IR Business Strategy Presentation - J. Front Retailing Co., Ltd. Create and Bring to Life
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J. Front Retailing Co., Ltd.
IR Business Strategy Presentation
Create and
Bring to Life
“New Happiness.”
Create and Bring to Life “New Happiness.”
Today’s Speakers
J. Front Retailing Co., Ltd.
YOSHIMOTO Tatsuya
Director and Representative Managing Executive Officer
President and Representative Director, Daimaru Matsuzakaya Department Stores Co. Ltd.
WAKABAYASHI Hayato
Director and Managing Executive Officer
Senior Executive General Manager, Financial Strategy Unit
NINOBE Mamoru
Executive Officer
President and Representative Director, JFR Card Co., Ltd.
1
Create and Bring to Life “New Happiness.”
Disclaimer
Current plans, strategies, business forecasts and
forward-looking statements in this document
represent our assumptions deemed reasonable
based on information available to us at the time
of release and inherently involve potential risks
and uncertainties. And these data are subject to
change without notice. Therefore, actual
businesses and results may differ materially from
the results anticipated herein due to changes in
various factors including economic conditions
and market conditions.
2
Growth Strategy of Settlement and Finance Business
July 23, 2019
NINOBE Mamoru
Executive Officer, J. Front Retailing Co., Ltd.
President and Representative Director, JFR Card Co., Ltd.
Create and Bring to Life “New Happiness.”
3
Create and Bring to Life “New Happiness.”
Today’s Agenda
1. Business and Issues of JFR Card
2. Rebuilding of JFR Card Midterm Business Plan (100-
day plan)
3. Environment of Settlement and Finance Industry
surrounding JFR Group
4. Settlement and Finance Business in JFR Group
5. Policy and Scope of Initiatives
6. Settlement Business
7. Finance Business
8. Changes in Business Forecasts (Organic Growth)
9. Options for Dramatic Growth
4
Create and Bring to Life “New Happiness.”
1. Business and Issues of JFR Card
Affluent customer base
(¥100 mn)
(1,000 accounts)
Stable growth levels off
Department Merchants outside
stores the Group (No. of accounts and transaction volume)
Increase in cost associated with outsourcing
and security
Revenue increased but operating profit
decreased
Rapid changes in technologies, fiercer
FY FY competition
Underinvestment in HRs, products and
(¥100 mn) marketing for past 10 years
(¥100 mn)
Lack of HRs and know-how
Rigid corporate culture and HR system
FY
FY
*We have voluntarily applied the International Financial Reporting Standards (IFRS) since FY2017.
5
Create and Bring to Life “New Happiness.”
2. Rebuilding of JFR Card Midterm Business Plan (100-day plan)
5 pillars of strategic actions
① Improvement of
② Strengthening of card
bottom line of existing
products
business
③ Launch of merchant ④ Review of system
acquiring services platform
⑤ HR development / building of organization
6
Create and Bring to Life “New Happiness.”
2. Rebuilding of JFR Card Midterm Business Plan (100-day plan)
Actions/investments up to the present
① Improvement of bottom line of existing business
ー Improved bottom line approximately ¥1 bn in total for 2019 to 2021 by reviewing
business structure
② Strengthening of card products
ー Launched project jointly with Department Store and preparing for renewal of
Daimaru Matsuzakaya Card
③ Launch of merchant acquiring services
ー Scrutinized merchant agreements of Daimaru Matsuzakaya Department Stores and
reviewed commission rates, etc.
Reduced commissions more than ¥100 mn a year (Daimaru Matsuzakaya
Department Stores)
ー Acquired licenses directly from Visa and Mastercard in July 2019
④ Review of system platform
ー Plan to launch merchant acquiring services in 2020
⑤ HR development / building of organization
ー Sep 2018 Formed new organization, acquired experts from outside the Group,
employed HRs from inside the Group
ー Jun 2019 Opened Tokyo Office 7
3. Environment of Settlement and Finance Industry Create and Bring to Life “New Happiness.”
surrounding JFR Group
Competitive environment of settlement and finance industry changed significantly
Social/economic environment Technology
● Entry of foreign companies due to borderlessness ● Use of inexpensive and flexible cloud
● Declining birthrate and ageing population /
● API that connects digital players
depopulation
● Polarized consumption / sharing economy ● Big data analysis ● AI
● Spread of smartphones ...etc. ● Block chain ● Biometrics ...etc.
Government
● Relaxation of finance-related laws (Revised Fund Settlement Act, Revised Installment Sales Act, Revised Banking Act ...etc.)
● Promote cashless transactions: Present 20% → 25 years later 40% (Establishment of Payments Japan Association, cashless and consumer
return business: Secure financial resources of ¥400 bn ...etc.）
Conscious of
Shift to mobile
Lower cost Use of data Convenience Personalization security/safety/
interfaces
privacy
8
Create and Bring to Life “New Happiness.”
4. Settlement and Finance Business in JFR Group
JFR Group Vision
Create and Bring to Life “New Happiness.”
Cause to be assumed by JFR Group
Engage in business that removes concerns/frustrations in daily life to create
virtuous cycle in which people can spare more time for festive occasions
Remove concerns/frustrations concerning “money” as “Multi Service
Retailer”
Place settlement and finance business at core of JFR Group
9Create and Bring to Life “New Happiness.”
4. Settlement and Finance Business in JFR Group
Vision of settlement and finance business (what it aims to do)
Aim to become best partner of settlement/finance services
that support “how to enjoy” and “how to live”
Mission of settlement and finance business (mission to be fulfilled)
Daily life Future
Provide settlement/finance services so that Provide settlement/finance services
customers can “enjoy” without stress
that realize fulfilling “life”
Target of settlement and finance business
Shops around JFR
Customers (including JFR Group companies
Group department
employees) of JFR Group and suppliers
stores (“Shops”)
10Create and Bring to Life “New Happiness.”
4. Settlement and Finance Business in JFR Group
Assets held by JFR Group are source of competitiveness
Large urban stores Group transaction
that attract many volume of
customers more than ¥1 tn
Brand strength /
More than 6 mn
customer service
good customers
skills
11Create and Bring to Life “New Happiness.”
