The following risks are likely to affect the sales performance, stock value, financial situation, etc. of the Senshukai Group.
Note that matters in the text related to the future are those that have been decided as of December,31,2021.

1. Risks related to changes such as the political or economic situation in producing countries

Most of the products our Group sells are imported from Asian countries such as China. This means that there is the chance of political and economic situations, or natural disasters, in China and other Asian nations affecting our Group’s performance and financial situation.

2. Risks related to currency fluctuations

The main business of our Group is mail-order and online shopping business, and some of the items we handle are imported from overseas denominated in foreign currencies. This means that major changes in the exchange rate could affect our Group’s performance and financial situation.

3. Risks related to the leakage of personal information

Along with some of our subsidiaries, we fall under a personal information-handling business as stipulated in the Personal Information Protection Law. Along with complying with the law, our Group is boosting its internal management system, installing a person in charge of managing customer information to prevent leaks. We have also obtained Privacy Mark certification.
However, should there be a leak of personal information held by our Group, it has the risk of leading to a loss of confidence in our Group, and this worsened corporate image affecting our performance and financial situation.

4. Risks related to natural disasters, etc.

In our Group’s main business of mail-order and online shopping business, any natural disasters will have a major effect on tasks such as order processing and product shipment. To minimize these effects, we use redundant systems and earthquake-resistant measures, as well as using distributed shipping centers. In addition, we have also established a Disaster Response Committee and set response rules for when a disaster strikes.
However, should a major disaster cause damage to our facilities, it will affect our order processing and product shipment work, and has the risk of affecting our Group’s performance and financial situation.

5. Risks related to systems

There is the risk of damage to our Group’s computer systems through a range of causes that include earthquakes, typhoons, floods, hardware or software failure, terrorism, and cyberterrorism. As almost all our work is done on computers, taking some time to recover from computer problems has the risk of affecting our performance and financial situation.

6. Risks related to legal regulations, etc.

In our Group’s major business, mailorder business, we are subject to a number of legal regulations, including the Act against Unjustifiable Premiums and Misleading Representations (Premiums and Representations Act), the Act on Specified Commercial Transactions, the Pharmaceutical and Medical Device Act, and the Product Liability Law. Therefore we are developing a system to enforce compliance with these laws through the creation of management systems that include developing a compliance system and thorough staff education.
However, if there are revisions to the regulations in the related laws or new regulations are created, or these regulations can no longer be complied with, there is the risk of damage to our Group’s business and performance, such as a worsened corporate image.

7. Risks related to unseasonable weather

In our Group’s major business, mail-order and online shopping business, unseasonable or inclement weather such as cold summers, warm winters, or extended periods of rain can affect sales, so there is the risk of effects on our Group’s performance.

8. Risks related to corporate acquisitions and strategic tie-ups

Our Group may perform corporate acquisitions and enter into capital and other strategic tie-ups as an ongoing part of our business strategy to expand existing business bases or advance into new businesses. Ample surveys, analyses, and investigations will be conducted when reaching decisions on such moves. However, contingent liabilities may develop and unrecognized liabilities may surface after the acquisition or alliance. In the event business plans do not progress as initially intended, there is the risk of serious effects on our Group’s performance.

9. Risks related to inventory

Our Group efforts are made to refine procurement, sales, and inventory plans, to reinforce inventory control, and to improve the turnover rate of merchandise. However, unexpected fluctuations in sales volumes may cause overstock. In the event the overstock does not decrease, requiring disposal or leading to appraisal loss, there is the risk of serious effects on our Group’s performance.

10. Risks related to product safety

We are carrying out initiatives Group-wide to improve the quality of the products our Group provides, ensuring not only that they in compliance with related laws, but also through establishing our own in-house standards and regulations. However, there is the risk that in the future, problems could arise regarding safety or display in products for sale or advertisement representations. If this sort of issue arises, it is expected to cause declines in sales through a decline in the image of our Group as well as considerable costs, and has the risk of affecting our Group’s performance and financial situation.

