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

Thank you for joining us today. My name is Kenji Kawase. I became President of PARCO this spring. It is my pleasure to meet you all. Today, I'll talk about PARCO's business strategy, looking a little further into the medium to long term. My presentation will first cover the origin and evolution of PARCO's mission, then an introduction of my background and my thoughts on the future of PARCO's business. Next, I'll talk about our current store operations, then I'll conclude my presentation by looking at future directions from both short-term and long-term perspectives. Now let me begin with the origin and evolution of PARCO's mission, my background and the medium- to long-term perspectives. For Origin and Evolution, I have included the word Vision and Purpose on this page. These works were defined by PARCO in 2021. Before this in 1999, PARCO set the management philosophy of creating a visionary and creative commercial space for hospitality to lead customers and tenants to success. After it became a wholly owned subsidiary of J. Front Retailing, PARCO, Re-defined its role in society and word Vision and Purpose so that we can provide the unique value of PARCO within J. Front Retailing. The Vision and creativity that PARCO has developed throughout its history are embedded in the worlds Vision and Purpose by the phrase to change the world we refer to our aspiration to offer alternatives for the world of counterculture, which is also called pop culture or sub culture. PARCO has also always valued the next-generation and undiscovered talent, and we will continue to maintain this philosophy as unchanged core. Now let me briefly talk about my background. I joined the PARCO 31 years ago and was with PARCO Co. Ltd for about 15 years and then worked for other group companies, including J. Front Retailing for another 15 years. First, I was involved in launching new businesses and joint ventures in PARCO Group companies. This included the management of a digital-related subsidiary and the establishment of a company that operates culture classes with a newspaper company. As such, I was involved in various opportunities for new businesses. The second bullet point refers to my management experience of PARCO Digital Marketing Inc. as well as the entertainment business division. This is not only to experience events or a device to attract customers in various fields such as music, movies, theatrical plays, publishing and content but also to generate profit from this business. Last year, I was involved in group management in the management strategy unit of J. Front Retailing, as indicated by the last bullet point. In this team, I gained experience such as establishing CVC and implementing the M&A of an esports company, which I will talk about later. Now what direction do I want to take for PARCO's business in the future? On this slide, it says we will further expand our relationship with society and provide value through our stores and entertainment businesses. To talk about the future, I think I should probably talk about our origin as we set the title as Origin and Evolution. In 1969, PARCO was opened in Ikebukuro and in 1973, Shibuya PARCO was opened. This was our original business back then the college enrollment rate for women was quite different from today. And of course, this was before the enforcement of the equal employment opportunity at for men and women. These women were working in offices and going out into the city and our culture was based on the idea of supporting them to become economically and mentally independent and we have promoted a fashion with a focus on the message that it is okay for women to speak out and dress the way they want. When Shibuya PARCO was opened in 1973, we included a cultural element with trial fusion of culture and fashion based on the concept that a theater is not inside PARCO, but PARCO is inside a theater. In the later period from the 1980s to the mid-2000, there was cutting-edge fashion along in for Tokyo and asymmetry of information among the young population. Under such circumstances, we deployed our strength of communication to cities nationwide. From the 1980s to the 2000 when PARCO opened stores nationwide, we spread the youth culture throughout Japan by adding information value to goods. This is so-called PARCO culture, which still carries on today as our DNA. In terms of our relationship with society in the mid-2000s, cellphones and smartphones changed society drastically and the rise of e-commerce followed. At that time, we consolidated our stores into major cities from nationwide locations to create a major city network. While we opened stores in Sendai, Fukuoka and Shinsaibashi, we closed stores in regional cities such as otoyo, Kivu, Oita as they had fulfilled their role. This was the road we followed from the 2000 to the 2010s considering our future relationship with society, we are discussing and exchanging opinions within the group, including J. Front Retailing on how society will change. Although the young population will not increase in Japan after the 2020s, I believe that the major shift in value is in line with the history and the spirit of PARCO. Let me mention 3 points. First one is value. [ Fantom] consumption refers to people following their emotions and consuming with passion, not being driven by good. They are oriented toward things that have elements of culture art or culture in their identity and things with the story. Next is internationalization. Japan claims to be a tourism-oriented country and inbound tourism and internationalization will continue to increase as we are seeing signs of recovery now. Lastly, is social value. Dispute of