4. Settlement and Finance Business in JFR Group
Blood that grows Urban Dominant areas
Customers (including JFR Group companies Shops
employees) of JFR Group and suppliers
Real Estate Division
～Connect customers to companies and Shops in the Group ～
Settlement Provide payment methods to customers and payment/receipt methods to Group
companies / suppliers / Shops in Urban dominant areas
～Economic growth in Urban Dominant areas～
Finance Provide finance services to customers/ Group companies / suppliers / Shops
12Create and Bring to Life “New Happiness.”
5. Policy and Scope of Initiatives
Provide finance services based on customer relationship and customer data
Use strengths of
Settlement Finance
Credit
(post-payment) Financing
Provision
Debit
Point
of
payment (prompt payment)
Insurance
methods
Prepaid Asset management
(prepayment)
Investment management
Merchant acquiring
Provision
of receipt services Exchange
methods VISA, Master, UnionPay
Suica, Alipay, WeChat, etc.
Remittance
13Create and Bring to Life “New Happiness.”
5. Policy and Scope of Initiatives
Reasons for focusing on settlement
●Lead to improvement of customer relationship
Emotional relation to Usage frequency to
move money move money
●Can obtain customer data (lifestyle / asset situation)
Customer attribute data Settlement data
(address, name, age, occupation, residence,
family composition, annual income, credit
(place of purchase, product, amount,
information, etc.) frequency, etc.）
14Create and Bring to Life “New Happiness.”
6. Settlement Business
Provide finance services based on customer relationship and customer data
Use strengths of
Settlement Finance
Credit
(post-payment) Financing
Provision
Debit Insurance
Point
of
payment (prompt payment)
methods
Prepaid Asset management
(prepayment)
Investment management
Merchant acquiring
Provision
services
Exchange
of receipt
methods VISA, Master, UnionPay
Suica, Alipay, WeChat, etc.
Remittance
15Create and Bring to Life “New Happiness.”
6. Settlement Business – Payment Methods –
Expand share of own payment methods and acquire data
In Urban Dominant
In JFR Group areas
Cash / gift certificates
Cash / gift certificates
Cash / gift certificates
Other companies
Other companies
Unknown
Other companies
Co-branded
Co-branded Daimaru
Matsuzakaya Card
Daimaru Matsuzakaya Hakata Daimaru / Shimonoseki Parco Shops
Department Stores Daimaru / Kochi Daimaru
Other companies’ (co-branded) Other companies’
Own payment methods Cash / gift certificates
payment methods payment methods
16Create and Bring to Life “New Happiness.”
6. Settlement Business – Payment Methods –
Ⅰ. Introduce original points to connect Urban Dominant areas
New point program provided by JFR Card in addition to existing Daimaru Matsuzakaya point program
Points are earned with all credit card payments and can be exchanged in stores in Urban Dominant areas
Earn points Daimaru Matsuzakaya points
Original points Earn points only with purchases
Earn with all credit card payments in department stores
Exchange points Use points
In Urban Dominant Daimaru Matsuzakaya
Daimaru Matsuzakaya JFR Group areas
17Create and Bring to Life “New Happiness.”
6. Settlement Business – Payment Methods –
Ⅰ. Introduce original points to connect Urban Dominant areas
・Renew Daimaru Matsuzakaya Card (in preparation)
ー Pull in potential customers in addition to existing customers
*Consider issuing cards co-branded with JFR Group companies that provide original points
Ⅱ. Consider platform of payment methods
・Low-cost system platform that can use data and change/add services flexibly
Ⅲ. Consider prepaid settlement / payment via bank account
・Consider payment methods that substitute for cash and gift certificates
ー Review Tomonokai Card (prepaid), consider prompt payment via bank account
Ⅳ. Consider interfaces other than cards
・Consider providing interfaces including apps and biometrics
18Create and Bring to Life “New Happiness.”
6. Settlement Business – Receipt Methods –
Expand share of own payment methods and acquire data
In Urban Dominant
In JFR Group areas
Cash / gift certificates
Cash / gift certificates
Cash / gift certificates
VISA, Master,
JCB, AMEX,
UnionPay,
Alipay, WeChat, etc.
Unknown
VISA, Master,
JCB, AMEX,
UnionPay, VISA, Master,
Daimaru Alipay, WeChat, etc. JCB, AMEX,
Matsuzakaya Card
UnionPay,
Tomonokai
Alipay, WeChat, etc.
Daimaru Matsuzakaya Hakata Daimaru / Shimonoseki
Department Stores Daimaru / Kochi Daimaru Parco Shops
Other companies’ (co-branded) Cash / gift certificates
Own payment methods payment methods
19Create and Bring to Life “New Happiness.”
6. Settlement Business – Receipt Methods –
Ⅰ. Review merchant agreements
・Review merchant agreements of Daimaru Matsuzakaya Department Stores and JFR Group
companies
Ⅱ. Consider platform of receipt methods
・Acquired licenses of settlement brands (Visa and Mastercard)
・Plan to launch merchant acquiring services in 2020
Ⅲ. Promote receipt methods (cashless) that accommodate various payment methods
・Support JFR Group companies in promoting cashless transactions
ー E-money, contactless settlement (touch settlement), QR code settlement, etc.
20Create and Bring to Life “New Happiness.”
7. Finance Business
Provide finance services based on customer relationship and customer data
Use strengths of
Settlement Finance
Credit
(post-payment) Financing
Provision
Debit
Point
of
payment (prompt payment) Insurance
methods
Prepaid
(prepayment)
Asset management
Investment management
Merchant acquiring
Provision
of receipt services Exchange
methods VISA, Master, UnionPay
Suica, Alipay, WeChat, etc.
Remittance
21Create and Bring to Life “New Happiness.”
