JADE GROUP, Inc.

There is a risk that the Group's competitiveness may decline due to an increase in internet retailers, the expansion of direct-to-consumer EC operations by individual brands, and the provision of value-added services by competitors. If price competition intensifies alongside rising delivery and labor costs, profitability could decline significantly. The Company strives to maintain competitive advantage through differentiated services such as effectively free shipping, free size exchanges, and free return shipping, as well as by expanding concierge support and platform services.

Based on its management philosophy of "try on at home, return with ease," the Group in principle accepts all returns, making return costs an integral part of its business model. If returns significantly exceed expectations, return costs as a proportion of net sales could exceed acceptable levels, adversely affecting business performance. The Company is implementing measures to keep return costs at or below a certain level, including reviewing the return flow and increasing the sales mix through LOCOMALL, which has a lower return rate.

The Group employs a buy-and-sell procurement model for some products, and if sales performance deviates significantly from expectations due to changes in market trends or customer preferences, there is a risk of inventory valuation losses. This risk may increase as the proportion of buy-and-sell procurement rises. The Company works to mitigate this risk by considering market trends and customer preferences at the time of purchasing, but it is difficult to fully predict the pace of change in the fashion market.

The Group has adopted a policy of accelerating business growth through M&A, resulting in goodwill being recorded on its balance sheet. If an acquired business fails to develop as planned and is judged unlikely to generate sufficient future cash flows, the Group may need to recognize an impairment loss on goodwill, which could materially affect business performance. The Company addresses this by conducting impairment tests in a timely manner, but the risk of impairment may materialize in the event of significant changes in market or competitive conditions.

The Group holds personal information for a large number of members, and if unauthorized external access or an unforeseen event results in the leakage of personal information, this could affect the business and financial results in addition to damaging social credibility. The Company has implemented multi-layered measures, including system designs that do not retain credit card information, internal access permission settings, strict information management at external data centers, and internal education and awareness programs, but complete protection cannot be guaranteed given the increasing sophistication of cyberattacks.

As the Group's main business is operating internet retail sites, if system equipment or communication networks fail due to unforeseen events such as natural disasters (earthquakes, fires, etc.), accidents, or power outages, service outages could directly affect the business and financial results. While the Company continuously strengthens its systems and implements security measures to ensure stable business operations, it is difficult to completely eliminate the risk of failures caused by external factors such as natural disasters.

The Group is expanding warehouses, staff, and other resources in line with the increase in merchandise handled, but if such expansion cannot be carried out in a timely manner, it could affect the business and financial results. In addition, if a natural disaster such as an earthquake or typhoon occurs in a region where a logistics facility is located and the facility is damaged, there is a risk that shipping and delivery functions could be suspended. For the Company, which positions same-day shipping at the core of its competitive advantage, the stable operation of logistics functions is fundamental to business continuity.

Yusuke Tanaka, the founding member and President and Representative Director, plays an extremely important role in the overall business activities, including determining management policy and business strategy. If, for any reason, he becomes unable to carry out his duties, this could have a material impact on the business and financial results. The Company is working to reduce dependence on a specific individual by expanding and developing its management team and building a division-of-labor structure through delegation of authority, but dependence on him remains high at present.

The Group is subject to regulations such as the Act on Specified Commercial Transactions, the Act against Unjustifiable Premiums and Misleading Representations, the Product Liability Act, the Unfair Competition Prevention Act, and the Act on the Protection of Personal Information. Violations of these laws or amendments to existing laws or enactment of new laws could affect the business and financial results. While the Company has established an internal control system to ensure legal compliance, there is a risk that delayed responses to changes in the regulatory environment could disrupt business operations.

Against the backdrop of intensifying competition in the fashion EC market, the Group has a policy of actively considering business alliances and M&A. However, if there is insufficient prior investigation and consideration, significant changes in market or competitive conditions after an acquisition, or failure to achieve planned targets resulting in the inability to recover invested funds or the incurrence of additional costs, the business and financial results could be adversely affected. Thorough due diligence and post-acquisition integration management are important, but it is difficult to completely eliminate the risk of changes in the external environment.