sustainability is already changing the behavior of many consumers. With these things in mind, we opened Shibuya PARCO in 2019 and its concept is genderless, borderless and ageless. Just after its opening in November 2019, we were hit by the pandemic, so the new store finally started to find its feet this year. Going forward, we intend to produce world-class value with a view towards 2030 and 2040. We will be able to show you a more specific story as we formulate the next medium-term business plan. Based on this origin, I will explain the current store operations with 3 slides about the results and challenges. In the first quarter, both the number of visitors and infection volumes have recovered to the FY '19 levels. This has been realized, thanks to the easing of the city's restrictions on gatherings in Shibuya and Shinsaibashi. During this period, we made continuing efforts to expand our IP contents. This drove our customers to come and gather at PARCOs. We also had many foreign visitors who contributed to this. On the other hand, the recovery of the operating revenue portion has lagged compared to the growth of transaction volume. The top shows the total of PARCO stores. As you see there, we have highlighted 3 columns in color, indicating the change in the first half of FY '22 versus FY '19, the second half of FY '22 versus FY '19 as well as the first quarter. As you can see, the transaction volume has been steadily recovering at 91.7%, 100.2% and 102.8% on a half year basis. Operating revenue has also recovered from 96.8% to 99.1%, albeit a little bit slower. In the first quarter, it has recovered up to 99.8%. We have listed 2 factors that have contributed to the divergence of this recovery situation between the transaction volume and the operating revenue. The first factor is a market recovery in the fixed rent tenants while there is a lag in the commission type tenants. In other words, well, many of the tenants driving the growth in transaction volume and fixed rent tenants, such as movie theaters. The recovery of the commission type tenants is a little slower than that of the fixed rent tenants. Another factor is the fixed term lease agreements with the tenants, which are concluded over a period of several years. Therefore, we do not expect the recovery in the current performance to directly improve the operating revenue, but we plan to accelerate this return while also seizing opportunities for contract renewals later going forward. I would like to further elaborate on the results of the current store operations. I mentioned earlier that the IP content and overseas sales are growing, particularly with regard Shibuya, Shibuya PARCO supported globally. In terms of transaction volume alone, FY '22 was up 133% year-on-year. And in the first quarter, this fiscal year, it further grew 162%. This is the #1 growth rate among all the stores. There are 2 important topics here, IP content and inbound transaction volume. First, the IP contents. During March through May, and this is not just in Shibuya, we had 118 events to mobilize our customers at all the stores, doubling the volume of transactions handled there and increasing mobilization by 1.6x compared to 2019. We also created MD zones for character games and others. Looking at the general merchandise as a whole, the volume of goods handled here increased by JPY 2.6 billion from the previous year and has increased JPY 4 billion from 2019, making the driving force for all the stores. As for the inbound reduction volume, on the right-hand side, the transaction volume for all the stores was JPY 6.1 billion during March through June. This is 3x number compared to 2019. Looking at Shibuya alone, inbound transaction volume from March through June amounted to JPY 2.9 billion, which accounted for 28% of the total traction volume of the entire Shibuya store. The survey was conducted in July by 1 million that is read by highly sensitive people in Taiwan and the results show that Shibuya PARCO is very popular because it is like a specialty store where you can always find interesting products that have been carefully selected by individual owners. There are always collaborations and information that you cannot find locally. This probably means that though each of the department stores is growing inbound area. I believe the foreign customers and visiting Shibuya PARCO and Shinsaibashi PARCO seem to have some different angles of interest and curiosity. We believe this is one of the features of the J. Front Retailing having both department stores and PARCOs. Now allow me to touch upon some of the issues in the current store operations. Ikebukuro PARCO is still undergoing renovations to increase the value of the building, but the replacement of tenants has progressed well through the spring and its recent performance has recovered significantly. Q1 transaction volume grew by more than double digits or 118%. Going forward, besides the renovation, we would like to continue to promote mobilization events to improve the performance. Meanwhile, Nagoya PARCO is undergoing a transformation of its item categories. We like to proceed with a large-scale renovation of about 2,000 tsubo going forward, we are planning to proceed with the renovation efforts of our largest store in the spring 2024 as well as in the fall 2024 and beyond. The district Nagoya PARCO is located is currently undergoing a major renovation including the renovation of the [indiscernible] building and Front department store and the transformation of Sakae into an area with multiple functions, including offices, hotels and commercial facilities. This includes largely hotels, and Sakae now in the midst of its internationalization process. PARCO stores have been