7. Finance Business
～Development from strengths～ Profit volume
(image)
Prioritize “Areas Ⅰ and Ⅱ”
High
Area Ⅱ Area Ⅰ
Financing
(revolving)
Insurance
Profitability
Financing
(loan)
Area Ⅲ Area Ⅱ
Exchange
Settlement
Investment
Lo Asset management
management
w
Remittance
Lo
w
Affinity with customers of JFR Group High 22Create and Bring to Life “New Happiness.”
7. Finance Business
Financing (revolving)
Increase revolving balance
・Increase young customers: Renew Daimaru Matsuzakaya Card
・Increase revolving payment of existing customers: Promote revolving payment of gaisho customers
・Establish ability to manage credit to expand size and improve efficiency
Insurance
Expand insurance agency business
・Reach unreached customers (gaisho / cash point card / Tomonokai)
・Try to change business model
・Develop strategy to expand corporate market
23Create and Bring to Life “New Happiness.”
7. Finance Business
Financing (loan)
Ⅰ. Consider purpose-based loans
・Consider purpose-based loans for individuals in alliance with moneylenders (banks/nonbanks)
【Examples of purpose-based loans】・Education loan ・Home loan ・Reverse mortgage
・Bridal loan
・Driver’s license loan ・Education loan ・Home improvement
loan
Infanc School Employ Marria Child Second
Birth
y age ed ge raising life
Ⅱ. Consider financing for supporting companies in Urban Dominant areas
・Consider financing for businesses using settlement data and cash flows obtained through
merchant acquiring services
24Create and Bring to Life “New Happiness.”
8. Changes in Business Forecasts (Organic Growth)
Operating profit
25Create and Bring to Life “New Happiness.”
9. Options for Dramatic Growth
Non-organic
【Business alliance, M&A, growth (image)
etc.】
・Card
・Insurance agent
・Financing (loan)
etc.
Organic growth
¥5 bn
Present 202Y 202X 26Major Turning Point of Department Store Business Model
- Opening of New Main Building of Daimaru Shinsaibashi Store -
July 23, 2019
YOSHIMOTO Tatsuya
Director and Representative Managing Executive Officer, J. Front Retailing Co., Ltd.
President and Representative Director, Daimaru Matsuzakaya Department Stores Co. Ltd.
Create and Bring to Life “New Happiness.”Create and Bring to Life “New Happiness.”
Once-in-a Century “Major Turning Point”
Environmental changes are accelerated
at unprecedented speed
“Department store” business model is
becoming increasingly obsolete
Many of successful experiences are
becoming meaningless
Can department stores evolve or be
revitalized by changing “business model”?
28Today’s Agenda
Create and Bring to Life “New Happiness.”
Ⅰ. Current situation surrounding
department stores
Ⅱ. Direction for changing department
store business model
Ⅲ. Highly profitable hybrid model
“Daimaru Shinsaibashi store”
29Create and Bring to Life “New Happiness.”
History of Retail Industry
30Entire Department Store Industry Is Create and Bring to Life “New Happiness.”
on a Downward Trend
National department store sales remain on a downward trend after peaking
at ¥9,700 bn in 1991
Most recent national department store sales in 2018 were ¥5,887 bn, below
¥6 tn for 2 consecutive years
Peak of sales
¥9,700 bn
Lehman Shock
31
*Source: “National department store sales” released by Japan Department Stores AssociationExpansion of Shoka Shiire*, Excessive Create and Bring to Life “New Happiness.”
Shift to Women’s Clothing
Main business system changed from selling after purchase called “kaitori” to
purchase without inventory called “shoka shiire”
Core operations changed from merchandising to marketing, brand assortment
At the same time, stores increasingly depended overly on women’s apparel,
department store sales peaked
*Shoka shiire: Purchase recorded at the time of sale
Image of changes in department store business structure (purchase system)
Shoka shiire
Shoka shiire
Shoka shiire
Kaitori
Kaitori
Kaitori
Kaitori
【Early days of 【1970s】 【mid-1980s】 【Present】
department stores】
32Share of Expenditure on Clothing of Household Create and Bring to Life “New Happiness.”
Expenditure Is Decreasing Steadily
Expenditure on clothing and footwear decreased to 3.8% in 2018, almost half of 7.3％ in 1991
Department stores cannot get out of past successful experiences and continue excessive floor
allocation to women’s clothing
(Yen, %)
Yen
%
33
*Source: Monthly Disbursements per Household (two-or-more-person households) from “Family Income and Expenditure Survey” by the Ministry of Internal Affairs and CommunicationCreate and Bring to Life “New Happiness.”
Toward Discontinuous Growth
Discontinuous
Business models for the past 50 growth
years no longer apply
Sales
Limit of
Growth curve as-is Growth curve
over the next
over the past extension
50 years 50 years
Present
Timeline
34
Decided to abandon “conventional department store business model”
when we developed current Medium-term Business Model (FY2017-21)Actually Change Department Store Business Model Create and Bring to Life “New Happiness.”
during Current Midterm Plan
Business model centered on shoka shiire and women’s clothing stalls
Low growth, rising business risk in mature market
Cannot create enough return to match asset value
Redefine what business model should be
35Create and Bring to Life “New Happiness.”
Direction for Changing Business Model ①
“Not operate department stores”
Shoka shiire
Fixed-term
lease
Kaitori
“Ginza Six”
Opened in 2017
Created by developing two blocks including former site of 36
“Matsuzakaya Ginza store” as oneCreate and Bring to Life “New Happiness.”
Direction for Changing Business Model ②
“Hybrid”
Fixed-term
Shoka shiire lease
Shoka shiire
Kaitori
Kaitori
“New main building of Daimaru Shinsaibashi store”
Planned to open on September 20, 2019
Combine strength of “kaitori / shoka shiire” and strength of 37
“fixed-term lease” at optimal balanceCreate and Bring to Life “New Happiness.”
Innovation of Department Store Business Model
Created new business model with unprecedented “hybrid structure” leading to
future of department stores
Capital investment of ¥38 bn in new main building of Daimaru Shinsaibashi store,
planned to open on September 20, 2019
Delight the World
- Shinsaibashi, Adored by the World -
- “philosophies” 5 values to be offered -
Reach the highest level of locality and provide globally
Produce a dramatic world view so that
customers will become media
Offer highly authentic products with discerning ability
regardless of whether they are well known or unknown
Foster “next generation arts and crafts” that find
beauty in life and harmonize things and people
Aim to improve and restore civic pride
with the local community
38
*The photo is for illustrative purpose only.Characteristic Customer Composition of Create and Bring to Life “New Happiness.”
