J. Front Retailing Co., Ltd. (3086) Earnings Call Transcript & Summary

Thank you for taking time out of your busy schedules to join us today. I am Sawada from Daimaru Matsuzakaya Department Stores. First of all, let me briefly explain the scenario for sales expansion in FY 2023, the final year of the medium-term business plan. I would like to explain in detail about the gaisho or Prime Life strategy, which will play an extremely important role in this plan. Please refer to Page 3. We will recover the FY 2019 gross sales level and secure an operating profit of JPY 23 billion in FY 2023. Please see the bar chart for gross sales breakdown by customer type, which shows cash sales, excluding duty-free sales in gray; gaisho sales in blue; duty-free sales in orange; and other sales in yellow. Of these duty-free sales and cash sales, excluding duty free, were most affected by COVID-19. Gaisho sales are expected to be JPY 205 billion for FY 2023 and driven by the gaisho strategy to be explained today. Cash sales, excluding duty-free sales, are expected to be down 11% from the 2019 level at JPY 454 billion for FY 2023, mainly due to the increased sales of key categories. Cash sales, excluding duty-free sales, were down 15% for Q1 this year and down 11% in the last 2 months compared to 2019. Duty-free sales are expected to be JPY 42 billion, down JPY 22 billion or 34.4% from 2019. Thus, we believe that strengthening our gaisho business is one of the most important strategies to return to the gross sales level of FY 2019. Please see Page 5 for an overview of our gaisho strategy as well as KPIs. This is an overview of our gaisho strategy. The basic elements or functions of the gaisho business can be broadly classified into 3 categories, as shown here: the first is the ability to increase and organize customers to expand database and deepen customer insight, the second is a function of finding and enriching attractive content, the third is the function of diversifying touch points and connecting customers with content, both online and offline. We believe that the advancement of each of these is crucial for the future of the gaisho business. Please see the next page. This table shows KPIs allocating JPY 205 billion to the 3 basic elements on the previous page. Under organization of customers on the far left, we will increase sales to gaisho customers who are app users to JPY 123 billion. Under improvement of content for the key categories of luxury goods, watches and art, we plan to achieve gaisho sales of JPY 85 billion. The breakdown is: JPY 52 billion for luxury, 24 for watches and JPY 9 billion for art. By achieving approximately JPY 120 billion in other categories, we will achieve a total of JPY 205 billion. Under diversification of touch points, online sales target is JPY 10 billion, and the rest will come from off-line for the time being. These are the KPIs we have set. Our goal is to increase gaisho sales to JPY 205 billion for FY 2023 through the combination of these 3 initiatives. I will explain each of these 3 in detail. Please turn to Page 8. Let me explain the first strategy organization of customers. As I explained at the April results meeting, our top priority towards transforming the department store business model is to promote digitalization of touch points using apps. The number of app users has been steadily increasing, and the number of gaisho customers has reached 97,000 with sales of JPY 95 billion. In addition, the frequency of communication with customers has increased as a result of this. Average spend by customer is 15% higher after becoming app users. By digitizing touch points, we are connected with customers 24/7, as you can see on Page -- Slide 9. In the past, we only had customer data and the purchase data. Today, by digitizing these touch points, we can obtain online customer behavior data such as web browsing data and response data to e-mails. By using accumulated data, we can deepen our understanding of our customers and make optimal proposals using the most appropriate communication methods. In FY 2023, we would like to increase the sales of gaisho customers who are app users to JPY 123 billion, an increase of JPY 44 billion from FY 2021. Next page explains 2 major examples of how we are utilizing acquired data. The first is logistic regression analysis shown in the upper diagram. This is a method utilizing customer data and purchasing data with behavior data by combining data on customers who have purchased and who have not yet purchased in the category to find those customers who have high potential to purchase. At the beginning of FY 2022, we used this method to identify potential customers, especially in luxury brands, watches and contemporary art, resulting in sales of JPY 380 million in sales in a single quarter. Although this initiative itself was launched only last year, the results are steadily improving. And in the next fiscal year, FY 2023, we expect to generate approximately JPY 2 billion in sales from completely new customers using this approach. The figure below shows the second example, marketing automation using e-mail. This is a method whereby the company decides how to approach a potential customer, based on his or her response to our e-mail. In the past, e-mail was a one-way communication. From now on, we will observe whether the customer opens the e-mail, pressed the link or read the e-mail for how many seconds, to take an effective approach based on the customers' interest. In other words, in the past, we only sent direct mail or e-mail based on purchased data. But today, we can extract prospective customers through such analytics. Next slide, please. In addition to deepening our relationship with customers online, we are also working to increase the number of gaisho accounts. For FY 2023, we would like to increase the number of gaisho accounts to 168,000, an increase of 4,300 accounts from FY 2019. We have improved our infrastructure to attract new accounts, enabling online enrollment. This has enabled us to shorten the time from application to account opening from 1 month in the past to just 4 days, which was very well received by our customers. As shown in the pie chart in the lower left, online enrollment, which started in November 2021, accounted for 57% at the end of February 2022 and increased further to 61% at the end of Q1 this year. The bar chart in the center shows the average spend, our customer among new accounts opened in FY 2021, which doubled compared with FY 2019. Why has the average spend increased so much? In the past, our activity was focused on increasing the number of gaisho and our members, which often resulted in inadequate onboarding and activation after enrollment. However, today, we have a