11. Risks related to harmful rumors spread by the internet, etc.

Our Group is working to maintain and improve trust through press releases, the timely disclosure of information, and so on, trying to prevent risks from manifesting themselves. However, postings to internet bulletin boards or the spread of rumors or theories by the mass media, etc. based on these postings have the risk of affecting our Group’s business, performance, and financial situation, as well as our company’s stock price.

12. Risks in the mail order and online shopping market

In the mail-order and online shopping market, which is the main business of the Group, the mail-order and online shopping market itself is expected to expand in recent years due to the expansion of information and communication infrastructure such as the Internet and smartphones and the spread of mobile terminals. In response to these changes in the purchasing environment, the Group is shifting from traditional styles, centered on catalogs, to e-commerce to strengthen e-commerce sales. However, due to the intensifying competition accompanying the expansion of the mail-order market, competition with existing businesses and the provision of new high-value-added services by new entrants may reduce the Group's competitiveness. In this case, the business performance of the Group may be affected.

13. Risks related to impairment of fixed assets

The Group has various tangible fixed assets to be used for business and intangible fixed assets such as goodwill associated with corporate acquisitions. If the expected future cash flows from the assets held by the assets decrease, the impairment loss will occur due to the application of the “Accounting Standard for Impairment of Fixed Assets”, which may affect the Group's business performance and financial position.

14. Measures to eliminate significant events described in Business and Other Risks

In the fiscal year 2024, we will continue to work on measures to improve results of operations and make flexible adjustments with the aim of transforming our business structure and returning to profitability in fiscal 2025.
Furthermore, we will revisit our philosophy that the reason for a company’s existence lies in its contribution to society. We will face social issues head-on, taking the lead as a flag-bearer, and work with consumers and business partners to transform ourselves into a company that solves social issues, aiming to realize a sustainable society through lifestyle proposals and the provision of products, services, information, and places to connect, thereby enriching the value of our existence as a company and improving its corporate value.

The medium-term management plan, which ends in the fiscal year 2025, previously laid down the following three goals.

(1) Be a source of unique products and services that can be integral elements of our customers’ lives by reflecting in our products and services a broad range of values and lifestyles and an accurate understanding of customers’ lifestyles.

(2) Use close ties with customers to supply more products that are environmentally responsible, can be used with confidence, and make customers excited to purchase and use. Increase measures for the recycling and reuse of merchandise (maximize utilization value*) for contributing to a sustainable society where all products are used as much as possible.

(3) Play a role in the establishing of a co-creation society that brings together people and companies that share the same values and encompasses many types of lifestyles.

* Utilization value is the sum of the value of goods and services (quality, price, accuracy of meeting needs, attractive and practical designs, materials/ideas for products people like and use a long time, and other attributes) and the value of those goods and services during and after their use.

15. Important Matters Regarding Going Concern Assumption, etc.

Due to issues related to the replacement of our core system implemented in January 2022, the Senshukai Group recorded a significant operating loss and loss attributable to owners of parent in 2022. In 2023, the Group continued to record a significant operating loss and loss attributable to owners of parent. These circumstances raise significant doubts about the Group’s ability to continue as a going concern. The Group is taking the following measures to resolve this situation.

＜Measures to improve results of operations＞

A. Reforming the mail-order and online shopping business structure

1) Enhancing proposal capability (what and for whom) based on a deep understanding of customer needs Rather than securing sufficient numbers of models to publish catalogs, we will shift to a product lineup with a deep understanding of customers and a greater awareness of themes and seasons. By concentrating resources on narrowly focused products, we will enhance our product and proposal capabilities, improve the list price sales ratio, and enhance gross profit margins.

2) Clarifying and integrating the roles of catalogs and digital media By analyzing customers purchasing behavior,we will design the optimal combination of paper-based (including catalogs, flyers, and direct mail) and digital measures, leveraging the strengths of each to maximize sales promotion efficiency. As the e-commerce market grows increasingly challenging, the catalog will be used as a tool to enable differentiation, mainly in the promotion of sales to existing members, while digital media will be used efficiently to strengthen SEO (search engine optimization) measures and social media marketing and as a tool for acquisition of new members and communication.