selling many fashion items so far. If you look at the bottom right graph, you will see the 3 vertical bars. The right side is the existing stores. In PARCO stores, closing is usually shown in the darker color closing accounts for about 30% of the total floor space. The Nagoya store had 44% closing in 2019 and though we are working to try to change this, but it still remains at 42%. We'll calculate the appropriate floor space for Nagoya PARCO, whether it should be on par with the current acquisition stores or not, but we would like to attract more customers by promoting mobilization events and experiences. We will transform the Nagoya PARCO into a place of Unprobable value that international customers can truly enjoy as much as those in Shibuya and Shinsaibashi, we are still in this journey. I have just explained the current strong operations. I will now explain in the future direction using 6 slides. Some are mid- to long term as well as short term. First is the store station I just mentioned, I have listed 3 points. First, IP contents. With this, we will further progress our efforts to renovate floor layouts, the Ikebukuro, Sapporo, Sendai and Fukuoka stores have almost already introduced IP contents and are creating unique PARCOs in their respective regions. We'd like to add an Nagoya to that list and continue to introduce IP contents at our core stores and the second bullet, we have 5 stores that account for 50% of the total volume and operating revenue share. This is where we would like to concentrate our resources and pursue further opportunity for growth. Finally, we would like to target foreign visitors to Japan and we'd like to do this on a global basis. We have been sending out information and strengthening our efforts since the second half of 2022. But now these some people have actually experienced Shibuya PARCO and Shinsaibashi PARCO and have returned home since the first half of this year. We'd like to further promote communication with the local communities. We have one more slide with more details. Overseas sales hit JPY 6.1 billion in the period March to June 2023 going about the full year sales of JPY 6 billion in 2022. And compared to the first quarter of 2019, they were up 358% showing a strong recovery despite the fact that Chinese customers have not returned. Second point, in terms of transaction volume, Shibuya accounts for 27.2% and Shinsaibashi is close to 20%. With these key stores, we will enhance global information dissemination, joining hands with the best local partners for Mainland China and Taiwan, respectively. We will provide information on the kind of experience possible at PARCO. With these initiatives, we like to prepare to attract customers from extensive areas in China. Next, as for the future direction, I explain the initiatives in the content area on 2 slides. First of all, we have been focusing on the discovery and development of content, and we will further expand and commercialize them through direct management. Already in the first quarter, we have already begun to develop the original product and produce exhibitions that are highly tropical. When you come to the store and visit a project, it will be difficult to see the substance. For example, in the case of Oshi no Ko Exhibition we usually use advertising expenses to plan the mobilization of visitors and obtain the effect of attracting the thousands or tens of thousands to come to the stores. But in our case, we produce a project itself. We are also directly managing the sales of goods that we make customers happy. And we are starting at several businesses that do not only contribute to mobilization and store sales, but will also be established as businesses in their own right. As I explain later, providing these 2 external commercial and mobilization facilities are in our business scope. As for original product development, we will work with influencers, deliver information to the interested people and receive orders. We produced necessary products made to order with minimum inventory risk as these products have a high level of enthusiasm and not a kind of thing you order today and one tomorrow. We have already started these businesses. In addition to these efforts to diversify revenue, I would also like to mention the second one, the conversion to a media center, we call it media or location business. Usually, some commercial facilities will not allow TV crews to enter the venues as they interfere with the sales activities. However, we are willing to accept them, including [ pyramid ] location for many other videos and other productions, mainly at Shibuya PARCO. We are working on this as a business first and foremost. We have already started to see the benefits of customers coming back to Shibuya PARCO as a special place where their favorite celebrity have filmed and we'd like to expand this as a business. I'd also like to explain another direction initiative in the content area and e-sports. J. Front Retailing group, including PARCO should deepen the communications with the Generation Z community and the best place to take on this role is probably PARCO. The e-sports market itself is still in the embryonic stage in Japan, but we invited the professional e-sports team SCARZ to join the group, and we work together to build their fan base and community. An event in May at GINZA SIX was already covered by some media and we also held a public viewing of international tournaments in PARCO with an audience of more than 1,000 over 3 days. We also held a Fan meeting in Osaka and are planning to hold one in Tokyo during the summer holidays in August as well. Thus, we'd like to offer extensive opportunities for generations Z visitors to come to PARCO and