FELISSIMOCORPORATION

While the e-commerce market is on an expanding trend, the catalog mail order market is on a contracting trend, creating a risk that competition with existing operators and an increase in new entrants will worsen the business environment. Changes in consumption trends among the core customer base of women in their 30s to 50s and the progress of the declining birthrate could also become factors reducing demand over the medium to long term. The Company is promoting measures such as catalog restructuring and revitalization and strengthening e-commerce, but if the expected effects are not achieved, this could impact business performance.

The majority of products sold are original products, and since partner companies handle production and quality control, there is an aspect in which the Group cannot directly control quality. If a product defect occurs, there is a risk of large-scale returns, damage compensation and response costs based on the Product Liability Act, and loss of credibility. The Company strives to supply safe products by reviewing quality standards and strengthening quality and legal compliance inspections, but it is difficult to completely eliminate this risk.

Given the business structure centered on original products, the accuracy of demand forecasting directly affects business performance. If orders exceed forecasts, there is a risk of lost sales opportunities, additional delivery costs, and damage to customer trust; if orders fall below forecasts, there is a risk of deteriorating cash flow due to excess inventory and inventory valuation losses. The Company is working to improve demand forecasting accuracy and build a flexible supply chain, but responding to major demand contractions caused by changes in trends, seasonal fluctuations, and consumption slowdowns remains a challenge.

As the sole domestic logistics center, all business functions—including catalog delivery, order receipt, shipping, payment management, customer service, and information processing—are concentrated at "S-PACE FELISSIMO" in Kobe City. If a major disaster occurs, there is a high risk of significant impact on business continuity, and dependence on a single location represents a structural vulnerability. The Company is implementing risk avoidance measures and reviewing its response system in the event of an occurrence, but it may not be able to fully respond to events that exceed its response capacity.

The Company employs a membership registration system and holds a large amount of personal information, including basic information such as names and addresses, as well as transaction and payment information. If personal information is leaked or a violation of the Personal Information Protection Act occurs, there is a risk of not only damage compensation and response costs but also customer attrition due to a decline in brand credibility. The Company positions the protection of personal information as an important management issue and has established a strict management system, but continued response to external threats such as cyberattacks is required.

Many of the products handled are produced in Asian regions centered on China, and procurement costs are directly or indirectly affected by exchange rate fluctuations. The Company hedges using forward exchange contracts, but if exchange rate fluctuations exceed expectations or if raw material and labor costs rise in the Asian region, this is reflected in procurement costs. Due to the nature of mail order sales, it is difficult to pass on cost increases to sales prices during the catalog's valid period, creating a risk that soaring procurement costs will directly squeeze profits.

Due to the nature of mail order sales, catalog costs and delivery costs to customers account for a high proportion of selling expenses, and fluctuations in paper market conditions and rising domestic transportation costs directly affect business performance. Furthermore, there is a risk that the cost ratio will rise due to soaring energy prices such as oil and natural gas. If these cost fluctuations exceed expectations, profitability may deteriorate.

The mail order business is subject to a wide range of legal regulations, including the Act on Specified Commercial Transactions, the Consumer Contract Act, the Act against Unjustifiable Premiums and Misleading Representations, the Product Liability Act, the Act against Delay in Payment of Subcontract Proceeds, and the Act on Pharmaceuticals and Medical Devices. If a violation of laws and regulations occurs, or if laws are amended or new laws are enacted, there is a risk of restrictions on business operations and adverse effects on business performance. The Company has established a compliance system through the development of a management structure and other measures, but continuous response to changes in the regulatory environment is necessary.

Many operations have been computerized, and the Company continuously carries out new system development, modifications, and the introduction and replacement of equipment. If a large-scale system failure occurs due to a major disaster or unforeseen cause, there is a risk of disruption to overall business operations. In addition, as orders via the internet increase, a failure of internet networks could result in lost order opportunities, and the increasing degree of IT dependency is amplifying this risk.

Many of the products handled are produced in the Asian region, centered on China, and sales activities also envision global expansion within the Asian region. If geopolitical risk, credit risk, or market risk in these regions materializes, it could disrupt product procurement, production, and sales activities, potentially affecting business performance. As dependence on Asia is high in both production and sales, responding to heightened geopolitical tensions and regulatory changes has become an important management issue.