Current “Shinsaibashi Store”
“Affluent customers,” mainly gaisho customers, and “foreign tourists”
generate more than 60% of sales
It is important to draw out maximum potentials of “2 promising pillars”
Daimaru Shinsaibashi store
Sales percentage by customer
Categories that can be grown by
inbound tourists and affluent
Gaisho customers: Maximize profit by
(credit sales) kaitori / shoka shiire
Domestic and other
Other categories:
Inbound Attract more customers and make
(tax-free sales)
revenue more stable and more
efficient
39
*Figures are actual percentages in FY2018.Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Strengthening of Cosmetics and Luxury
Maximize gross profit of cosmetics/luxury by increasing floor area
and brands to grow sales
Main building of
Shinsaibashi store
Floor area Add
+78 Cosmetics
+15
％ brands
Floor area Add
+15 Luxury
+11
％ brands
40
*Figures are comparison to current “north wing.”Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Restructuring of Women’s Apparel
Narrow down women’s apparel to around 60% of current floor area and number of
brands under “fixed-term lease”
Floor area No of brands
- 40 Women’s
apparel - 40
％ ％
Actively introduce shops that combine
women’s and men’s fashion items
Expand floor area per brand to create world view and value of brand
Use know-how and achievements of Ginza Six 41
*Figures are comparison to current “north wing.”Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Strengthening of Experience-based Consumption
Increase entertainment with food, restaurants and Japanese culture to
attract more customers
Floor area Add
+83 Food
Restaurants 65/104
％ brands
Provide Japanese culture globally
Pokemon Center Osaka DX
Pokemon Cafe
Jump Shop
Tully’s Coffee Kaiyodo
42
*Figures are comparison to current “north wing.”Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Innovative Low-Cost Operation
Change HR structure to completely different one from traditional
department stores by introducing fixed-term lease boldly
Fixed-term HR
lease structure
65 - 250
％ posts
*Other:
Reduce facility, admin, logistics
and hygiene management costs
Realize low-cost operation that supports highly profitable operation
43
*Figures are comparison to current “north wing.”Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Hybrid and Mixed Category Floor Composition
Hybrid composition: Kaitori / shoka shiire 35% and fixed-term lease 65% of a total of 370 shops
Adopt “mixed category” learned from Ginza Six, “fashion floors” on 4th to 6th floors
10F Restaurants
9F Entertainment
8F Lifestyle
7F Shinsaibashi Terrace (tentative)
6F Fashion
5F Fashion
4F Fashion
3F Luxury fashion / Shoes
2F Luxury fashion / Jewelry
1F Cosmetics / Fashion jewelry
B1 Food / Women’s accessories
B2 Shinsaibashi Food Hall
44
Low-cost operation through HR structure reformMain Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Store Environment－Fusion of “Tradition” and “Innovation”
Create special space by merging beauty of W. M. Vories architecture
before rebuilt with modern design
売場面積 新規導入
％ ブランド
45Main Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Use of Digital Technology
Digital art Improve convenience
Create artistic world with LED monitor images in Enable pre-order with smartphone and visualize
escalator space penetrating from 1F through 10F congestion status of restaurants using digital
Food Hall on B2F
1 2 3 4
Order Visit Cook Pickup
store
【Customer】 【Customer】 【Tenant】 【Customer】
Order and pay at Touch order Confirm order from Stop beep on
home or before confirmation printer in Kitchen smartphone and
and touch call button pick up order at
visiting store button after seated
when cooked
counter
Restaurants on 10F
Visualize with store
Visualize by giving
Visualize with QR code monitor (sales floor / Visualize online
numbers
information desk)
46
50 m by 4 m LED panelMain Building of Shinsaibashi Store Create and Bring to Life “New Happiness.”
Flagship Store that Addresses ESG Issues
Create store and community with strong consciousness of ESG issues such as
consideration for global environment and coexistence with local community
100% LED lighting in
building including
backyard
Change all vehicles for
out-of-store sales to EVs
Main building and north
wing will act as one to
create inbound center
Secure parking lot for
390 bicycles to address
on-street parking issue
47
“Shinsaibashi Terrace” (tentative) on 7F
*The photo is for illustrative purpose only.Create and Bring to Life “New Happiness.”
Scalable Hybrid Business Model
“Main building” will open on
September 20, 2019
“Main building” will fully
operate in FY2020
Expected to increase profit ¥2 to
2.5 bn compared to FY2019
*The photo is for illustrative purpose only.
Establish new scalable “business model” by repeating PDCA
48
Apply this to Nagoya store and other flagship storesCreate and Bring to Life “New Happiness.”
Connect Main Building and North Wing as One
North wing New main building
Planned to open in spring 2021 Planned to open in September 2019
Specialty
shop mall
Daimaru
Parco
Open “north wing” as Real Estate Business
and connect it to main building in FY2021
Expected to increase profit more than ¥2 bn compared to FY2020
49
(Revenue impact on Daimaru Matsuzakaya Department Stores)Create and Bring to Life “New Happiness.”
Achievement of Both Social Value and Economic Value
Creation of community centered around Daimaru
Shinsaibashi store, which will be newly reborn, as
“Shinsaibashi, Adored by the World“ is fully in progress
Realize highly profitable Store planning with
business model ESG perspective
Create new value with which society empathizes
Accelerate “Urban Dominant Strategy”
for growing with local communities 50Finance Strategy of J. Front Retailing
July 23, 2019
J. Front Retailing Co., Ltd.
WAKABAYASHI Hayato
Director and Managing Executive Officer
Senior Executive General Manager, Financial Strategy Unit
Create and Bring to Life “New Happiness.”Today’s Agenda
Create and Bring to Life “New Happiness.”
