Risk Factors

Last update: May 27, 2022

  The Company strives to appropriately manage various risks related to business continuity in order to maintain and advance the Group in perpetuity while ensuring sound management and business efficiency. Among the risks identified through these efforts, those that may have a significant influence on the decisions of investors-based on the likelihood of the risk materializing, the timing of the risk, and the degree of impact-are described below. However, these do not cover all risks related to the Group; there are risks other than those listed that are difficult to foresee. Also, these risks are not independent of each other, and certain events may lead to an increase in various other risks. This section includes forward-looking statements and future expectations of the Group as of the submission date of the Group's Securities Report.

Definition of risk

  Under the Group's risk management process, risks to be managed are divided into four major categories: governance risk, operational risk, B/S risk, and business risk. For the purpose of disclosing information that helps investors make decisions, the Group's Securities Report classifies risk into strategic risk and operational risk, each of which is defined as follows.

  • Strategic risks

    Risks that may affect business strategies significantly, including risks that the Group dares to take within an affordable range in consideration of the degree to which results achieved by planning and executing business strategies are above or below expectations, as well as the possibility of such occurrence.

  • Operational risks

    Risks that should be avoided or reduced in consideration of the potential for losses arising from operations that support the execution of strategies, as well as the possibility of such occurrence.

Group risk management system

  The Company and its operating companies have established a Risk Management Committee, with the departments that oversee the overall risk management of the respective companies as the secretariat. As a general rule, the Risk Management Committee meets once every six months to receive reports on the risk management status of the respective companies from the departments responsible for the management of risks, to comprehensively determine, assess, and analyse risks and discuss measures, and to determine the future direction going forward.
  Meanwhile, with regard to individual risks, Group policies related to such risks, initiatives to mitigate risks undertaken by each company, and various internal and external examples illustrating signs of materializing risks, etc., are shared through a group-wide meeting body, etc., headed by the Company's departments responsible for the management of risks.

PDCA for risk management

  The Group conducts risk management through the comprehensive identification and quantification of risks based on the shared Group risk assessment sheets, "risk assessment and proposal of improvement measures," "prioritization of risks," and "improvement activities and monitoring."
  In addition, the Auditing Office of each company verifies whether risk management is being conducted effectively, from an independent perspective, through periodic internal audits of the departments in charge of overall risk management and the departments responsible for the management of risks of the respective companies, and provides each department with the necessary advice for improving risk management, as required.

Major Growth Strategies for the Group

The Group has defined five business strategies.

  1. 1Business Strategy of Overseas convenience store operations
  2. 2Business Strategy of Domestic convenience store operations
  3. 3Group food strategy
  4. 4Large-scale commercial base strategy
  5. 5Digital transformation (DX) and Financial Strategy

For each of the risks listed below, the relevant strategies are indicated by numbers ranging from (1) to (5).

Major Risks

Strategic Risks

  1. 1COVID-19 risk: Related strategies: (1), (2), (3), (4) and (5)

      We expect that the spread of new COVID-19 variations and other factors will continue affecting the Group’s business activities over the medium and long terms. The Group’s core business is the retail business, which plays an integral role in people’s lives. Accordingly, we have taken rigorous measures to prevent the spread of COVID-19. At the company level, these include staggered work hours, telecommuting, online meetings, and changes in rules for outings and business trips. At the employee level, they include asking employees to measure their body temperature before going to, and when arriving at, work, wearing masks while commuting and working, washing hands, and using alcohol-based disinfectants. In these ways, we are striving to ensure continuity of business operations in order to fulfil our responsibility to local communities and society while protecting the lives and safety of our customers and employees. To ensure continuity of business operations, we are building a system of close cooperation with our business partners to maintain our supply chain. To protect human rights, meanwhile, we are taking steps to confirm the presence/absence of discrimination or unfair dismissal due to the spread of infection.
      Depending on the spread and prevalence of infections, however, we may need to take various measures, such as shortening business hours, suspending store operations, and limiting the number of stores in operation. Also, our supply chain could be disrupted, making us unable to offer products. Any of these events may affect the Group’s operating results and financial position.
      The Group also believes that changes in customer consumption behavior and impacts on the supply chain caused by COVID-19 are not one-off events but represent a “consumption wave” that will continue into the future. Accordingly, we are working to ensure swift Groupwide responses by meticulously analyzing changes in consumption, values, working environments, and industrial structures caused by COVID-19. However, the impact of COVID-19 may cause a decline in customers’ purchasing capacity or willingness to spend, or unexpected changes in consumer behaviour. Any of these events may lead to a decline in sales and affect the Group’s operating results and financial position.

