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Business and Other Risks

  • Last Update:2023/03/31
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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. Important Matters Regarding Going Concern Assumption, etc.
The Senshukai Group recorded an operating profit, ordinary profit and profit attributable to owners of parent in 2021. However, sales in 2022 were far below 2021 sales mainly because of problems involving the launch of the new core IT system in January 2022. Furthermore, there was a large operating loss, ordinary loss and loss attributable to owners of parent in 2022. Due to the continuing decline in sales even after the resolution of problems involving the new core IT system, there was an impairment loss of 3,054 million yen based on the result of a comprehensive examination of the ability to recover these assets in the future based on accounting standards for the impairment of non-current assets. As a result, there were large losses in 2022: an operating loss of 8,139 million yen, ordinary loss of 7,889 million yen and loss attributable to owners of parent of 10,976 million yen. There are currently significant doubts about the going concern assumption. The Senshukai Group is taking the following actions in order to end the current problems and improve results of operations.

(Measures to improve results of operations)
The Senshukai Group will continue to focus on numerous measures for increasing sales and earnings. To become profitable as soon as possible, the main objective is the transformation of the group’s business model by placing priority on goals of the medium-term business plan, including the digital shift of the mail order and online shopping business, profit structure reforms, and co-creation with partner companies.

Progress report
(1) Digital shift of the mail-order and online shopping business
This business is currently reexamining promotions centered on catalogs and shifting resources to digital promotional activities using social networking services (SNS) and other digital channels. As part of these efforts, we are working to provide enhanced product information on our main products. In addition, in November 2022, we conducted a large-scale, cross-media marketing campaign linked to TV commercials and social networking services. Based on the results of this campaign, we plan to make more improvements to these activities and continue these linked TV commercial-SNS marketing activities.

(2) Profit structure reforms
We will move away from conventional catalogue-optimized business operations and focus on original merchandize that is ideally suited for digital sales channels and highly competitive in open markets. At the same time, by understanding the values and lifestyles of our customers better than ever, we will strengthen the development of products that customers enjoy and will use for a long time. We will use sales promotion expenses more effectively by cutting back catalog distribution to customers who do not use catalogs for shopping and shift to more effective digital promotions. Going forward, we plan to maximize return on investment by directing investment to raising the retention rate and purchasing frequency of existing members, in addition to approaching potential new customers. We will continue to use catalogs as a major tool for promotions and communication with customers who support this sales channel and will further upgrade the quality of the new ideas, creativity and other innovations in our catalogs. In addition, we plan to expand the advertising solutions business as the digital shift takes place in the mail-order and online shopping business. We will develop a new advertising menu that utilize Bell Maison Net, an e-commerce website that ranks among the largest in Japan in terms of the number of female members.

(3) Co-creation with partner companies
We are strengthening and expanding our collaboration with East Japan Railway Company (JR East). One activity is data marketing support based on the ability to contact JRE Point members for the purpose of increasing activity on JRE MALL. Another is performing tasks outsourced by the JR East Group. Activities involving JR East Group are adding to the Senshukai Group operations other than mail-order and online shopping and the operation of physical stores. Expansion of co-creation activities utilizing the assets of Senshukai and JR East will continue. Raising the value of the Belle Maison brand and strengthening the Belle Maison membership base are also major goals. One way is by providing services involving the use and disposal of merchandise, such as the “kimawari” used merchandise purchasing service that was started through co-creation with Aucnet, Inc., a provider of information-based distribution services. Increasing the number of convenient services closely tied to customers’ lives is another way we plan to accomplish these goals. The trial operation of “kimawari” demonstrated that the percentage of “kimawari” customers who continue to use Belle Maison to buy merchandise is dramatically higher than for other Belle Maison customers. The November grand opening of “kimawari” was very successful. We plan to enlarge merchandise handled by “kimawari” and speed up other measures in order to use this new service as an important measure for improving the profitability of Belle Maison.

Senshukai’s financial position was sound as of the end of 2022 with an equity ratio of 56.5%. In terms of funding, as of the end of 2022, the Group held cash and deposits of 9,287 million yen, and in addition to the existing overdraft facility of 2,500 million yen, a new facility of 3,000 million yen was established on January 27, 2023, resulting in a total overdraft facility of 5,500 million yen. Accordingly, there are no concerns about cash flow. The maturity date for 500 million yen of the existing overdraft facility is May 31, 2023, but in the absence of any specific indication of intent, this date will automatically be extended for one year.
Moreover, the Group has entered into commitment line contracts totaling 10 billion yen with financial institutions. At the end of 2022, we were in breach of one of the financial covenants relating to the maintenance of net assets, but the situation was resolved on January 27, 2023, when the Group agreed to review the contents of this covenant and other matters with financial institutions. The term of the agreement expires on June 30, 2023, and permits borrowing for up to six months from the date of execution. There were no borrowings outstanding under this agreement at the end of 2022. We will continue taking steps to ensure that ongoing support is provided.
For these reasons, we believe that there are no significant uncertainties about the going concern assumption.

We plan to return to profitability in 2023 by continuing to adapt with flexibility to changes in the business climate and taking actions that are needed in a timely manner. From a longer perspective, our goal is to become an organization that can earn the support of customers for many years and meet the expectations of all stakeholders.