lineup of rare and attractive content that matches customers' insights to approach those with high propensity to purchase. In other words, we are shifting our approach to a content-centric approach. We believe this is the reason for the success. Specifically, we conduct events such as premium mechanical watch fair and contemporary art exhibition. Since we know which customers are interested in buying these items, we try to approach them when they come to the events. These are some of the examples of how we are using the data. Some of new gaisho members are young affluent customers. As you can see in the pie chart in the lower right, about half of new members in FY 2021 were their -- in their 20s and 40s. So this approach has led to the acquisition of young affluent customers. Based on these examples, we are confident that the acquisition of new customers will directly lead to an increase in gaisho sales. On next slide, I would like to discuss a little about the characteristics of younger gaisho customers for your reference. Sales to young gaisho customers in the 20s to 40s were JPY 36.3 billion for FY 2021, an increase of 38.4% from the previous year. Their share also increased to 28.2%. The shopping behaviors were summarized in the lower right corner. They tend to use line to send us photos of products they are looking for. They expect our gaisho personnel to give them shopping recommendations and expert advice. And also, they like to receive invitation to special events and special offers available only for gaisho members. These are the characteristics of our young affluent gaisho shoppers so far. They are attracted to the personalized services, special events, product offers and so forth that are available only for gaisho customers of department stores. Next, let me explain the second strategy, improvement of content. Please see Page 14. Again, we define 3 key categories of luxury watches and art. For luxury and watches, we will make strategic investments to renovate our flagship stores. And for art, we are enhancing our events. That's how we are improving the attractiveness of content offered to our customers. Sales contribution from these categories is expected at JPY 205 billion for FY 2023, an increase of JPY 63 billion from FY 2019, including cash sales and the gaisho sales. Our gaisho sales target for FY 2023 is also JPY 205 billion, but it's just a coincidence. Of the JPY 63 billion increase in sales in the 3 categories in FY 2023, nearly 60% is coming from gaisho sales. And as a result, gaisho's share in the 3 categories sales is expected to increase from 35% in FY 2019 to about 40% in FY 2023. The bar chart shows the breakdown of the FY 2023, 3 category sales of JPY 205 billion: luxury sales is JPY 144 billion, of which gaisho is JPY 52 billion; cash excluding duty-free is JPY 82 billion; and duty-free is JPY 10 billion. In watches of the JPY 50 billion, gaisho is JPY 24 billion. Cash excluding duty-free is JPY 24 billion and duty-free is JPY 2 billion. In art, out of JPY 11 billion, gaisho is JPY 9 billion, and cash excluding duty-free is JPY 2 billion. Next, the graph on Page 15 shows the breakdown of gaisho sales into key categories and note key category or other categories for the last several years. For FY 2023, out of gaisho sales of JPY 205 billion, 3 key categories should account for JPY 85 billion. Through investments in various areas under the current midterm plan, we aim to increase sales by JPY 37 billion over FY 2019 and by JPY 24 billion over FY 2021. We consider these targets to be highly achievable. Next, I would like to explain about improvement of content from the luxury category. Please refer to Page 16. As I mentioned at the beginning of this presentation, we have been strategically investing in the luxury category with a target of JPY 144 billion for FY 2023, an increase of 38.5% over FY 2019, of which JPY 52 billion is gaisho sales. In FY 2023, we plan to expand the area of luxury sales floors of our 9 flagship stores by 16% over FY 2019. The table below shows the major strategic investments made in luxury from FY 2020 to the first half of FY 2022. We have [indiscernible], one of the largest in Kansai opened in Shinsaibashi PARCO in September 2020, Shinsaibashi Daimaru Gucci, also in Shinsaibashi PARCO in November 2020, and Louis Vuitton Kobe, one of the largest Louis Vuitton stores in Japan opened in March this year to revitalize the entire area by attracting these flagship stores. In addition to establish competitive advantage, we have been taking away premium brand stores from our competitors in order to become the only 1 store in the same region. Louis Vuitton Kobe, mentioned earlier, is one example as well as the premium brand floor at the Sapura store opened in FY 2020. The information here covers up to the first half of FY 2022. We are planning to renovate more stores in the second half and beyond to strengthen these activities. Next, I would like to introduce our watch business. In watches as well, we have been making strategic investments, aiming for sales of JPY 50 billion for FY 2023, an increase of 61.3% over FY 2019. gaisho sales is about JPY 24 billion. We plan to increase the floor space at 9 flagship stores by 43% over FY 2019. A typical example is [indiscernible] watch, which opened this month in Nagoya, as shown on the slide. The watch space has been doubled in size and reorganized so that the space is more open and easy to walk around. In addition, the watch terrace opened at the center of the floor, will provide a workshop for repair process and the rest area for guests, enhancing the experience for our customers. Although there is no image here, the Rolex store is probably one of the best in Japan or even in Asia. We hope you will come and see it, though the store is currently open RSVP only. In addition, we have renewed our website and introduced a new online service [indiscernible] watch as a starting point. As you can see from the images, we are now offering online trial fitting service, which overhaul service and appointment service. In addition to an overwhelming selection of luxury watch brands, we also offer a full range of online services an attractive infrastructure for all ages of customers. We hope to achieve the highest sales in Japan as the best watch department store. Next, on the following page, I will explain our initiatives for art. For art, we are aiming at JPY 11 billion in sales for FY '23, up 57% from 2019, would like to achieve JPY 9 billion from gaisho sales. In the art business, we have improved the environment by expanding art galleries at [indiscernible] stores, this spring. But we also believe that it is important to make our content more attractive. So we have strengthened our