AOKI Holdings Inc.

In the Fashion Business, business apparel such as suits struggled due to changes in business style, resulting in a 0.8% year-on-year decrease in existing store sales for the current consolidated fiscal year. In the Entertainment Business, the karaoke market has not recovered to pre-COVID levels, and in the Bridal Business, the declining number of marriages and intensifying competition continue, so deterioration in the market environment of each business could have a significant impact on business performance. As countermeasures, the company is working on new product development and strengthening casual wear in the short term, and evolving its business model in the medium term.

The company recorded impairment losses of ¥1,713 million in the current consolidated fiscal year, and additional impairment losses may be recorded in the future if operating profit or loss at individual stores remains negative for two consecutive periods, or if the fair value of fixed assets declines significantly. The Fashion Business (tangible fixed assets book value of ¥28,121 million) faces the risk of declining sales due to changes in the market environment, while the Entertainment Business (¥45,669 million) may see expanding medium-term risk due to its aggressive store opening policy, with a certain level of impairment loss expected to occur every year. The Anniversaire Bridal Business (¥10,443 million) is judged to have little major impairment risk due to the high market value of its land.

The Group's domestic locations are concentrated in dominant clusters in the Kanto, Kansai, and Tokai regions, with a particularly high share of Group sales in the Kanto region. Therefore, if a major earthquake directly beneath the Tokyo metropolitan area, a Nankai Trough earthquake, or large-scale heavy rain or flooding due to climate change were to occur, it could have a significant impact on business performance and financial condition. The specific timing and extent of impact are unknown, and the Risk Management Committee continues to discuss and consider countermeasures.

While the risk from existing infectious diseases is judged to be small, if a new infectious disease were to emerge, there is a risk of a decrease in sales of over 20%, similar to the most affected FY2021 (ending March 2021), as well as an impact on product supply in the Fashion Business. In the current consolidated fiscal year, there was no impact from COVID-19, and overall Group sales increased 1.0% year on year, but the emergence of future infectious diseases cannot be ruled out. The company is promoting evolution toward business formats less susceptible to infectious disease impact and supporting remote work.

As of the end of the current consolidated fiscal year, the company operated 1,348 stores and continues to open new stores centered on ORIHICA and Kaikatsu Club, but business performance could be affected if suitable locations cannot be secured or if self-competition occurs due to market contraction. In the Fashion Business, this risk is becoming somewhat apparent due to market contraction, and the store network is currently being reviewed. In the Entertainment Business, the risk is being suppressed through business format evolution, but the timing and extent of risk materialization are unknown.

Each business operates its own unique training programs, including the stylist system in the Fashion Business, and business performance could be affected if talent acquisition and training are insufficient. The Entertainment Business requires a large amount of talent due to aggressive store openings, raising concerns about risk materialization, but the company is promoting labor savings through the utilization of Fashion Business talent and the introduction of automated entry/exit systems, and judges that the likelihood of risk materialization is low for the time being.

Group companies hold large amounts of personal data, including product/service management information and customer information, and if a system failure, unauthorized access, virus infection, or personal data leakage were to occur, it could lead to deterioration in business performance and financial condition and a decline in social credibility. The company conducts risk assessments through external consulting, has established a personal information protection policy, and has put in place organizational and technical safety management measures, with the company having obtained the Privacy Mark.

The Fashion Business experiences seasonal fluctuations, with sales declining in the second quarter (July–September) and increasing in the fourth quarter (January–March) due to job-hunting, new school entry, and new employment demand, tending to cause significant fluctuations in operating profit. Due to the shrinking suit market, performance through the third quarter has been challenging, and business performance could be affected if a sudden style change occurs in a specific market segment in the fourth quarter. The company aims to reduce risk as a Group by securing sales through the third quarter via strengthening casual and women's wear, and through portfolio management across other businesses.

Much of the Fashion Business's merchandise is produced in China and Southeast Asia, and changes in the political, economic, or legal systems of producing countries, as well as natural disasters, could affect product procurement and cost, with the risk currently judged to be becoming somewhat apparent due to the impact of the Chinese economy and other factors. Rising crude oil prices due to escalating tensions in the Middle East and other factors are causing container shortages, higher overseas transportation costs, and rising synthetic fiber raw material prices, and rising energy prices domestically could also affect all businesses, particularly the 24-hour Entertainment Business. The company is working to mitigate these impacts through early ordering, diversification of production countries, optimization of procurement routes, and introduction of energy-saving equipment.

In the karaoke portion of the Entertainment Business, the procurement of karaoke equipment depends on two companies, EXING INC. and DAIICHIKOSHO CO., LTD., and business performance could be affected if contract terms are changed or contracts are terminated. The company judges that there is currently no major risk since interests are aligned with both companies to some extent, but the timing of risk materialization is unknown.