I. Seven initiatives to increase corporate value
1. Setting mid- to long-term financial strength target
2. Adding B/S to management perspective
3. Reviewing investment criteria and withdrawal criteria for existing businesses
(1) Investment Project Review Committee
(2) Revitalization Plan Review Committee
4. Defining optimal shareholder composition
5. Studying shareholder return measures (dividend / share buyback)
6. Maintaining / improving rating
7. Preparing for large-scale purchases
Ⅱ. IFRS
Ⅲ. Finance talents
Ⅳ. The Company’s quantitative management
52
objectivesⅠ-1. Setting mid- to long-term financial strength target
Create and Bring to Life “New Happiness.”
Background to Setting ROE target at 8%
～Relationship between Management Indicators and Hurdle Rates
□ Require return on investment above hurdle rate to achieve management indicators
□ Recognize the Company’s cost of shareholders’ equity at 6 to 7 % and set ROE target
at 8% or more above it
Management
indicator ＞ Hurdle rate
Operating
liabilities Revised
ROA before-tax
4.5％ WACC
Interest- 4.0％
ROIC
bearing ＷＡＣＣ
5.5％ Assets debt ５.0％
Parent Cost of
shareholders’
ROE ８％ interest equity
６-７%
Non-controlling
interest
53Ⅰ-1. Setting mid- to long-term financial strength target
Relationship between Capital Investment of
Create and Bring to Life “New Happiness.”
¥200 bn and Return
□ ROIC that represents return on midterm plan investment of ¥200 bn
(¥14 bn increase in operating profit, ¥10 bn increase after tax) exceeds WACC
Amount/% Special note
① FY2017-21 investment \200 bn Nominal investment
Department Store safety and security (\20 bn), Real Estate upfront investment
② Considerations (\53 bn) (\7 bn), Parco upfront investment (\13 bn), IT upfront investment (\1.3 bn)
③ FY2017-21 investment \147 bn ①-② Real investment that contributes to return in current midterm plan
Previous midterm plan Previous midterm plan investment that contributes to return in current
④ \35 bn midterm plan
upfront investment
⑤ Adjusted investment \182 bn ③+④
⑥ Increase in operating profit \14 bn ≒FY2021 \56 bn ー FY2016 actual \41.7 bn
Increase in operating profit
⑦ (after tax)
\10 bn ≒ \14 bn increase in operating profit × (1- Tax rate 0.3） ≒ Cash flow
⑧ ROIC 5.5% ⑦÷⑤
ROIC WACC
Exceeding the Company’s
hurdle rate (WACC)
5.5% ＞ 5.0% 54Ⅰ-1. Setting mid- to long-term financial strength target Create and Bring to Life “New Happiness.”
Breakdown to achieve 8% ROE
□ Operating companies focus on improving ROA
Improve asset efficiency through store-by-store B/S management,
Investment Project Review Committee / Revitalization Plan Review
Committee
□ Holding company promotes tax strategy (consider consolidated tax payment)
and finance strategy
Tax strategy ROA Finance strategy
Operating Total
Profit Net sales
profit assets
ROE ＝ × × ×
Operating
profit
Net sales Total assets Equity
(%) (Times) (%) (Times) (Times)
FY2016 0.65 0.46 2.77
7.6％ ＝ × 9.2％ × ×
times times times
4.2％
*After applying IFRS 16
4.5％
FY2021 ８％ 0.66 0.39 3.12
≒ × 11.6％ × ×
or more times times times
55Ⅰ-1. Setting mid- to long-term financial strength target
Breakdown of Quantitative Management Create and Bring to Life “New Happiness.”
Objectives (JFR Consolidated)
□ PBR＝PER×ROE So holding company will strive to optimize stock value /
equity / profit to maximize corporate value and improve ROE
□ Need to improve ROE and increase PER accordingly for optimal balance
Present FY x
Stock value
株式価値
Stock
株式価値 value
1.0
1.0
0.5
PBR PER PBR 0.5 PER
1.1 16.8 *** ***
0.0
0.0
自己資本
Equity 当期利益
Profit
ROE 自己資本
Equity 当期利益
Profit
ROE
6.8%
***
Stock value : Equity : Profit = 17 : 15 : 1 Stock value : Equity : Profit = 15 : 10 : 1
56Ⅰ-1. Setting mid- to long-term financial strength target
Breakdown of Quantitative Management Create and Bring to Life “New Happiness.”
Objectives (Department Store Business)
□ Department Store Business will promote efficiency by maintaining
stable earnings and improving operating margin
Present FY x
Net sales
売上高
Net
売上高sales
1.0
1.0
Total assets 0.5 Operating
総資産回転率
turnover 営業利益率
margin Total assets 0.5 Operating
turnover
総資産回転率 営業利益率
margin
2.07 3.6%
0.0 *** ***
0.0
Total Operating
総資産 営業利益 Total Operating
assets ROA profit 総資産 営業利益
profit
assets ROA
7.4%
***
Net sales : Total assets : Operating profit Operating
Net sales : Total assets : Operating profit
= 28 : 14 : 1 = 25 : 15 : 1 margin
57Ⅰ-1. Setting mid- to long-term financial strength target
Breakdown of Quantitative Management Create and Bring to Life “New Happiness.”
Objectives (Real Estate Business)
□ Real Estate Business will promote expansion of business scale and
growth while ensuring appropriate operating margin and also
considering improvement of total assets turnover
Present FY x
Net
売上高sales Net
売上高sales
1.0 1.0
Total assets Operating Total assets Operating
turnover
総資産回転率 0.5 営業利益率
margin turnover
総資産回転率 0.5 margin
営業利益率
0.07 30.1% *** ***
0.0 0.0
Total Operating Total Operating
総資産 ＲＯA 営業利益 総資産 ＲＯA 営業利益
assets profit assets profit
2.2% ***
Net sales : Total assets : Operating profit Net sales : Total assets : Operating profit
= 3 : 45 : 1 = 5 : 25 : 1
58Ⅰ-2. Adding B/S to management perspective
Store-by-store B/S Management (March 2017 -)
Create and Bring to Life “New Happiness.”
