement.

If a large-scale earthquake (such as one directly beneath the capital or in the Nankai Trough), typhoon, flood damage, eruption of Mt. Fuji, spread of infectious disease, or missile attack from another country were to occur, it could result in store closures, disruption of the product supply network, and human and physical damage, seriously affecting business performance and financial condition. In particular, since the department store business depends on product supply and logistics from all over the country, disruption to the supply network could seriously impede business continuity. As countermeasures, the Group has formulated a BCP and basic disaster response plan, obtained resilience certification, prepared hazard maps for all locations, conducts annual nationwide safety confirmation drills and BCP drills, and has established a pandemic response system.

Organized crime such as special fraud and robbery/theft targeting high-value goods by anonymous, fluid criminal groups organized via SNS is increasing and becoming more sophisticated, posing threats to human life and safety, economic and physical losses, business suspension, and damage to brand image. In addition, if fraudulent or illegal acts by employees occur, this could lead to loss of social trust, reduced sales, and the burden of paying damages. As countermeasures, the Group has built a cross-functional management structure centered on a risk countermeasure subcommittee, conducts joint training with local police stations, has established an internal whistleblowing system through the "Isetan Mitsukoshi Group Hotline," and is strengthening technical measures such as access management and surveillance.

Failure to comply with laws and regulations such as the Antimonopoly Act, consumer protection laws, and the Act on Promoting Fair Trading with Small and Medium-Sized Subcontractors could result in restrictions on business activities due to administrative dispositions, loss of social trust, reduced sales, and financial losses such as fines and surcharges. In particular, in the food hygiene field, inadequate allergen labeling could result in food allergy incidents or food poisoning, potentially leading to serious health damage, business suspension or administrative disposition, and payment of damages. As countermeasures, the Group has established a promotion structure through the Compliance Promotion Committee, formulated and inspects hygiene management plans incorporating HACCP concepts, and has developed and disseminated guidelines and manuals on fair trade with business partners.

As cyberattacks and unauthorized access incidents increase both domestically and internationally, if the large volume of customer and business partner information held by the Group were to be leaked or lost, this could result in costs such as damages and fines, loss of social trust due to legal violations, and adverse effects on business performance and financial condition such as reduced sales. As new businesses utilizing personal information expand, the risk of leakage or improper use is also increasing, and responding to the strengthening of personal information protection legislation in various countries has become an urgent matter. As countermeasures, the Group is promoting the introduction and enhanced operation of security tools by the Cybersecurity Countermeasures Subcommittee, developing specialized security personnel, conducting cyber incident drills, and establishing voluntary standards and manuals for the proper acquisition, use, and management of personal information.

In the department store business and overseas real estate business in Southeast Asia, China, Taiwan, the U.S., and elsewhere, geopolitical risks (political and economic instability, social unrest) accompanied by rising energy costs and commodity prices, exchange rate fluctuations, accelerating inflation, and economic downturns could reduce the number of visitors and sales at overseas local stores as well as duty-free sales to foreign visitors to Japan. Internal risks also include employee safety and labor management issues, inadequate compliance with local laws and regulations, and the risk of business suspension or withdrawal due to insufficient local governance. As countermeasures, the Group is preparing and updating risk maps for each location, introducing an internal whistleblowing system, establishing a fund monitoring system from Japan, and providing geopolitical risk education for employees posted overseas.

As approximately ¥100 billion in funds are needed for investments in content, DX, real estate, safety and security, and other areas to achieve the Medium-Term Management Plan, there is a risk that a decline in business performance or a change in credit rating could weaken fund-raising capability, and rising market interest rates could increase procurement costs, forcing delays or changes in strategy execution. As countermeasures, the Group is promoting stable generation of operating cash flow through revenue and cost structure reform, strengthening the balance sheet by reducing interest-bearing debt, improving capital efficiency by business segment and consolidated unit, and prioritizing investments with stricter investment evaluation.