events. Since FY '21, we have held large-scale art events such as exhibition and sales of contemporary art at each store. And this year, we invited the producer of Art Fair Tokyo and launched D-art and Art Fair initiated by our department stores. Starting from Daimler [indiscernible] in June this year, the fair will travel to Nagoya, Kobe, Kyoto and Tokyo. The image on the right shows a poster from Travel Andrew's first exhibition in Japan, which was held last year at Shinsaibashi PARCO. And we sold the artwork to our gaisho customers by lottery prior to the travel and through exhibition. This was very well received and the outwork almost sold out. I am extremely pleased with the synergy effect that only the Parco Group can achieve by matching the rare projects that take advantage of PARCO's production skills with our gaisho customers have strong purchasing power. In fact, this approach has been very well received in the art industry. Next, I would like to introduce our special hospital space initiative. In FY '21, we reconstructed and opened D's Lounges in Kobe and Sapporo to strengthen relationship with our gaisho customers. Both facilities use local materials and for the interior. For this launch in Sapporo, we had a local architect to design the space, and we invited the local artists to create their works about. We intentionally feature the culture of locality. Since its opening, the D's Lounge, it has been well received by many customers, not only as a place to relax, but also as a gallery and for holding special events for gaisho customers. To control entry, visitors are asked to present a special QR code from [indiscernible], the closed side for gaisho customers. And without this QR code, entry is not possible. As a result, the number of registered visitors to the [indiscernible] has increased significantly. In July this year, [indiscernible] store remodeled its watching space, and renewed its valued customers alone. We will continue to make plans to construct such a hospitality space in the future. And we will work to create stores that will be supported by our gaisho customers. Next, I would like to explain the third strategy, diversify the touch points. Please see Page 21. Here, I will explain the close side for our gaisho customers, honestly. I have mentioned this several times. As a KPI for diversifying touch points, we have set a target of JPY 10 billion in online sales with gaisho customers in FY '23. The key to the online sales of the gaisho trade will be disclosed site, connaissligne. Connaissligne was originally positioned as a communication tool for customers who have already made purchases, but it is now roughly growing as a commerce medium for expanding points of contact with customers, including discovery of potential customers that we have not been able to approach until now. In particular, the online lottery sales of rare Japanese and Western liquors and the contemporary art are very successful and are now being strongly supported even by young affluent customers in their 30s and 40s. We will continue to focus on the reality of the products and the quality of the articles, and we'll continue to make efforts to resonate with customers as one of the important touch points with gaisho customers. Our target for the number of registered users in FY '23 is 115,000, up 30,000 from end of FY '21. In May this year, we integrated the 3 log-in ideas: apps, connaissligne and the Daimaru Matsuzakaya online store. We enable the so-called single sign-on. This will enable a smooth transition from Daimaru Matsuzakaya apps after initial registration, and we expect a dramatic increase in the number of visitors in to the connaissligne. Next, I would like to introduce our new initiative in the media development and at attracting new affluent customers. As I mentioned earlier, we have launched ARToVILLA in January this year as one of the initiatives to strengthen our business. Together with the curators and collectors, we are offering content, which will make our customers feel easy to own artworks. The image on the upper right shows a roundtable discussion video streaming at Artglorieux, the art gallery in Ginza Six with our [indiscernible] and 2 art experts we invited. The event was designed in such a way that the 3 panelists could introduce their most favorite and recommended works by young creators. And if customers like them, and they could then apply for them on the spot. In the 30-minute webcast, we were able to sell almost JPY 40 million next day. The customers who purchased were customers who have not been able to reach in the past. The fact that even new customers purchased expensive products online, this became possible, thanks to the trust we have created out of the 300 to 400 years of history in business. We are very pleased with this strong response to our online art business. In addition, the exhibition by [indiscernible], which was held to commemorate the launch, was also held at Artglorieux in Ginza Six, our real store, in conjunction with the website, and it was extremely well received. We are now very pleased with the response to the combination of real and online in the art world. We will continue our efforts here going forward. These initiatives will enable us to explore more new customers 1 after another. Next, I would like to introduce our efforts for the off-line touch points, our gaisho sales reorganization. This is having to do with people. In 2019, with the aim of increasing the productivity of gaisho sales organization through the use of digital technology, while maintaining to provide services based on the amount of purchases and the way customers buy. We have divided the gaisho sales staff into 2 groups, the traditional dedicated staff in charge of one-on-one deep sales activities and the new team-oriented system group staff in charge of activities to promote store wages mainly through e-mail and phone calls. In addition, we introduced a J-STEP, sales support system, which will enable us to thoroughly input customer information, sales plans, daily business reports, et cetera, to standardize, visualize and improve the efficiency of sales activities. We used to approach only the top buyers, but thanks to this new approach, we can now respond effectively and efficiently to customers we have not been able to approach before. We can now revitalize in active accounts. I am pleased to report that per head productivity in gaisho business has improved significantly and the system team and the dedicated team are now functioning very well together. With this, I would now like to conclude my explanation, a summary of our gaisho sales strategy and the primary strategy for our department store business. Thank you very much for your kind attention.