provide them with a wide range of opportunities to experience power cost contents. We expect that there will be many business opportunities to leverage our capabilities along with the growing e-sports including collaboration with tenants and tournaments management. So we'll continue to work on this. Next, digital entertainment field. PARCO strength lies in the so-called real entertainment such as music, theater and movies. But we're also strong in e-sports and so-called games. In digital entertainment, the content and characters are derived from games and the communities we are a lot of [indiscernible]. Going forward, that would be connected to the real world and I think PARCO's business in digital entertainment field will be extremely important. On the final 2 slides, I explain the advancement of JFR Group collaboration. The first point is related to the customers and second to existing businesses. PARCO's health card has been issued by other companies, but will accelerate the move to consolidate these cards into the JFR Group. As for out-of-store sales, we have heard that there are requests from department store customers regarding fashionable products that are popular in PARCO. So we'd like to provide service to those customers, mainly at Shibuya and Shinsaibashi stores and specific actions have already started. Finally, through group CVC, we have already established ties with venture companies. So PARCO would like to leverage these channels for the variation of existing businesses and as a trigger to create new ones. This slide about the real estate development in the final one. I'll explain 2 projects, which have been announced previously. In Nagoya, as mentioned before, J. Front Retailing will take the lead to make Nagoya a more luxurious and highly functional city within a plan for Nishiki 3-chome District 25 to be launched in summer 2026. In Fukuoka, we will build a new facility in Tenjin aiming to launch in 2030. These projects were announced last fall. And we will continue to promote these activities in cooperation with J. Front City development, a developer in our group that started its activities in the spring of this year. I have walked you through the Origin and Evolution current store operation and the mid- to long-term future direction. Thank you very much for your attention.

I am Nishisaka from Daimaru Matsuzakaya Department store. Thank you for joining us today. Today, I will explain the initiatives and results for GINZA SIX, which is showing a rapid recovery from the pandemic and the direction of department stores based on the achievement of GINZA SIX. As for the current status of GINZA SIX, I will begin with an overview, followed by the business performance and an analysis of success factors. After that, I'll explain the expandability of the GINZA SIX business model. Now let me give you an overview of GINZA SIX, although many of you are probably very familiar with it. The top left is a photo looking up at GINZA SIX and the bottom photo is a front view And the upper right one is the artwork in the atrium of the building. This out work was a collaboration with Yayoi KUSAMA at the time of the opening. In any case, both the design and interior of the building have been carefully crafted. Next is about the overall facility. This slide shows the flow guide, flow areas and important points by function. Please refer to the description for details. In addition to commercial facilities, GINZA SIX also has offices Kanze Noh theater Tourist Information Center, rooftop garden, et cetera, to attract a variety of people. Next, let me explain about the noncommercial facilities. The top left photo shows the rooftop garden. It is a place for relaxation and many people gather here when events are held. The upper right is the Noh Theater on the third basement floor. It is used not only for Noh plays, but also for other events and about 200 events are held annually. The bottom left is a tourist information center and a bus station. The number of users has dramatically increased since last October. Next is our concept and strategy. Our value proposition is live at its best and to fulfill this concept, we embody world-class quality and a new consumer mindset. World-class quality can be broken down into the best brand and product. The best hospitality, the best environment, a variety of services and cutting-edge promotions. The new consumer mindset focuses on one's own values. Comfort, joy, and affluence. We are responding to people who value an attitude of continuous evolution initiatives for a better society, a commitment to the future and sustainability. The next page is about commercial floors with an area of approximately 47,000 square meters. GINZA SIX is the largest commercial facility in the Ginza area. It offers food on the second basement floor and beauty, fashion and lifestyle, books and restaurants on other floors after the sixth floor. There are approximately 230 brands that embody the life at its best concept mentioned earlier. Now let me explain a little more about what it has. First is Merchandizing. GINZA SIX is the first luxury mall in Japan. And in order to differentiate and characterize our merchandising we are proposing to our tenants to open flagship stores at GINZA SIX. Many flagship shops located here as large-scale stores for each brand, they offer not only a wide selection of goods, but also unique environment and services to send their message and popularize their brands around the world from their one and only store in GINZA SIX. For your reference, we define a flagship store as a large-scale store for the brand and a store that serves as a billboard for the brand with a focus on brand penetration. Next is about services. The