OKUWA CO., LTD.

A decline in consumer purchasing intent due to fluctuations in economic conditions or financial circumstances may affect business performance. In addition, there is a risk that utility costs at stores and procurement prices for merchandise and store supplies will rise significantly due to soaring crude oil and raw material prices. Given the business structure centered on retail, deterioration in the consumption environment could directly impact both sales and profits.

The Group operates retail businesses in the Kinki and Tokai regions, which are concentrated in areas where the occurrence of the Tokai, Tonankai, and Nankai earthquakes is a concern. If a large-scale earthquake or other natural disaster occurs, business activities could be significantly disrupted. As countermeasures, the Group regularly conducts emergency response headquarters setup drills and evacuation drills, and hedges risk by taking out casualty insurance for certain high-risk stores, but complete avoidance is difficult.

In addition to the decline in the population of trading areas, intensifying competition, including from both same-industry and cross-industry competitors, may affect business performance. The Group seeks to differentiate itself through merchandise assortments and store layouts tailored to local customer needs, but there is a risk that maintaining a competitive advantage will become difficult. Intensifying competition pushes down both customer traffic and average spending per customer, leading to lower sales and profit margins.

If the Group is unable to secure new graduates, mid-career hires, and part-time workers as planned, this may disrupt business operations. In addition, increases in the minimum wage and rising social security costs are expected to increase employee-related expenses over the medium to long term. The Group is working to improve operational efficiency through business process reform and IT system implementation, but if these initiatives do not proceed as planned, they may affect business performance and financial condition.

While the Group thoroughly implements hygiene management, enhances inspection systems, and establishes traceability, particularly at food factories and food processing centers, if unexpected events such as hygiene issues or food poisoning occur, this may affect store operations and make stable supply of merchandise difficult. Food safety issues in the food retail business can seriously affect business performance through brand damage and customer attrition.

Unexpected climate change may cause a decline in sales or excess inventory. In addition, delays in responding to risks, indicators, and targets related to climate change and environmental issues, or the occurrence of unresolvable problems, may affect business performance and financial condition. The Group is working on initiatives such as installing solar power generation equipment, utilizing renewable energy, and reducing food loss, but there are also concerns about increased costs associated with stricter regulations and other requirements.

New store openings or floor space expansions exceeding 1,000 square meters are subject to regulation under the Large-Scale Retail Store Location Act, requiring notification to prefectures or designated cities and review that takes into account local residents' opinions; the status of such reviews and changes in regulations may affect store opening policy. In addition, since most stores are leased, there is a risk that even profitable stores may be forced to close due to the bankruptcy of the lessor, and that deposits and security deposits paid may become partially or wholly unrecoverable.

As the Group holds large volumes of customer information through the issuance of point cards, if customer information is leaked due to unforeseen events such as computer virus infection or cyberattacks, this may affect business performance and financial condition. The Group has taken measures by establishing personal information protection policies and information management regulations, but the risk continues to exist given the increasing sophistication of cyber threats. If an information leak occurs, it could result in loss of customer trust, legal liability, and brand damage.

Since IT systems are used across a wide range of operations, including merchandise ordering, sales volume management, and internal information sharing, unexpected damage from natural disasters or accidents, system trouble, or system failures caused by employee error may affect business performance and financial condition. Although the Group has established a thorough operation and management system, there is a risk that a system failure occurring could disrupt overall store operations.

If the profitability of stores or other assets declines significantly due to sudden changes in the external environment, or if the fair value of fixed assets declines significantly, the recognition of impairment losses may affect business performance and financial condition. In addition, failure to comply with various laws and regulations, including those related to trade, labor, antitrust, subcontracting, patents, consumer protection, taxation, and environmental recycling, could also affect business performance and financial condition. The Group is making maximum efforts to strengthen compliance, but responding to regulatory changes and tightening also presents cost challenges.