This is Imaeda, and I am in charge of Parco SC business. I would like to thank you for this opportunity. Today, I would like to explain the business strategy of Parco's SC business and the restructuring of the building branding originating from Shibuya. The overall structure I intend to cover, first, I will explain the medium-term management plan, the annual results of revenue Parco SC or store business and the plan for FY '22 and FY '23. Next, I will explain the origin of PARCO and the factors behind the continued strong performance of Shibuya PARCO, then about the ripple effect from the success story of Shibuya PARCO on to other stores. Here, now I will expand on the ripple effect as well as evolution at Shinsaibashi PARCO, which opened 1 year after the opening of Shibuya PARCO. The recent renovation of flagship stores, Nagoya PARCO and Ikebukuro PARCO, I will also explain the distinctive elements that have led to PARCO'S pursuit of uniqueness. I will first explain the medium-term management plan and the revenue trends and plans for Parco SC store business. The graph on Page 3. We opened a new Shibuya PARCO in November 2019. Then the next year, in November 2020, we opened Shinsaibashi PARCO. In addition to the increased earnings from the remodeling of existing stores, we had a positive effect on earnings from the opening of these 2 new stores becoming a growth factor in the current medium-term margin plan. In FY '19, operating revenue from the existing stores before COVID-19 was JPY 45.2 billion. And in FY '19, we had additional revenue as much as JPY 2.7 million from Shibuya, which operated about 4 months, making the total operating revenue being JPY 47.9 billion for the entire store business. In FY '20, when the pandemic struck, the impact of store closures and other factors were significant and revenues from the existing stores fell sharply. Even after we added JPY 5 billion from the full year operation of Shibuya as well as the new Shinsaibashi launch, operating revenue from store business was JPY 39.9 billion. In FY '21, the second year of the COVID-19, operating revenue from store operations improved to JPY 44.5 billion, thanks to the improved earnings at the existing stores and increased earnings at Shibuya and Shinsaibashi. In FY '22, we expect to continue to see improved earnings from the existing stores and the effects of continued growth at Shibuya and Shinsaibashi and we believe that we will be able to exceed our pre-COVID earnings level, with earnings from the existing stores plus the new Shibuya and Shinsabashi stores amounting to JPY 49 billion. As in FY '22, we believe we will be affected by COVID-19 in FY '23 as well. But we forecast that FY '23 operating revenue will exceed JPY 50 billion due to the effects of renovations at flagship stores in Nagoya, Ikebukuro and other areas. Shibuya PARCO is playing an extremely important role in the recovery from the large decline in earnings at the existing stores due to the pandemic that began in FY '20. Although the Shibuya PARCO was affected by COVID soon after its opening, thanks to the competition of the building contents, which is the culmination of PARCO'S efforts as well as the new measures taken in the face of the unexpected COVID disaster, we have enjoyed growth in earnings every year. I will now explain the factors behind the continued strong performance of Shibuya PARCO. Shibuya PARCO targets are non-edge, genderless, and cosmopolitan and its building is composed of 5 elements: fashion, art and culture, food, entertainment and technology. We have incorporated sustainability elements as an overall theme, which gained traction rapidly before and after the opening. We have mixed these elements and constructed the floor so that each element is going to help with each other. From now on, I will expand on the background why Shibuya PARCO has been highly appreciated by our customers and our tenants. The first point is having to do with the strong trust we have created together with our creators and artists in the history of 43 years, even before the rebuilding of old Shibuya PARCO. When we were on the closing of the store for the rebuilding, our creators and artists shared their strong feelings they have with Shibuya PARCO. And they told us that they will definitely want to come back again. Thanks to this, our new Shibuya PARCO turned out to be as a highly sensitive fashion zone, one of the leading and prominent Japan culture zone, a place where we have a cognition of greatest passion. On top of that, we added new luxury brands as well as pop-up shops offering new proposals all the time, and we were able to build a next-generation shopping center, you will never find somewhere else. With this done, we were able to receive an overwhelming support from our core fans who just love fashion and culture. This is being the very first reason for the success. Next factor is our collection of a variety of entertainment equipment. We have created our media center, which can send out information day in, day out. Ever since 1973, when we opened the Shibuya PARCO, we try to create our uniqueness by adding entertainment elements in our shopping centers. Shibuya PARCO is in the core of our entertainment business. With this in mind, we created a combination of our entertainment business activities in the new Shibuya PARCO, having a theater, a movie theater, a gallery, a cafe with events, a cafe with music as a theme. Entertainment department is directly operating those 5 facilities. Furthermore, we have deployed facilities from which our creators can dispatch information. We have a total of 6 galleries inside. Whenever you come to here, you'll find something new going on here. We have created a building here, you may call it media center. We believe this is another big reason for the strong support we are receiving from our customers. Here, I would like to introduce some initiatives related to the social and environmental changes demanded by COVID-19 pandemic. Shibuya PARCO was forced to close its entire facility in March 2020 soon after it opened. Customers also found it difficult to come to urban downtowns. Under such circumstances, so we started working really hard in order to develop and the plan events as well as limited products. With this, our customers would have an urge to come to those events going on at Shibuya PARCO. But still customers do wish to avoid crowded areas and environment. So we made extra efforts so that our customers can experience Shibuya PARCO even online while staying at home. With this done, our real and online was put together, we are able to acquire much broader customers who can truly enjoy an Shibuya PARCO experience. We are happy to inform you that Shibuya PARCO is always evolving in disseminating information online. The number of Instagram followers has now reached to 52,000, the largest among the commercial facilities in Japan. Another point is high quality of the information dispatched. Luxury brands and leading creators have highly evaluated the high level of sensitivity of our followers. Usually, brands are rather reluctant to allow to use own brands pictures in the SNS of commercial facilities. But in contrast, they are quite willing to use the Shibuya PARCO SNS to dispatch information. This further led to higher quality of information dispatch capability by Shibuya PARCO, resulting in extended core fans created. Our efforts to strengthen online information dispatch is resulting in the stronger online sales power. About half of the fashion shops in Shibuya PARCO is participating in Parco online store. We have developed an environment where not only domestic but also on overseas customers can purchase products. We are having a collaborative initiatives with our tenants and livestream commerce, and we're expanding our efforts, particularly for Greater China. Shibuya PARCO has been quite innovative in sales planning for entire store projects. We intend to make our sales planning for Shibuya PARCO to be something special and eventful. With COVID-19 sale going on, we are actively utilizing the rooftop space in order to avoid crowded space. Thanks to our unique content and information dispatch, Shibuya PARCO has been successful in acquiring customers who have become strong supporters for us. According to the 2019 data though before the pandemic, in terms of usage of Parco card by residents, the metropolitan area accounts for 65%; distant areas in Japan, 20%; and inbound customers, 15%. This proves that we are having a super wide coverage of customers as well as inbound customers. While we are supported by a wide range of generations, we are pleased to be supported strongly by the early adopters of the Millennials and Generation Z. They are saying that if it is Shibuya PARCO, I am quite happy to have collaboration or I would like to challenge myself at their pop-up stores. So far, I have explained our successful factors for Shibuya PARCO. And if I may, I summarize those factors