3) Promoting customer retention and fan engagement Rather than relying on financial incentives such as discounts and points to encourage purchases, we will strengthen efforts to build trust and attachment to products and brands.

4) Strengthening outsourced e-commerce mall sales In response to the trend toward oligopoly among major e-commerce malls, we will review the investment allocation for in-house and outsourced e-commerce malls to capture sales in growth channels.

B. Enhancing company-wide sales and profits

1) Reducing fixed costs We will methodically reduce fixed costs by such means as cutting system costs, reducing outsourcing costs, and cancelling leased properties.

2) Reorganizing business sectors We will ensure enhanced profit and growth by making decisions such as withdrawing from business sectors where profitability and growth are not anticipated and allocating human resources to targeted areas.

C. Deepening and expanding co-creation

1) Deepening and expanding cooperation with JR East Leveraging original products for the East Japan Railway Company Group (JR East), we will increase sales at JRE MALL, expanding physical store openings, and growing projects such as contract logistics for the JR East Group.

2) Deepening and expanding reuse & recycling collaboration centered on Aucnet Inc. By expanding the range of targeted products for the “kimawari” purchasing service and enhancing its handling capacity, we aim to acquire new members and increase the retention rate and purchase frequency of existing members.

3) Strengthening sales of services and experiential products We will strengthen sales of other companies’services that can be ordered and purchased on Belle Maison Net, and make the site useful in customers’ lives through lifestyle proposals that combine goods, services, and experiences.

4) Strengthening the advertising business Regarding other companies’ advertising placements on Belle Maison Net, we will develop new options such as tie-up formats, creating lifestyle proposals that are not limited to our own products and services and increasing sales and profits.
In 2024, we will continue to focus on the above measures as the pillars of reform and make flexible adjustments with the aim of transforming our business structure and returning to profitability in 2025. Furthermore, we will revisit our philosophy that the reason for a company’s existence lies in its contribution to society. We will face social issues head-on, taking the lead as a flag-bearer, and work with consumers and business partners to transform ourselves into a company that solves social issues, aiming to realize a sustainable society through lifestyle proposals and the provision of products, services, information, and places to connect, thereby enriching the value of our existence as a company and improving its corporate value.
Regarding funds, as of the end of 2023, the Group possessed cash and deposits totaling 6,481 million yen. We have concluded a commitment line agreement with a financial institution for a total of 8,000 million yen. The term of the agreement expires on March 29, 2024, and enables borrowing for a maximum of six months from the date of execution. Moreover, a general overdraft agreement of 2,000 million yen and a special overdraft agreement of 5,500 million yen (with an expiry date of October 31, 2024) have been set up as an overdraft facility in the eventuality that the commitment line agreement cannot be continued. As stated in “3. Consolidated Financial Statements and Notes, (5) Notes to Consolidated Financial Statements (Significant Subsequent Events),” the general overdraft agreement will be terminated on March 31, 2024, and the expiry date of the special overdraft agreement extended to January 31, 2025. As of the end of 2023, there were no outstanding borrowings under the aforementioned commitment line, general overdraft agreement, or special overdraft agreement. We will continue to work closely with financial institutions to ensure further support should we need it in the future or when the term of agreement expire.
However, measures to improve results of operations being undertaken to address significant doubts regarding the going concern assumption are currently in progress, and it is possible that the profit and loss and financial benefits arising from the above-mentioned measures may not be fully realized. The Group recognizes that there is significant uncertainty regarding the assumption of a going concern as it has yet to determine whether it will be able to procure funds should renewal of the term of agreement or further support from financial institutions be required.
Furthermore, the consolidated financial statements have been prepared on the assumption that the Group will continue as a going concern and do not reflect the impact of significant uncertainties regarding this assumption.

We will continue to respond flexibly to changes in the business environment and implement necessary measures in a timely manner to achieve profitability in 2025. In the medium- to long-term, we strive to become a company that is long cherished by customers and meets the expectations of all stakeholders.