BOOKOFF GROUP HOLDINGS LIMITED

In connection with new store openings, renewals, and new business investments of existing formats, as well as M&A of franchise stores and companies in other industries, if assets are found not to generate sufficient future cash flows, the Group may need to recognize substantial impairment losses, which could materially affect its business performance and financial condition. As countermeasures, the Group has senior management scrutinize investment recovery plans, conduct regular monitoring, and refine income and expenditure simulations.

Against the backdrop of a declining working-age population due to the falling birthrate and aging population, the retail industry continues to face labor shortages, rising personnel costs, and increasing difficulty in training employees, and securing personnel with broad merchandise knowledge has become more difficult as the number of large-scale composite stores increases. If personnel leave the Group or employees' health deteriorates due to long working hours, this may affect business performance and financial condition. As countermeasures, the Group is expanding training programs, developing compensation systems aligned with career paths, reviewing salary levels, and introducing a regional-limited employee system.

If continuous IT investment in core systems for each business, such as POS, purchasing, EC, membership information, and warehouse management, is insufficient, this could lead to a decline in service competitiveness and brand image. In addition, if delays or interruptions occur in large-scale development projects, or if systems are down for an extended period, this could result in lost business opportunities and damage to credibility, affecting business performance and financial condition. As countermeasures, the Group continuously verifies the profitability effects and reports to management, and manages the balance between in-house development and outsourcing.

As the majority of the Group's merchandise procurement depends on purchases from customers, trends in the primary distribution market, entry of competitors, and the expansion of CtoC services such as flea market apps may affect the volume and quality of merchandise procured. In addition to lost sales opportunities due to merchandise shortages, if purchased items are found to be stolen or lost property, this could result in losses equivalent to free returns or the purchase amount, as well as a decline in trust in the merchandise handled overall. As countermeasures, the Group continues to strengthen promotions, conduct region- and category-specific purchasing campaigns, and expand purchasing services targeting affluent customers.

As much of store operations depends on part-time and temporary staff, increases in minimum hourly wages and expansion of the scope of employees' pension insurance eligibility may increase the insurance premiums and labor management costs borne by the Group, affecting store operation costs and business performance. As countermeasures, the Group is promoting labor cost efficiency through improved labor productivity, continuous training of part-time and temporary staff, and labor-saving measures utilizing IT equipment.

As the Group handles confidential information such as personal information and trade secrets in store operations, in the event of an information leak or loss, this could result in a decline in social credibility and brand image, payment of damages, and legal penalties, affecting business performance and financial condition. As countermeasures, the Group operates virus and unauthorized access prevention measures, operates backup systems, conducts regular security inspections of its EC sites and apps by specialized firms, and provides security education to employees.

While the Group is establishing a Compliance Management Committee and internal audit systems to ensure compliance with laws and regulations both in Japan and overseas, compliance risks may not be completely avoidable. If an incident in violation of laws and regulations occurs, this could result in suspension of business activities, a decline in social credibility and brand image, and payment of damages, affecting business performance and financial condition. As countermeasures, the Group continuously conducts regular compliance checks and information dissemination, reviews internal audit results, and provides employee training.

The Group purchases and sells merchandise whose market prices fluctuate significantly, such as precious metals, watches, brand-name bags, and trading cards. Market price fluctuations may lead to a decrease in the number of customers due to higher selling prices, a decrease in the number of customers bringing in items to sell due to lower purchase prices, and recognition of inventory valuation losses, which could affect business performance and financial condition. As countermeasures, the Group has established a system in which the head office department regularly monitors the impact of price declines on inventory value, and has built a framework for flexible response through timely dissemination of market price information.

The Group primarily procures a portion of the capital expenditure funds for new store openings and working capital through borrowings from financial institutions, and is expected to continue to carry a certain degree of funding risk under its business expansion policy. If funding costs increase due to rising market interest rates, or if funding constraints arise due to a decline in the Group's creditworthiness, this could affect business performance and financial condition. As countermeasures, the Group centrally manages the borrowings and lease transactions of domestic and overseas subsidiaries, and sets an appropriate level of interest-bearing debt commensurate with the level of operating cash flow.

With the accelerating spread of information on the internet, including SNS, information that is inaccurate or taken out of context may spread, potentially leading to misunderstanding and distrust of the Group. If reputational damage occurs, this could affect business performance and corporate value through customer attrition, decreases in purchasing and sales, and impacts on recruitment activities. As countermeasures, the Group conducts regular internal SNS monitoring, promptly disseminates factual information in the event of significant incidents, provides ongoing employee education on SNS usage, and regularly shares reputational risk information at the Risk Management Committee.