in the form of know-how we gained from Shibuya PARCO. Targeting content, information dispatch, online and the exclusiveness only gain in the real space. This know-how is now further spreading to and evolving at Shinsaibashi PARCO as well as on to the flagship stores at Nagoya, Ikebukuro and others. Now allow me to expand on how those successful factors started spreading from Shibuya PARCO to other stores. First, Shinsaibashi PARCO, which opened exactly 1 year after the opening of Shibuya PARCO. For Shinsaibashi PARCO based on the Shibuya elements, we consider a collaboration with Daimaru Shinsaibashi store as well as its location. The store is directly connected to the station. The targets for the building are just like Shibuya, non-age, genderless, cosmopolitan. The building concept is new complex building. Tangible and non-tangible daily life and art and real world and technology are mixed without borders. This is a new commercial building. Though some of different expressions are used, but the concept itself is inherited from Shibuya PARCO. Let me explain the key content of Shinsaibashi PARCO. First, tangible goods. Shinsaibashi PARCO is a shopping center adjacent to Daimaru Shinsaibashi store. And with this as the greatest characteristic, we designed the shop configuration developing and evolving more than Shibuya PARCO in terms of acquisition of department stores customers and the invitation of large-scale shops. We brought together both differentiated and sustainable luxury designers and select shops and beauty and fashion goods shops that increased their charm. Also large-scale shops such as interior hobbies and sports that provide excitement to daily life were invited in light of the life is COVID-19. This slide shows the key content intangible goods. As Shinsaibashi PARCO is larger than Shibuya PARCO, we expanded provision of experience, which couldn't be incorporated in Shibuya due to size constraint. We opened our first trajectory managed co-working space schema and wellness mall, Verpa, in Shinsaibashi PARCO as a challenge for directly managed business in future growth domain. The third key content is Art and Culture and Technology. As concentrated Art and Culture in Shibuya enhanced building brand and contributed to the increase in customer traffic from extensive area, we also created the pop culture zone that can attract customers from across the world in Shinsaibashi and many artworks are installed in the building. We also expanded XR content provided in Shibuya in various forms in Shinsaibashi. As I mentioned at the beginning, Shinsaibashi PARCO was assumed to strengthen collaboration with Daimaru Shinsaibashi store, and this is a crucial factor. I'd like to explain the synergy creation with Daimaru Shinsaibashi. We have been actively working on mutual customer transfer and joint sales promotion with Daimaru Shinsaibashi store. To be more specific, we increased shops that adapt Daimaru's post cash registers and mainly fashion tenants accept payment with Daimaru gaisho customer card. And we give PARCO points also for Pokeparu payment with Daimaru Matsuzakaya card. Using Daimaru Matsuzakaya gaisho customer website, connaissligne, we entice Daimaru Matsuzakaya gaisho customers to visit our sales of high-end limited edition and outwards as introduced before. As shown here, Shinsaibashi PARCO is evolved and the developed version of Shibuya PARCO. As Shinsaibashi PARCO faced pandemic in the preparation phase for the launch, it has not demonstrated full potential yet. But I'm convinced that it can achieve further growth supported by high recognition by customers and tenants as Shibuya PARCO succeeded. Next, let me explain the branding of Nagoya PARCO building. Food and cosmetics are added to SNS Shibuya and Shinsaibashi in Nagoya Parco. And large-scale renewed area ongoing, including the ground floor, to expand areas presence. The concept of the large-scale renewal of the Nagoya building for the reconstruction of building branding, which is ongoing now is to make Tokai areas only shopping center that creates stimulation, and the key themes for the renewal are no age, genderless and modern design. Combining, we already opened sections after renovation and sections where renovation is planned in fall 2022, 57 sections and approximately 4,000 tsubos or 1/3 of the entire building of Nagoya Parco will be renovated from the fall of 2021 to the fall of '22. We also planned a large-scale renovation of 2,000 tsubos in FY '23. And with the completion of the renovation in spring '23, operating revenue will increase to JPY 2 billion or more compared to FY 2021. Now let me explain the latest renovation of Nagoya Parco. In spring 2022, we had the renewal of the entire ground floor of the West building and actively introduced the Tokai areas first differentiating merchandising. In fashion, genderless and the street luxury shops have been performing well. Art and culture also performed well, supported by Generation MZ. To be specific, transaction volume of renovated zones from opening to May greatly increase to 2.7-fold year-on-year. And the paying customer count in May almost doubled, thanks to the wide variety of merchandising. From the basement 1 to the third floor of South building, we invited large-scale complex select shop of approximately 1,000 tsubos. And the transaction volume of renovated zones from the opening to May increased 178% year-on-year. And in addition to the customer count increase, average spend by customer increased greatly. Next, let me explain the branding of Ikebukuro Parco building. Spreading the success factors of Shibuya, we completed large-scale renewal of the ground and other floors in spring 2022. The concept of renewal is to make a gateway to the city that aims to be the global art and culture city, providing meeting space with themes of no age, genderless and BaaS communication and differentiation to strengthen branding. To be specific, we renewed the entire ground floor of the main building for the first time in 16 years and invited the areas first tenants, organic cosmetic shop and experience-based tenant. We also renewed approximately 50% of the basement 1 of the main building and the invited brands with high communication abilities such as influencer brands. Second floor of the main building was converted to the unisex floor, and we promote differentiation with common theme from the first to the fourth floor. Fifth floor of the main building invited the first physical shop, the smartphone game company. Transaction volume of renovated zones from the opening to May doubled year-on-year. And a wider range of customers are attracted and the paying customer count greatly increased 2.8 fold. Through these renovation effects, we aim to increase operating revenue JPY 1 billion or more in FY 2023 versus '21. Finally, let me explain the progress in our pursuit of uniqueness to differentiate ourselves from other companies and facilities. As mentioned in the part of success in Shibuya, amid pandemic. When customers tend to hesitate to go out, event is extremely important to let them feel that Parco is still the place they want to visit. Leveraging our network of creators, artists and companies of character contents to the fall, we dedicated in content development. And as a result, the number of events in FY 2021 was 344, up 48% from pre-COVID FY 2019. And the transaction volume was JPY 3.8 billion, up JPY 1.1 billion from FY 2019, exceeding the pre-COVID level substantially. And that greatly contributed to the expansion of the entire transaction volume. Due to strong communication base of Shibuya Parco, store network, major cities across Japan and collaboration results with popular characters. We are highly recognized by companies that have character licenses, and that enables us to continue collaboration with popular characters. Supported by this, we are able to realize nationwide, unique and large-scale project through scale promotion events and the sales of exclusive products. Another uniqueness of our company is pop-up shop that opened for a limited period, and its expertise was obtained in Shibuya. And in stores across the country, we are actually collaborating with local artists and local operators. In particular, the window pop up space on the first floor of Shibuya Parco is highly recognized by luxury brands that aim to acquire new customers and topical pop-up shops for limited period are opened one after another. This also sets as the strong motivation for customers to visit stores. So through collaboration between headquarters and each store, we have been promoting condense development. Finally, as explained before, we identify the key for success of Shibuya Parco and take actions to apply them to the new stores and existing stores to heighten the success rate in each store. I deeply appreciate if today's presentation helped your conviction for the future growth of our SC business. Thank you very much for your attention.