premium launch not only provide conscious service, but also offers premium menus and cultural programs to stimulate intellectual curiosity. In addition, Valet parking service is gaining wider recognition among customers and the number of users is increasing year by year. I would like to continue with the environment. Since its opening, we have been developing art programs that some of the people senses and in which they are remind in order to enhance the value of the space. Our aim is to create a fulfilling experience in museum that can only be experienced here. The photo is just one example. I would like to introduce some more examples. The first one, atrium art is a collaborative project with Jean Jullien , which is currently ongoing. And on Page 13, I would like to introduce the second artwork in the atrium. This page introduces the art works at credit during since the collaboration with KUSAMA Yayoi as shown on the top left. Next, I would like to introduce our promotional activities. With sustainability as our foundation, we are working on 3 keywords: Destination, Art and culture and Ginza. In particular, we are working to create excitement by collaborating with the media that have attractive contents and strong messaging power as well as make the area a must-visit destination and attract more visitors. Next, I would like to introduce our media efforts. Based on our strength in international and art contents, we are approaching the global and highly sensitive audiences with both digital and analog approaches. The photos are some examples. Next, I would like to introduce our efforts for management and operations. Through the fixed-term lease contracts, we have taken an ever reflation approach in which brands are replaced on a regular basis. And approximately 40% of the brands have been replaced since the opening of the building. By anticipating changes in the market and making major replacements at regular cycles, we strive to provide new attractions and maintain the freshness of our MDs This is how we have been operating since our opening in 2017 and now I would like to explain our business and performance trends. First, let's look at transaction volume and customer traffic. As shown in the bar graph in the handout, FY '22 exceeded the level before the pandemic and there was an all time high, thanks to the effects of the first large-scale renovation implemented in FY '21. We expect further growth during the current fiscal year. Customer traffic is expected to recover in FY '23 to the level before the pandemic. Next, I would like to explain the transaction volume by customer. Domestic transaction volume reached its highest level since its opening in FY '22. Further growth is expected in FY '23 inbounded travel, while still in the process of recovery has exceeded the pre-covered level since the realization of Entry restrictions and border control measures last fall. Next, allow me to explain our transaction volume by membership stage. In FY '22, the total transaction volume of our members was up 36% from the previous year. Among the 3 categories shown in the materials, the highest stage, the Diamond customers who purchased JPY 3.3 million plus for the full year was up 45% increase year-on-year. In terms of the membership share, it reached 30%. We can see clearly that affluent customers and LTVs are increasing. Next, I will explain the transaction volume by customer, by age group and by gender. By age group, the composition of volume handled by the young adults in their 20s to 40s, is up 10% versus 2019. In terms of gender, the male ratio is 40%, up 3% increase over 2019. We believe that we can also see an increase in the number of young affluent people, especially young affluent males. So what kind of people are using this service. I believe you're interested in this. Now let me explain the customer profile. The largest customer segment in sales is the millennial generation. This is due to the expansion of household income, symbolized by power couples backed by the success of working women and the emergence of new types of business owners. As shown below, so-called HENRY or Fast shoppers who are sensitive to fashion and lifestyle is a part of the key customers. Those who work in Ginza area come for fashion and beauty rated shopping after work on weekday evenings. For luxury and other items, which they would like to spend more time to pick out, customers come to the store on weekends and shop at their leisure. This kind of shopping behavior can be observed. As for entrepreneur or self-actualized influencer, they tend to come on weekdays when it is less crowded to buy their favorite. In addition, many sons and daughters and various families as we have traditionally known are using our services. Let me explain the situation by category. As shown here, we classify everything into 4 segments: Luxury fashion, Contemporary fashion, Lifestyle and art, and Food the growth rate for each category is shown here. Luxury fashion in particular, grew by 64% compared to FY 2019. All the other categories also marked strong double-digit growth. Young affluent customers support not only luxury fashion, but also highly stylish contemporary fashion as well. Next, based on the GINZA SIX situation, I have worked out a hypothesis of key success factors, though I do not mean to be boastful. Please turn to Page 25. There are 4 major key success factors. First, consistency in concept and strategy, the company has continued to have consistent MD environment, service and promotional activities based on the concept. Second is our Flagship store strategy. This is a commitment to unparalleled product lineups, and environment in the services that enhance, the shopping experience. It