AOYAMA TRADING Co., Ltd.

The declining population of suit wearers due to the falling birthrate and aging population, along with the increasing casualization of office wear, is progressing, and a long-term decline in the number of suits sold in the Business Wear Business, the Group's core business, is expected. This is not a temporary economic fluctuation but a structural decline in demand, requiring a transformation of the business model.

Competition in the men's apparel market is intensifying on both price and product range fronts, with competitors continuing to launch new products catering to casual office wear and an increasing number of new entrants. Differentiation through marketing efforts alone is difficult, and the Group's sales and earnings may be significantly affected depending on competitors' actions.

The Business Wear Business is susceptible to domestic and overseas economic conditions and consumer sentiment, as well as abnormal weather such as extreme heat and warm winters. Since these external factors are beyond the Group's control, they constitute an ever-present risk of earnings volatility.

The majority of key products are produced and imported from various Asian countries, including China, and the consolidated subsidiary Fuku Ryo Co., Ltd. also produces products in China and elsewhere. Changes in the political and economic conditions of producing countries, social disruption caused by terrorism, war, or infectious disease, or sharp foreign exchange fluctuations could impair the product supply system or increase product costs.

If information systems become dysfunctional due to increasingly sophisticated cyberattacks, this could result in significant time and cost for investigation, restoration, and prevention of recurrence, as well as loss of social credibility. In addition, disruption of logistics and information systems due to natural disasters, fires, or human error could cause shipment delays or suspension of online services, potentially affecting business performance. Security measures combining defense and detection are in place, but complete protection cannot be guaranteed.

The Group utilizes AI technology in store opening strategy, digital marketing, inventory management, and other areas, but there are latent risks of legal violations, such as generation of misinformation, leakage of confidential information, and infringement of intellectual property rights such as copyrights related to training data and generated content. If appropriate management is not implemented or if significant costs are incurred in introducing new technology, this could adversely affect corporate image and business performance.

Each business holds confidential information, including personal information of customers and business partners, and the Group has established privacy policies and personal information protection manuals to ensure thorough management. However, if an information leak occurs due to criminal activity or computer malfunction, this could have a material impact on business performance through loss of social credibility, decreased operating revenue, and the occurrence of damages liability.

Overproduction and environmental pollution are recognized as global problems across the entire apparel industry, and tightening of regulations such as carbon taxes, restrictions on water resource use, biodiversity conservation regulations, and plastic regulations is anticipated. Insufficient response to these could necessitate additional costs and improvements to production processes, potentially affecting corporate image and business performance. The Group engages in information disclosure such as responding to the CDP in accordance with TCFD recommendations.

Many lease agreements, particularly for suburban stores, have long terms of 15 to 20 years, and since security deposits are not refunded until the lease term expires, there is a risk of non-recovery due to the landlord's bankruptcy or other reasons. In addition, under the policy of actively pursuing build-and-scrap for unprofitable stores, increased costs related to store closures and relocations could affect business performance.

Based on its human rights policy, the Group is working to improve supply chain transparency through human rights due diligence, membership in Sedex, and disclosure of a list of major sewing factories, among other measures. However, if human rights violations occur within the Group or its supply chain, this could affect product procurement and production and damage corporate credibility, potentially having an adverse effect on business performance.