Focus KPI from Perspective of Asset Efficiency
□ Focus of all department stores changed from P/L to B/S to achieve
consolidated ROE of 8%
□ Continue to promote management of “focus indicators” in addition to
“traditional indicators”
Margin
B/S
Accounts
Profit perspective receivable ⇒Prevention of delay
Focus indicators
collection ratio in collection, etc.
Operating Total assets
profit turnover
Merchandise ⇒Assessment with
turnover turnover / cross ratio
Net sales
Total ⇒Investment project
assets Sales per that highly contributes
month/tsubo
ROE ROA to ROA, etc.
Operating ⇒Examined by
Profit profit
Recovery of
investment committee,
investment
etc.
Equity Total assets
P/L
Traditional indicators
perspectiv Associated sales
Profit e
margin
No of new identifiable
Financial Operating customers
leverage profit Continuing
Product sales profit focus
Net sales
Total assets
Efficiency of operating
Equity expenses
59Ⅰ-2. Adding B/S to management perspective
Strengthening of Department Store B/S Create and Bring to Life “New Happiness.”
Management
□ “Understand own store’s B/S”
“Set midterm target” “Build investment PDCA cycle to achieve
midterm target (form Investment Project Review Committee
in
Department Store)”
Past: Phase 0 Introduction: Phase 1 Evolution: Phase 2
(- 2016) (2017 - 2018) (2019 -)
Recognize issues Grasp current situation and Strengthen initiatives
raise awareness
■Grasp current assets’ earning
■No store-by-store B/S ■Transferred land/buildings, power
Performance management operating receivables/payables, ■Develop investment projects
only with P/L which had been recorded by from perspective of EBITDA
head office, to each store and C/F and reflect it in the
■Major assets (building
projects
frames, etc.) were recorded Visualized store-by-store B/S ■Create investment committee
by head office
■Investment projects only Set midterm B/S target
■Budget each store’s B/S and ROA ●
aimed to maintain/increase Strengthen investment
sales ■Use it as performance indicator for
PDCA cycle
store managers, etc.
■Set the amount of equity
Can grasp each store’s profitability by store
Could not grasp ●
asset profitability Raise awareness
60
Visualize cumulative profitsⅠ-2. Adding B/S to management perspective Create and Bring to Life “New Happiness.”
Setting of the Amount of Equity by Segment
□ Split head office account of Department Store into equity and borrowings to
make store-by-store B/S clearer
□ Step 1: Set appropriate equity ratio of Real Estate Business at 30% from
3 perspectives and determine allocation of equity to each of
Department Store and Real Estate Business segments
Step 1 Shareholders’ equity Consider appropriate equity ratio of Real
By segment ¥182 bn Estate Business
(1) Benchmark indicator
(2) Liability approach (borrowing limit)
(3) Asset approach (impairment risk)
Allocate head office account on Real
Estate Business B/S to equity and head
office borrowings
Liabilities
Head office
Department Real Assets Head borrowings
Store Estate office
¥＊＊ bn ¥＊＊ bn ¥＊＊bn Equity
61Ⅰ-2. Adding B/S to management perspective Create and Bring to Life “New Happiness.”
Setting of the Amount of Equity by Store
□ Step 2: Allocate full amount of Department Sore equity
⇒ Visualize cumulative profits
□ Adopt “comprehensive ratio” that exhaustively reflects size of sales /
assets / profits
Shareholders’ equity
Comprehensive ratio (Ａ:Ｂ:Ｃ＝３:２:１)
¥182 bn
A Sales size: Current earning size
B Asset size: Safety
Step 1 C Profit size: Profitability
By segment
Department
Real Estate Allocate head office account on each
Store
¥＊＊ bn store B/S to equity and head office
¥＊＊ bn
borrowings using comprehensive ratio
Liabilities
Head office
Assets Head borrowings
Step 2
Corporate Sales
office
Shinsaibashi
Shizuoka
Sapporo
Nagoya
By store Equity
Umeda
¥＊＊bn
Tokyo
Kyoto
Ueno
Kobe
Comprehensive
ratio 62Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1)
Create and Bring to Life “New Happiness.”
Investment Project Review Committee
□ Investment decision making requires comprehensive judgment such as
quantitative criteria and qualitative criteria
□ The Committee was created to set quantitative investment criteria,
formulate operation rules, and inspect and judge profit/loss plan before
decision making concerning large-scale investment
□ 3 years have passed since launch and discussions have further advanced
due to accumulated know-how + participation of legal staff, etc.
Judge comprehensively
Quantitative criteria Qualitative criteria
■Investment in store renovations: ■Investment purpose/meaning
Payback method ■Alignment with Vision and strategy
■Contribution to
■Development investment, rebuilding brand/community/environment, etc.
project, etc.: NPV method ・・・
(NPV≧0 ⇒ OK)
■M&A: DCF method (stock value) Financial / legal / other risks
63Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1)
Create and Bring to Life “New Happiness.”
Flow of “Investment Project Review Committee”
□ Investment Project Review Committee examines in terms of quantitative
criteria + risks and presents opinions
Add qualitative criteria and judge comprehensively at Management
Meetings and Board of Directors meetings
Investment Project Review Committee Group Management Meeting /
(Examine from financial perspective) Board of Directors meeting
① OK
Propose
Proposing Present Quantitative
Quantitative
division examination criteria
criteria results
② No Risk
Risk
＋
③ No (Re-examine) Qualitative
criteria
64Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1)
Create and Bring to Life “New Happiness.”
Hurdle Rates by Business
□ Determined hurdle rates by business by reference to peer 5-year average discount rates
Investment Project Review Committee uses them as discount rates for NPV method
Peer 5-year
Business Hurdle rate
average
Department Store 5.0% 4.4%
Parco
4.5% 3.9%
Real Estate
Credit and Finance 3.0% 2.2%
Staffing Service 5.5% 5.0%
Design and
5.5% 4.9%
Construction
Entire Group 5.0%
*The hurdle rate of the entire Group is not peer average but calculated using the following formula:
Cost of shareholders’ equity × Shareholders’ equity / (Interest-bearing liabilities + Shareholders’ equity) + Cost of liabilities
× (1 – Effective tax rate) × Interest-bearing liabilities / (Interest-bearing liabilities + Shareholders’ equity) 65Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (1)
Items Examined at Investment Project
Create and Bring to Life “New Happiness.”