is a strategic approach to leasing store that symbolize brands. Third, promotions, facilities and services to enhance the in-store experience, art programs in Atrium and lounge and other services. Fourth, the use of fixed-term lease agreement that enables the continuous refreshing of tenants. The ability to respond to market change by the regular renovations on a large scale. These are our hypothesis for success. Now let me say a few words about the future direction of department stores. Please turn to Page 29. In the strategic remodeling of our department stores, we implement horizontal development of GINZA SIX contemporary fashion brands targeting young and affluent customers. In this way, we intend to focus on finding and attracting new customers by providing them new value. As for the mid- to long-term initiatives, the company will evolve value creation for young and affluent customers with a large-scale reordering of our main stores and develop a full-scale effort to capture the affluent customers other than gaisho customers. In remodeling the sales floor, we will maintain and improve their freshness by using fixed-term lease contract and expanding the scope to replace the tenant regularly with scale and we work to build an art environment that has high affinity with young and affluent customers in the hence promotion activities. We also leverage the content to establish a digital communication format that fits the needs of the next generation of customers. Some examples of initiatives are shown here. Example one is store and street art. I will not go into much in detail, but this is the entire art program not only within the store of Daimaru Kobe, but also on the street ff the old settlement area, we believe that the art initiatives has a high affinity with department stores at involves the highly feasible contents. Example 2 is the establishment of new lounges for affluent customers. These Lounges offer special experience value to customers. We had been operating them for some time as exclusive space for gaisho customers, but now we are establishing new lounges, not simply for rest or business meetings, but also as guarantee for multiple purposes, providing value of that can only be experienced in this Lounge. The Lounge was first deployed in the Shinsaibashi store, which was renovated and reopened in 2019, followed by Daimaru Kobe, Daimaru Sapporo, Matsuzakaya, Nagoya store and other new locations. Since the opening of Lounges, the number of users has increased with enhanced customer loyalty and in turn, for the higher LTV. Next, let me explain gaisho collaboration. From September this year, collaboration between GINZA SIX and the department stores. Gaisho sales will be enhanced. So far, gaisho service has been available at limited tenants in GINZA SIX, but variability will be expanded drastically from September. With this in addition to increasing the presence of gaisho business of Daimaru Matsuzakaya in the Tokyo metropolitan area, we expect that customers of Daimaru Matsuzakaya nationwide will increasingly use the gaisho services when they come to Ginza Tokyo. That concludes my presentation. Thank you for your attention.

First, Mr. Takahashi from Mizuho Securities.

I am Takahashi of Mizuho Securities. Thank you very much for your detailed explanation. Let me ask questions to Mr. Kawase and Mr. Nishisaka. First, I would like to ask 2 questions to present, Kawase although I may have asked similar questions about 3 months ago. First, since you became president of PARCO, assume that your view of the company has changed a little and that is probably reflected to some extent in your presentation today. So once again, I'd like to hear your thoughts on PARCO's strength and the challenges you have faced since becoming president and in particular, what could be changed to enable PARCO to implement measures explained today more successfully? My second question is about merchandising. Today, you talked about various topics like collaboration with the departmental store business to consolidate credit cards, but I think there are other opportunities for collaboration with Daimaru Matsuzakaya department store in the area of merchandising, such as using PARCO's incubation capabilities more. I'd like to hear your thoughts on this point again. You may think that it is difficult to do or that it cannot be very effective. But from an outsider's point of view, there were some areas where more collaboration can be done. I would appreciate your explanation about this. I also have 2 questions for Mr. Nishisaka. I'm always impressed with GINZA SIX, which you explained today. And I understand that you intend to incorporate its know-how more into the department store business. It may not be very appropriate to talk about things in the past now, but I think it was already known even before the pandemic that GINZA SIX was quite successful. But from the outside, it seems its success has not been shared enough to merchandising or other practices at Daimaru Matsuzakaya department store. I'd like you to review why it did not happen. In other words, could you tell us what has changed and how the success stories of GINZA SIX 6 going to be shared going forward. Here is another question. I understand there will be more collaboration between GINZA SIX and Daimaru Matsuzakaya department store, but correct me if I'm wrong. I think it is possible to look for other business opportunities. For example, a small version of GINZA SIX could be opened in some other city or even overseas. In short, is it far-fetched to expect any business development as GINZA SIX to be opened in places other than the current Ginza area. I'd very much like to know if such possibilities exist.

