JAPAN CRAFT HOLDINGS CO., LTD.

The Group focuses on in-house planned and developed products to improve profitability and differentiate itself, and the proportion of in-house planned products in total store sales has remained consistently high. However, depending on the progress of planning and development and sales conditions, this may affect business performance and financial condition. As dependence on proprietary products increases, the risk of planning failures or demand mismatches becomes more likely to directly impact business performance.

The Group operates a nationwide chain of craft specialty stores. Although the number of stores decreased due to the closure of unprofitable stores in the previous consolidated fiscal year, the profit structure improved significantly. Whether suitable properties matching store opening needs can be secured, and the effectiveness of measures to address unprofitable stores, will determine the success of store profitability plans and may affect business performance. The Group aims to reduce store expansion risk through the promotion of EC site sales and the BtoB Business.

In addition to roadside stores, the Group operates in-shop stores within commercial facilities, resulting in a business structure in which performance is influenced by the customer-drawing power of the host commercial facilities. If the customer-drawing power of these commercial facilities changes, it could directly affect the Group's store sales. Risks such as declining competitiveness or closure of host facilities are external factors that are difficult for the Group to control on its own.

Most of the Group's stores are leased, and depending on circumstances attributable to the lessor, the Group may be forced to close stores even if they are performing well. In addition, security deposits paid upon opening stores carry the risk of becoming partially or wholly unrecoverable due to the lessor's bankruptcy or other reasons. The store network's dependence on leased properties inherently carries the risk of sudden, externally-driven store closures and asset impairment.

The Group installs store interiors and electrical equipment at its own expense, and asset grouping is generally conducted on a per-store basis. If indications of impairment arise due to trends in individual store performance or planned closures/relocations, or if the market value of land or other assets declines significantly, the Group may recognize impairment losses. Depending on business performance, impairment losses may also be recognized for shared assets such as the head office building, potentially affecting the financial position.

In addition to directly-operated stores, the Group operates a chain under its proprietary shop brand through contracts with franchisees under a sales consignment arrangement called the "Owner System." If the relationship of trust between the contracting parties is damaged for any reason, it may become difficult to effectively communicate store operation policies and measures, or to carry out store openings, closures, and relocations in a timely manner, potentially disrupting store operations. Maintaining relationships with franchisees is directly linked to the stable expansion and maintenance of the store network.

The Group operates membership systems in both its store sales business and mail-order business, and acquires and uses customers' personal information. Although the Group has established a "Personal Information Protection Regulation" and a "Compliance Manual" and implements management and operational measures, if personal information is leaked or misused for any reason, it could damage customer trust and affect business performance.

The Group relies on computer systems and communication networks for business processing, and natural disasters, accidents, computer viruses, unauthorized external intrusion, and similar events could cause system outages or the loss or leakage of important data. Although the Group strives to maintain maintenance and protection measures as well as internal controls for information management, unforeseen unauthorized access or unexpected system failures exceeding expectations could affect the Group's social credibility and business performance.

As the Group operates stores nationwide, large-scale earthquakes, typhoons, and other natural disasters or unforeseen accidents could cause physical damage to stores or products, impeding store operations. This may also affect business performance and financial condition, including in cases involving human casualties. While nationwide store distribution contributes to risk diversification, there is also a risk that multiple stores could be affected simultaneously in the event of a wide-area disaster.

The Group publishes craft-related books on knitting, sewing, and other topics. After the settling of stay-at-home demand from the COVID-19 pandemic, sales of paper books have once again trended downward, and closures of bookstores, a key sales channel, continue. In addition, since paper and other raw materials as well as printing costs are subject to market conditions, sharp changes in the market or business environment could affect business performance. The simultaneous progression of market contraction and rising costs poses a risk that could pressure the profitability of the Publishing & Education Business.