Review Committee
The Committee examined a total of 11 items including
the following since it was created in 2016
Amount
Item invested
Investment criteria Judgment
Floor renovation of Daimaru Payback period
Kobe store ¥1.3 bn OK
(September 2016) within 5 years
Corporate value of
Acquisition of shares in
company X fell below
Company X ¥●● bn No
estimated acquisition
(November 2016)
amount (DCF method)
Opening of Kinshicho Parco
¥1.9 bn NPV ＞ 0 OK
(March 2017)
66Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (2)
Screening of Underperforming Businesses Create and Bring to Life “New Happiness.”
(Management by Phase)
□ The Committee classifies the Group’s businesses into 3 phases and
reviews them on a regular basis
□ The Committee inspects the businesses and examines validity of measures
Normal
Screening of underperforming businesses
Continue to manage
Phase ●Continue to achieve performance
Ⅰ operating profit at each company
Revitalization Plan Review Committee
Caution needed
●1st period of operating deficit Revitalization
Phase ●Sign of operating deficit plan
Ⅱ ●New business with operating 【prepared by
deficit beyond initial plan operating company】
Consider revitalization/
withdrawal Revitalization
Phase ●2 consecutive periods of operating deficit plan
Ⅲ ●Concern about liabilities exceeding assets 【prepared by
holding company】
●New business expected to make a loss
in FY when it is planned to turn profitable 67Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (2)
Create and Bring to Life “New Happiness.”
Revitalization Plan Review Committee
□ The Committee was created to inspect loss-making businesses
quantitatively and qualitatively and examine validity of measures
for “revitalization or withdrawal”
Judge comprehensively
Quantitative criteria Qualitative criteria
■Probability of revitalization plan ■Meaning of revitalization
■Group strategic need
■Achieve operating profit ・・・
within 3 years
■ROIC > WACC in 5th year
Financial / legal / other risks
68Ⅰ-3. Reviewing investment criteria and withdrawal criteria for existing businesses (2)
Create and Bring to Life “New Happiness.”
Items Examined at Revitalization Plan Review
Committee
The Committee examined 6 items including
the following since it was created in 2016
Item Description Decision
Senshukai announced its intention to take over
business March 2017
JFR Online Transferred business to its 100%-owned subsidiary Business transfer
Feel Life
Performance below initial targets and operating deficit June 2017
Closing of business
continued since inception
JFR Plaza Considered it difficult to turn the company profitable
and dissolution
and decided to close business and dissolve it
December 2017
Completion of liquidation
Daimaru Continued poor performance since 2007 and could not
eliminate operating deficit even after recognizing July 2017
Urawa Parco impairment losses. So considered it difficult to turn Closing of business
store the company profitable and decided to close business
Continued to decrease profit and expected Spring 2020
Daimaru 3 consecutive periods of operating deficit. So drew up Renovation and
Ashiya store plan to reform by returning part of leased floors and reopening
inviting tenants and decided to continue business (Planned) 69Ⅰ-4. Defining optimal shareholder composition) Create and Bring to Life “New Happiness.”
Optimal Shareholder Composition
□ Define optimal shareholder composition (guide/target)
1. Currently domestic institutional investors constitute the majority of
shareholders. We will increase domestic private investors and foreign
institutional investors to improve balance and ensure management
stability
and steady growth of share price.
2. Change shareholder return measures, financing measures and investor
relation activities according to aimed shareholder composition
Present Aimed
Domestic composition
private Domestic Domestic
investors private institutional
29% Domestic investors investors
institutional
investors
Foreign
institutional
54% Foreign
investors institutional
investors
17%
Domestic institutional investors Increase private/foreign
constitute the majority. Particularly, investors to improve balance
70
financial institutions account for 40%.Ⅰ-5. Studying shareholder return measures (dividend / share buyback) Create and Bring to Life “New Happiness.”
Shareholder Return Policy
□ Continue shareholder return targeting dividend payout ratio of at least 30%
□ Purchase own shares as appropriate (Purchased own shares of ¥5 bn in
2015)
(Yen)
Share
buyback
¥5 bn
Commemorative
dividend
Ordinary dividend
*Annual dividend per share is shown on a post-share consolidation basis. 71Ⅰ-6. Maintaining/improving rating Create and Bring to Life “New Happiness.”
Optimization of Equity of Each Company in the Group
□ Review and optimize equity of each company in the Group to reduce total
assets
Reduce
cash Liabilities
and Business
deposits efficiency
Liabilities
UP
Net
Assets assets Assets
Reduce Net
equity assets
□ Increase equity of holding company to improve double leverage ratio from
100% to 94%
Double leverage ratio Shares of subsidiaries and associates
(Less than 100% is ＝
desirable) Equity of JFR
72Ⅰ-7. Preparing for large-scale purchases Create and Bring to Life “New Happiness.”
Preparation for Large-scale Purchases
Created project team in 2016
Organized functional teams and confirmed major roles
(To be formed in case of hostile takeover)
FA Consultation FA
Board of Independent
Directors Advice/opinion
committee*
LA LA
*Several members can be selected from
independent Outside Directors and experts
Secretariat: Secretariat:
Board of Directors Finance *FA: Financial advisor
Secretariat / Team Leaders LA: Legal advisor
Information
Strategy Stock Price Analysis
Fact Finding Team Management
Formulation Team Team
Team 73Ⅱ. IFRS Create and Bring to Life “New Happiness.”