Thank you, Mr. Takahashi. Let me answer your questions. Your first question was about what I think are the strengths and challenges of PARCO after assuming the position of President, I have been communicating with our stores nationwide since March when I became President, and they just had a lunch meeting today with employees at our headquarters. My answer to your question may not be satisfactory, but I think the strength is the network and the creativity of our employees. For example, for IP content, they don't wait until they see something become popular before they plan events for IP content mentioned earlier. For the Matsuzakaya event, which was just held recently in Tokyo and is now touring around cities in Japan. They negotiated with the content holder and initiated this revival event for the first time in more than 10 years. As such, they are sensitive about these things and Billy who used to do Billy's boot camp now lives in Osaka, and we held his event at PARCO and Shinsaibashi. Anyway, our employees have a high sensitivity and are very creative and they work with interest in their job. We don't have to bring up though difficult term human capital management, their enthusiasm is the key for the relationships with the people outside the company and creators who gather there, I believe this is a strength. On the other hand, we faced challenges at the same point. Those employees strongly believe that PARCO's revenue is derived from attracting customers through such events and receiving rent from tenants in the areas that I mentioned earlier, one that we'll be working on in new businesses are areas other than rental revenue. They are media business and the system of sales on order. We intend to utilize our creativity and network in these areas and diversify our collaboration with creators as another source of revenue. This is both the strength and the challenge. And these are 2 sides of the same coin. Another point is that PARCO asks tenants to bear the burden of interior assets and inventory. While we take on the role of making store operations and promotions excellent. With this separation of responsibility, we have been eliminating various risks so far, and PARCO is a company with a very strong attitude of taking off risks. Having said that, we will take risks, we should take to utilize our creativity and network with creators. This is the way we are going to take going forward. Your second question was about cooperation with department stores. That is exactly the thing we are going to promote further. In Shinsaibashi, for example the Daimaru Shinsaibashi store in Shinsaibashi PARCO and next to each other operate as if they were one store and various activities and meetings are generally conducted through Human Resources exchange, including both persons in charge and young staff. However, considering the slight difference in business format and the business partners, there are examples of joint information sharing, policy sharing and role sharing in the areas of merchandised development and talent attraction, but we are moving forward with the division of roles. We are promoting such initiatives nationwide to address what Mr. Takahashi pointed out earlier as we are not fully utilizing our success. We are currently exchanging personnel by sending tens of people from PARCO to the group and several dozen people are temporarily transferred from the department store to PARCO, we will do our best to achieve results that we can present to you as soon as possible. Thank you for your question.

I'm Nishisaka and I will answer your questions about department store business. Your first question was you understand the current status of GINZA SIX and the future direction of the department store business. So why hasn't it success been well utilized so far. The Daimaru Shinsaibashi store, which opened in 2019 is a store created by a close communication between President Sawada and I. At that time, the concept of GINZA SIX was already incorporated, and maybe it is still not enough, but we were not looking for a short-term solution such as take-it content as it is. Rather, we created a store while benchmarking or learning from the ideas of creating a new commercial facility. I believe that such an idea was horizontally deployed. We have become more cautious at this point because of our awareness of changes in values of consumers and customers after the pandemic and the need to focus more on content to grow further as a department store. In that sense, we will benchmark GINZA SIX apply its success to our business. It does not mean that learning from GINZA SIX is everything and that the department stores are toed by GINZA SIX. To be honest, I think GINZA SIX was successful, partly because it has some department store DNA. So this is not a master-servant type of relationship, and it is essential to create stores that fit the needs of customers in each market by merging the strength of each entity. The second question is whether GINZA SIX will be deployed to other places in the future. Currently, we do not expect a second or third GINZA SIX to be opened in other places. However, it is very much possible to apply the success factors of GINZA SIX and its store development philosophy to new commercial facilities that will be developed by the group in the future. About your last point. you said, department stores are key to the success of GINZA SIX, but I think it is a general view that Daimaru Matsuzakaya department store should probably incorporate changes more from GINZA SIX and PARCO. Of course, I know that department stores are doing well, but I expect that the department store people will take in much more changes from outside. This is what I think as an analyst and as a consumer who uses your stores in Tokyo, I would appreciate if you could give consideration to this we will take your comments into consideration and make our stores enjoyable for all kinds of people.