Hello, everyone. I am Wakabayashi, in charge of Financial Strategy. Today, under the title of promotion of ROIC management, I'll explain the overview and the thought process of J. Front, Business Management Policy utilizing the index return on invested capital, ROIC. My presentation consists of 3 parts. First, financial goals for 2030. Second, ROIC business management policy. And lastly, cash allocation to realize them will be presented. At first, let me explain the first point, overview our financial goals for 2030. Please turn to Page 3. Our business portfolio has undergone the transitions as shown on the slide here. In the history of 300 years for Daimaru and 400 years for Matsuzakaya, they continued the business under the current department store structure for more than 100 years. In the meantime, several measures to secure stable earnings were implemented, including the adoption of consignment buying to realize diverse product lineup and shift to fixed lease system, but business management has been based on P&L. Later, Parco was consolidated as a subsidiary and ROE was set as a management KPI, and we shifted to IFRS. Thus, we added a balance sheet perspective to business management and have been improving ROA. From now on, we plan to promote the business portfolio transformation to increase the weight of non-retail, including developer payment and finance businesses. Expanding the nonretail business, given the improvement of the profitability of invested capital, including interest-bearing debt would be the key for business management. We decided to adopt ROIC as a management KPI. Please turn to Page 4. In April last year, we reused the long-term target for 2030 upon the announcement of midterm plan for 3 years up to FY 2023. In the long-term target, we aim to achieve operating profit of JPY 80 billion, ROE of 10% through the annualized profit growth of 10%. We recognize that to achieve the target, it is important to realize the drastic transformation to double the weight of nonretail business, including developer payment and finance businesses. As a result, we realized the growth accompanied by revenue aiming to achieve ROE 10% through the consolidated ROIC 5% or more as the indicator for capital profitability in 2030. In addition to achieve the growth accompanied by revenue, we set the target ROIC by business, reflecting the characteristic of each business. Earning structure of department store business and shopping center are different. But it is no exaggeration to say that those are retail and the non-retail business, including developer payment and finance are completely different. To be more specific, as shown in the figure, ROIC target of department store is 6% to 7%, SC is 5% to 6%, developer is 4% to 5%, payment and finance is 3% to 5%, and other new business is 10%. Consolidated group target is 5% or more. We also calculated WACC by business, and ROIC by business is designed to exceed WACC irrespectively. In order to increase the profitability of invested capital, business management in each business should bear balance sheet in mind. This slide shows the image of future BS and DE ratio based on the characteristics of each business. DE ratio of department store and SC is around 0.5x, and those of developer and payment and finance are 5 and 10x, respectively, as we will enhance the use of interest-bearing debt. In order to lead to more appropriate BS target calculation, we recognize that it is necessary to set the appropriate target by business in future, sharing this image with each business company. We control the consolidated D/E ratio to be around 1.0x through the optimization of BS by business. Next, let me explain the ROIC business management policy of JFR. Key points of ROIC business management of JFR Holdings business portfolio management and sophistication of investment management. On the other hand, in operating companies, including department store, by developing ROIC tree by business we aim to disseminate ROIC concept to operational side. Today, let me explain the initiatives of the holdings. Business portfolio management and sophistication of investment management. As for business portfolio management, we evaluate and manage business by 3 access sales growth rate, ROIC spread and the future potential based on the market environment. Holdings determine 2 key investment areas shown on the right, based on the variation results as its role. And the business [indiscernible] in the bottom left will be ensured to be put into appropriate direction considering their future potentials. This concept of product portfolio management, PPM, is widely adopted. And in our company, through collaboration of business portfolio transformation promotion division, which was established in April 2022 and the financial strategy unit, business portfolio management considering future potential will be implemented. Please turn to Page 10. Next, I'll explain the sophistication of investment management. When we make investment decisions, we ensure that planned average ROIC is above WACC, and that profitability and efficiency of the investment target is sufficient. In monitoring the post investment business, we control to prevent the balance sheet from growing excessively in the process of business growth by using ROIC as the monitoring KPI. Finally, I explain the cash allocation to achieve growth accompanied by revenue. Page 12 shows a diagram of cash allocation percentage with a total operating cash flow and cash generation by sales of assets [ as 100 ]. In the recovery phase up to 2023, 40% is for the repayment of interest-bearing debt to recover financial base, 15% is for the shareholder return and 45% is for investment. And it will be used as a fuel to change gear for regrowth. In the regrowth phase from 2024, we'll gear up further and 70% will be appropriated to investment and 20% will be for the shareholder return. As for the investment, besides Normal investment. We plan the growth investment in non-retail business, including developer payment and finance and new businesses. And we will also use the major M&A actively. As for shareholder return, payout ratio of 30% or more will be maintained. And considering the buildup of shareholders' equity and the share price trend, we also would like to purchase treasury shares. I may have spoken a little first, but I talked about the theme of ROIC management of JFR. That's all from me. Thank you for your attention.