Purpose of Adopting IFRS
□ Decided it is effective tool to change awareness about and system of
business management and achieve midterm business targets
□ Applied IFRS when midterm 5-year plan started in FY2017
Purpose of adopting IFRS Mid- to long-term business strategy
① Business management with (1) Strengthen competitiveness of
focus on profit (P/L) Department Store Business through
new department store model
Focus of business management shifts
from “operating profit” to “profit” ・Shift to profitable business model
・Build store operation system with high
asset efficiency
② Business management with
focus on asset efficiency (B/S)
Promote business management to use (2) Strengthen initiatives in
assets effectively after “evaluating them growth areas
properly”
Through M&A and alliance
③ Response to M&A and ・Incorporate growth areas
globalization ・Expand businesses in overseas markets
Promote M&A, alliance, IR, etc.
74
Improve brand imageⅡ. IFRS Create and Bring to Life “New Happiness.”
Response to New Accounting Standards
Recorded at present discounted value of unexpired operating leases
⇒ Assets/liabilities recognized on lessee’s B/S will increase
Accounting for lessees
Operating leases Finance leases
Former standards
Rent expenses / Lease assets / Lease obligations
Lease obligations / Cash and deposits
Cash and deposits
Interest expenses / Cash and deposits
(not recognized as assets) Depreciation / Accumulated depreciation
On balance (same as finance leases)
IFRS 16
Right-of-use assets / Lease liabilities
Lease liabilities / Cash and deposits Excluding
short-term leases (within 12 months) and
Interest expenses / Cash and deposits
low-value leases (purchase price of $5,000
Depreciation / Accumulated depreciation or less when new)
75Ⅱ. IFRS Create and Bring to Life “New Happiness.”
Impact on Financial Statements
◎Impact of IFRS (applied in 2017)
B/S: Total assets decrease
・・・ Evaluated at fair value, assets including land decrease (debtor) / Net assets decrease (creditor)
P/L: Operating profit decreases
・・・ Sales are presented on a net basis (Gross amount is presented for reference)
Non-operating expenses/income are replaced with other operating expenses/income
Ordinary profit is not presented and others
◎Impact of new lease accounting (applied in 2019)
B/S: Total assets increase ・・・ Recognize right-of-use assets (debtor) / lease liabilities (creditor)
P/L: Operating profit increases ・・ Depreciation ＜ Rent expenses
CF: Operating CF increases / Financing CF decreases ・・・ No impact on total CF (same amount of transfer)
76Ⅲ. Finance talents Create and Bring to Life “New Happiness.”
Placement and Evaluation of Finance Talents
□ Financial Strategy Unit of JFR formulates placement and evaluation plan
for finance talents of operating companies
Human Resources Strategy Unit makes a final decision after discussing
with Affiliated Business Unit
【Former】１ reporting line and evaluation 【New system】 2 reporting lines and evaluation
JFR Senior Executive JFR Senior Executive General Manager
General Manager of of Financial Strategy Unit
Financial Strategy Unit ① Transfer and placement /
Promotion and pay raise plan
Affiliated Business Unit
Human Resources Affiliated Business Unit
Strategy Unit Human Resources Strategy Unit
Final decision on transfer and
placement / promotion and pay
raise plan
Operating companies
(responsible person)
① Transfer and placement / Operating companies
Promotion and pay raise (responsible person)
② Semiannual/annual ② Semiannual/annual
performance evaluation performance evaluation
Finance responsible person of Finance responsible person of
operating companies operating companies
77Ⅲ. Finance talents
Employment and Development Plan of Create and Bring to Life “New Happiness.”
Finance Talents
① Employment of new graduates and mid-career job seekers in
cooperation with HR divisions
■ Finance divisions participate in recruitment activities to identify
people trained in finance and assign them to finance divisions
Newly graduated employees are assigned after one-year OJT in stores
② Career-path-conscious finance talent training
■ Acquire overall basic accounting/finance operations intensively in short term
Aim to complete in 5 years after assigned to finance divisions
■ Measure business ability regularly and quantitatively
Introduction Beginning Middle Realization Contribution
OJT
in Acquire Search Shape Seek Pursue
MG GM
stores basics career career career career
78Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.”
FY2021 Quantitative Management Objectives
FCF
Operating profit ¥56 bn
(Up ¥14.2 bn from FY2016)
>
0
ROE
Operating margin 10％
8%
8.0％ or more
Operating
Equity ratio
margin
４０% ROE
１０%
Reason behind ROE target of 8%
Cost of shareholders’ equity
FY2021
recognized by the Company
ROE target
8.0％ or more ＞ 6 - 7％
79Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.”
Progress of Business Portfolio Transformation
“Real Estate Business” is growing steadily with opening of “Ginza Six” and “Ueno
Frontier Tower”
Parco Business reports loss on business liquidation in FY2018 due to decision to close
Kumamoto Parco and Utsunomiya Parco
(Billions of yen)
Percentage of “operating profit” (before application of IFRS 16) 56
Credit and
Finance
49.5 Other
18%
41.7 45
Credit and Finance
Other 40.8 Real Estate
12%
Real Estate
Parco
Parco
Department Department
Store Store
Forecast Forecast
(FY)
80Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.”
Creation of Cash Flows and Strategic Investment
Capital investment
Investing cash flows
¥200 bn or more
Growth investment
Operating cash flows
¥260 bn or more
Shareholder return
Free cash flows
¥60 bn or more
Expansion of equity
Implement capital policy well balanced among strategic investment,
improvement of shareholder return and expansion of equity
Realize management structure that can achieve 8% ROE continuously 81Ⅳ. The Company’s quantitative management objectives Create and Bring to Life “New Happiness.”
Annual Forecast of Capital Investment
□ Accumulated investment for 5 years of midterm plan: ¥200 bn
Investment will peak in FY2019, and subsequently free CF will turn
significantly positive
□ Properly judge investment matters based on hurdle rate set by business
(Millions of yen)
Other
M&A
Daimaru
Matsuzakaya
Capital investment (excluding
Growth investment Real Estate)
¥200 bn
(5-year total)
Parco
Business
Real Estate
Business
82
(FY)Website https://www.j-front-retailing.com
Create and
Bring to Life
“New Happiness.”
Forward-looking statements in this document represent our assumptions based on information currently available to us and inherently involve potential
risks, uncertainties and other factors. Therefore, actual results may differ materially from the results anticipated herein due to changes in various factors.You can also read