Next Mr. Kazunori Tsuda from Daiwa Securities.

I also have 2 questions. The first goes to Mr. Kawase about PARCO and it has 2 parts. First, I would like to inquire about the inbound side. PARCO is known for its strong content to begin with. Yes, you had a good amount of inbound business to some extent, but I don't believe the inbound had ever made such a big contributions to your revenue. Would you please tell me how and where the power of communication has changed between PARCO then and the PARCO now, particularly at Shibuya and Shinsaibashi. Secondly, you mentioned earlier that the renovation of Nagoya will continue until next year. Besides it is so big and it has several buildings. And you are spending the biggest amount of fixed cost on this biggest asset. So unless you have good results on Nagoya I would say it is rather difficult for you to return to the profit you had at pre-covered. So now I'd like to inquire about the reason why it has taken such a long time and how Nagoya is going to be positioned in the next medium-term management plan with the PARCO initiatives going on. Can you really expect Nagoya to turn around. My second question, I'm not quite sure if this can be answered by Nishiaka. If I remember correctly, when a GINZA SIX was first created, you created a separate card and a membership organization. You are talking about the different customers from your department stores and customers. I wonder going forward, including direct sales, The cards will be integrated. I could be wrong, but I appreciate if you could expand on your efforts to expand the direct sales for GINZA SIX will create synergies together with your efforts to expand your department stores. I would appreciate if you could expand on the reason why you are moving into one, though back then, you had a reason for the suppression. Furthermore, on the direct sales side, you have separate direct sales functions for your department stores, PARCO and GINZA SIX with a separate policies for the direct sales operations. I am here assuming that you are aiming at a direction for the entire J. Front Retailing optimization. I would appreciate if you could expand on those points from Afferent group and direct sales perspectives, covering GINZA SIX department stores and PARCO.

Thank you, Mr. Tsuda first, now I'd like to respond to questions on the PARCO and the inbound. You ask me how different was PARCO in Shibuya then and from Shibuya and Shinsaibashi now. We are now actively utilizing SNS and [indiscernible] trying to dispatch information borderless way. I believe these efforts are well appreciated by the highly sensitive group of people. Furthermore, before and after COVID-19 in Shibuya has dramatically changed as a town, and many people are coming to Shibuya from around the world and trying to get information at Shibuya. That said, they are truly finding PARCO interesting as a place where luxury, fashion, museums and galleries coming together. We have actually the pleasure to have many investors from Taiwan, South Korea, China and U.S. But going forward, we believe there will be many more visitors from China. So we are continuing the same efforts in the Chinese media. Information dissemination synergy with Shibuya and the unique merchandising. So I would say that these efforts are having an impact. Your point on the renovation Nagoya turn around are quite right. We do position Nagoya being our most important location. As for the delayed renovation, we are now having a good discussion on eye-catching items. So we would like to develop the best possible form for the entire PARCO, while keeping our eye on time schedule at the same time. And the town itself is changing, not only us, but entire town is being redeveloped as we mentioned earlier. So we'd like to synchronize with it to get the best possible effect. Yes, we are behind the schedule in some areas. But in other areas, we are intentionally behind the schedule. We do believe that the turnaround here is going to be truly a critical for PARCO. .

Then I don't know if this is the right way to put it, but instead, you first decide on core tenants and the content and focus on the channels and the city. PARCO will be involved in producing Nishiki-sanchome as well. So you seem to be in a longer in time frame in order to fundamentally change in that way. Am I right? Yes, absolutely. Including our group development, we would like to consider the whole Sakae community as our J. Front economic zones.

Thank you I understood it. I would like to have Nishisaka to respond to your question on direct sales.