The first question is from Mr. Takahashi from Mizuho Securities.

I'm Takahashi from Mizuho Securities. And I would like to ask a question to each one of the 3 speakers. The first question is about gaisho. At the end of your presentation, you mentioned the efficiency of gaisho. If we are to compare gaisho with other businesses, i.e., regular stores, is gaisho more profitable or less profitable? I'm asking because I don't really understand the profitability structure of gaisho. So what do you need to do to improve gaisho profitability? Any additional comments beyond what you have just talked about will be appreciated. That's my question. And also today, your presentation was primarily about merchandise sales. However, affluent customers need not only products but also services and financial products. What ideas do you have about them? If you don't mind, please let us know. This is my first question.

Thank you for your question. This is Sawada. The first question was about profitability. In the previous mid-term business plan, we adopted a new way of thinking in how we recognize gaisho's performance. That is sales made outside of stores, i.e., hotel events and sales made by gaisho employees are the customers' premises are recorded as gaisho sales if they are achieved by gaisho team alone without using stores. Vice versa, when gaisho team customers purchased something at the store. The store team records that and pays a commission to the gaisho team. Since the previous midterm management plan, as part of the gaisho transformation, we have started the method, as I just described, to evaluate gaisho's performance. Using this method, even after deducting personnel costs and facility expenses, gaisho is still making a positive profit. That is the current situation. For the future, we intend to examine whether the current calculation method is appropriate. Certainly, there is a possibility that gaisha will generate more service revenues outside of merchandise sales. We need to consider how to count revenues internally. Well, this is your second question. For example, we have already announced our collaboration with Tokyo Land Corporation on a high-rise condominium units in [ Omachi ] Osaka. All of the residents there become our members of gaisho to enjoy various services. We also facilitated sales activities and received a percentage fee on the sale of each unit. Another example is gaisha is selling premium camper vans because camping is booming these days. In collaboration with Japan's leading camper van specialist in Shikoku, who has no distribution network in Kansai. So we can distribute other products and services that are not normally found in department stores, for example, cruiser boats as well. We can offer them within the gaisho structure. Some companies provide good products and services, but lack adequate distribution capability, our guys show can supplement such a gap and offer a distribution function to them. So such sales as a service type of business is likely to increase in the future. We have already seen some demand. emerging in Kansai, such as Kobe, Osaka and Nagoya. Including these gaisho opportunities, we would like to figure out the best way to allocate revenues when gaisho offers sales as a service model. That's what we are discussing at the moment as part of the ongoing transformation towards next stage. So we would like to share more details with you as soon as we have clear our plans. That's my response.

That was clear. My second question is about Parco. The business in Shibuya seems to be going well. Every time I go there, I'm positively surprised. Are there any challenges left in order to keep the current positioning of Shibuya PARCO? Are there anything the company has to do? That was my question. But according to your explanation today, it doesn't seem to be easy for other companies to emulate your content. It must be extremely difficult for them to imitate the connections that your company has. So I already understood that after your explanation today, could you comment if you have any ideas on how to further enhance the value of Shibuya PARCO in the future?

Thank you for your question. I, Imaeda, will answer your question. First of all, we are trying to differentiate ourselves from our competitors with those tenants that we discover and incubate or those tenants which are opening their first shop ever in Parco. In the case of luxury brands or national chain operators, we also accommodated in Shibuya. There is nothing we have to worry about. But in the case of those tenants that we accommodate for the scarcity or reality value. In fact, we have many of those in Shibuya. We need to provide a sort of protection in their operations because they tend to be small businesses and less flexible in the response to situations such as COVID-19. This is an answer I can think of to respond to your question. So that is my answer.

In other words, if you succeed in what you are doing today, can I assume that you can differentiate yourselves even more in the future and improve your one-of-a-kind status?

That's exactly what we are thinking about. We will further enhance the value of Shibuya PARCO by positioning it as a flagship store. And as you have just mentioned, by enhancing one of our kind status. We will then extend this to other stores outside of Shibuya. As we explained earlier, there are 2 ways to do that. One is to extend with the adaptation and the other is to extend with ideas and creatives of local partners to be able to offer new offerings. We believe it is important to pursue the one-of-a-kind status this way.

