Aeon Hokkaido Corporation

The Company operates a retail business primarily consisting of store-based sales to general consumers, and trends in personal consumption, unfavorable weather, and intensifying inter-store competition across business formats within its operating base areas may affect business performance. As Hokkaido serves as the Company's primary operating base, sensitivity to regional economic trends and competitors' store opening trends is high. The securities report does not disclose specific countermeasures, and structural vulnerability to changes in the external environment remains.

In promoting area dominance and developing new growth model stores, rising crude oil, raw material, and construction costs may make it difficult to secure properties that meet store opening criteria, potentially forcing changes to store opening plans. In addition, there is a risk that new store openings and expansions may not proceed as planned due to time required for regional environmental surveys and coordination with government authorities under the Large-Scale Retail Store Location Law. This risk is fundamental to the growth strategy and directly affects medium- to long-term revenue expansion plans.

The Company is required to comply with a wide range of laws and regulations, including the Large-Scale Retail Store Location Law, the Antimonopoly Act, food safety management, and environmental recycling-related laws, and violations could lead to restrictions on business activities or a decline in social credibility. In addition, increased management costs associated with responding to stricter regulations could also affect business performance. While the Company strives to comply with each law and regulation, there is a risk of ongoing response costs arising from changes in the regulatory environment.

Although the Company regularly convenes a Compliance Committee, reports to the Board of Directors, and conducts employee training, the possibility of issues arising in the management system cannot be ruled out. Violations of laws and regulations could not only adversely affect business performance but also damage the Company's social credibility. Given the nature of the retail business, which involves broad contact with consumers and business partners, the scope of impact from compliance violations is extensive.

Because the business model is centered on store sales, the occurrence of a natural disaster or accident could make it difficult to continue store operations, directly and adversely affecting sales and business performance. Hokkaido is a region with high risk of natural disasters such as heavy snowfall and earthquakes, and the impact of a large-scale disaster could be particularly severe. While the Company has established emergency response systems, conducts drills, and provides accident prevention training, there are limits to complete preparedness against large-scale disasters.

If a new infectious disease emerges to replace COVID-19, a decrease in the number of store visitors and store closures could reduce sales and affect business performance. The store-visit-based retail business model is highly susceptible to direct impact during the spread of infectious diseases, and this risk is recognized based on experience during the past COVID-19 pandemic. The securities report does not provide detailed disclosure of specific countermeasures against infectious diseases.

Due to the large amount of energy used in store operations and the use of alternative fluorocarbon refrigerants in freezer and refrigerator cases, there is a risk that energy costs and countermeasure costs may exceed expectations amid stricter environmental regulations and growing societal demands. In addition, significant changes in the quality and yield of agricultural and marine products due to climate change may affect procurement costs and product assortment. While the Company is promoting energy conservation and the transition to renewable energy based on the "AEON Decarbonization Vision 2050," additional costs may arise depending on the pace of regulatory tightening.

If procurement prices for products and store materials rise significantly, including increases in electricity rates due to soaring crude oil prices, store operating costs may increase, adversely affecting business performance. For the Company, which operates numerous stores as a retailer, rising utility costs directly squeeze profits as an increase in fixed costs. In a competitive environment where price pass-through is difficult, there is a risk that cost increases cannot be fully absorbed.

The Company stores and manages personal information of customers, business partners, and employees, as well as confidential management information, and if an incident occurs involving information leakage, tampering, unauthorized use, or a cyberattack, it could result in obligations to compensate victims for damages, losses from service suspension, and response costs, in addition to affecting business performance through a decline in social credibility. While the Company is actively developing its information security systems and regulations and conducting internal training to respond to the recent sharp increase in cyberattacks, complete defense is difficult given the increasing sophistication and diversification of threats.

Tightening labor supply and demand due to the declining birthrate and aging population may prevent recruitment plans from proceeding as scheduled, and cost increase pressures leading to higher employee expenses may affect business performance. The business model, centered on store operations, is highly dependent on human resources, and securing and developing excellent personnel is essential to realizing the growth strategy. While the Company is promoting diversity and investing in human capital, if its human capital initiatives and information disclosure are deemed insufficient, this could also affect business performance and evaluation.