I understand very well. The third and final question is for Mr. Wakabayashi. If you could give us a simple answer, that would be appreciated. I appreciate your very clear explanation earlier of ROIC management. So I understand that you have already started PPM in April. And everything is clear up to the decision-making on investment using ROIC. How do you track progress after that? Not everything may go as planned, what kind of judgment do you make when ROIC is lower than expected for a project you have already invested? How is the management going for your team? Or how do you check the progress?

Thanks for the question. I do believe you're asking about the monitoring after the investment done. Yes, I admit that we have not fully done this in the past. Whether or not, things going well as planned, we need to check into this more thoroughly on a regular basis and need to report it to the management or share it with the open companies where are we invested. Yes, it is critical for us to go through details how we could make modifications to go back to the original trajectory we have planned. Yes, there could be some challenges, including changes in the environment as well as in the operating companies. But here, we need to be making our judgment as needed. In some cases, we may need to reduce the planned investment amount. And in the worst case, we may have to stop the investment at summer in between. This is something the holding side should communicate more strongly. Data and major thoughts we are now considering.

The system you have just mentioned, Wakabayashi San, are now reflected in the transformation promotion department starting from April. Am I right?

Yes, you're right. The major player here is business portfolio transformation promotion department, but we need to have good support coming from the finance department. Holdings need to develop a really good system where all the people are concerned to be able to be united and have a deep engagement.

Next, I would like to have questions from Ms. Kanamori SMBC Nikko Securities.

This is Kanamori from Nikko Securities. I have 2 questions. The first question is also about gaisho its profitability. I appreciate if you could expand on your thoughts on cost aspects. You briefly mentioned about human resources and expanding gaisho business. With expanding online as well as systems efforts, I believe you can expand your business without increasing cost much. So I appreciate if you could share your thoughts about cost aspects. If I may now like to ask my second question here, again, about your gaisho operations. I believe you have excellent customers with Daimaru Matsuzakaya department store, Parco and the Ginza Six, respectively. I am wondering if they are sharing those customers. If so, would you please help me how you are doing this? For example, earlier, you were talking about the pop-up shops at Shibuya PARCO, and I believe relatively younger people would come to these shops, right? Among them, you may find good potential future customers for gaisho business. If so, you should be able to lead them to Daimaru Matsuzakaya as well as Ginza Six for gaisho opportunities. If you could do so, you may be able to further strengthen your business? Well, this is just one possible interpretation from our side. How you feel about this?

In regard to the cost aspects, the human power or capability is the best weapon for our gaisho business. That said though, it is not necessarily the case, every one of the gaisho people has to be a superstar. I believe there could be many different types of people. It is a fact that those young affluent customers have a deep level of knowledge when it comes to the category they have an interest in. For example, wines, they know a lot about wines. For them to be able to enjoy the shopping, it is imperative on our side to have a good expertise knowledge to enjoy the conversation. With this point in mind, it is not the case that the knowledge all this comes from the gaisho side. We should be okay if we have people who are savvy people about the product, say, in sales or in shops were from the vendor side. From the future scale-up of gaisho business, it is critical to have a network of experts around us. As you have kindly pointed out, I also believe that just increasing the absolute number of people will not lead to the gaisho business growth. In the past, it was one-on-one approach visiting house for housewives, saying good afternoon, ma'am, is no longer the case with young offline people. They do not require us to reach them at home. We are connected digitally. Yes, this has reduced man hours required dramatically. Going forward, I believe there will be more efficiency to be created. So as I mentioned this point earlier, as long as we have gaisho resources who can network groups of experts around them. They can become quite efficient. Going forward, it will be an online touch point. So it will be less important to secure a certain number of gaisho people going forward. Though as of now, we have secured a certain number of people in charge. We have just started our discussion looking into the headcount questions and others for gaisho business in 2023 next year as well as the future 2030. Allow me to repeat at the same point, we do not intend to grow gaisho business by increasing its overall headcount. That's all I can say today. Another question you asked, we may be able to find our customers from Ginza Six and the Parco. As for Ginza Six, as you may know this already, it has a different customer management system from the department stores. So as of now, they are not well connected. Ginza under section apps are different from the department stores and apps. That's it though, going forward, we will make JFR Card and as the key. With this time, we should be able to integrate customers. So by transforming Ginza Six cards, I believe now we should be able to integrate customers fully. And as for Parco, Nakayama [indiscernible] has explained our lifetime service hub, our group integrated database. Finally, in Parco apps and [indiscernible] and Parco members, the department of stores members and JFR Card members are now being integrated into the database. We are now working on customer data unification with this database completed, we now can tell who are our promising customers and their shopping pattern and others. That's all I can say.

A follow-up question, if I may. Parco is going to integrate the systems according to you. But I would like to know if you are planning to transform Ginza Six cards? Would that be possible?

It is going to be [indiscernible] front strategy, so I'm not in a position to dwell upon it. You're asking about the cards, right? Yes, you're right. As for Parco cards, then if I may, I'm happy to respond from the Holdings perspective. What you have just asked about is a critical management issue for the group. But we have history so far that Parco has managed its own Parco Card. And Daimaru Matsuzakaya has managed its own Daimaru Matsuzakaya Card independently. Yes, it is true that each card has its own benefits, but we must have a good group-wide discussion, including operating companies. What should be the best for the entire group? We are now under the impression that there could be more than one answer. We are now looking at many different patterns and conducting simulations. We are now about to be engaged in such a process so that we can announce its results without much delay. I could have sounded a bit an abstract, but I hope you're with me. Understood. Looking forward to your updates going forward. Thank you. Thank you. And thank you, indeed.