  2. 2Risks related to growth strategies: Related strategies: (1), (2), (3), (4) and (5)

      The Group’s basic stance is to “benefit local communities in Japan and overseas by providing new experiential value, always from the standpoint of our customers.” We also have a Group Vision for 2030, under which we aim to become “a world-class global retailer group that drives innovation in retailers through a global growth strategy centered on the 7-Eleven business and the active use of technology.” With these in mind, we will focus on creating medium- to long-term corporate value and realizing sustainable growth based on our Medium-Term Management Plan 2021–2025, in July 2021.
      Regarding the overseas convenience store business strategy, 7-Eleven, Inc., which is at the heart of the Group’s overseas convenience store business, concluded an agreement with U.S.-based Marathon Petroleum Corporation (hereinafter referred to as “MPC”) in order to acquire the shares and other interests of the multiple companies operating convenience store business and fuel retail business (excluding the fuel retail business etc. for direct dealers in MPC’s retail division) mainly under the Speedway brand. At the same time, the parties concluded an agreement under which MPC will supply fuel to the acquired stores for the next 15 years.
      With regard to business after the integration, in cases where the benefits of the acquisition (such as growth opportunities obtained from the acquired business or synergistic effects of its integration) do not materialize as originally envisaged due to changes in the business environment or competitive situation, or in the event of additional and unforeseen costs associated with the integration, the Group may incur large amounts of goodwill and/or impairment losses, which may affect its operating results and financial position.
      In addition, the Company has taken on a large amount of debt, including borrowings from financial institutions, to raise the funds necessary for the acquisition. If the leverage is not reduced promptly through the initially envisioned profit generation, disposal of other assets, and so forth, the credit rating may be lowered, resulting in refinancing of existing debt or the terms of new borrowings being affected. Moreover, some of the Group’s debts are subject to financial covenants, and any violation of such covenants may require early repayment of debt, which may affect its financial position.
      7-Eleven, Inc. operates a gasoline retail business at its stores with gasoline stations, as well as a wholesale business, and the aforementioned transaction is expected to increase the ratio of gasoline sales to the Company’s total chain-store sales. Regarding the risks of the gasoline business, the Company hedges the risk of a decline in the profit margin due to fluctuations in the retail price of gasoline by vertically integrating its supply chain. However, sudden price fluctuations and other unexpected changes in business conditions may lead to a decline in sales and an increase in the cost of sales ratio, which may affect the Group’s operating results and financial position. In addition, if demand for gasoline in the U.S. market shrinks due to vehicle emission regulations, medium- to long-term policies to restrict gasoline vehicle sales in some states, or the popularization of electric vehicles, it may cause a decline in gasoline sales volume, which may affect the Group’s operating results and financial position.
      In the event that 7-Eleven, Inc. posts a decrease in royalties and/or sales due to misconduct and other reasons at area licensees that do not belong to the Group or at stores operated by such licensees, the Group’s operating results and financial position may be affected.
      In 2021, the Group established 7-Eleven International LLC to promote the development of its global strategy by strengthening ties between 7-Eleven, Inc. and Seven-Eleven Japan Co., Ltd. This global strategy is underpinned by three pillars: strengthening cooperation with existing licensees; expanding opportunities to open stores in new areas, including through strategic joint ventures and M&As; and maximizing synergies related to raw material procurement, SDGs-related measures, and the like. Meanwhile, the Group’s business activities around the world may face changes in laws and regulations, political instability, uncertain economic trends, differences in business practices, partner selection, and other risks that may prevent it from realizing the benefits and profits of the acquisition as originally envisaged. Since the acquisition, the Group has built a business model to maximize synergies from the integration and is monitoring the integration’s progress. However, if the value of acquired assets declines and a valuation loss is incurred, or if benefits expected from the integration of the acquired business are not realized, the Group’s operating results and financial position may be affected.
      Under its domestic convenience store operations strategy, the Group’s convenience store operations in Japan are primarily organized under a franchise system centered on Seven-Eleven Japan Co., Ltd. The franchise system is a joint enterprise in which franchisees and the Group fulfil their respective roles based on equal partnerships and relationships of trust. To achieve sustainable growth together with owners of franchisees, we are implementing a variety of measures. In addition to a questionnaire survey of all franchisees to ascertain their thoughts and actual circumstances, for example, we have established a dedicated consultation service for owners and hold owner opinion exchange meetings to receive their frank opinions and requests. In these ways, we are working to build a better business environment.
      If the Group is unable to properly establish and maintain trust-based relationships with franchisees, however, it may become incapable of maintaining contracts with many of them. This may also affect the performance and productivity of franchisees and cause them to lose their support of the 7-Eleven brand. Any of these events may affect the Group’s operating results.
      The Group is working to address changes in Japan’s social structure, including declining birthrate and aging population, increase in single-person households, and the increase in working women, as well as changes in consumer behavior stemming from COVID-19. To this end, we are building a foundation to re-accelerate store openings by selecting and displaying products tailored to each commercial area, creating more appealing in-store environments, revamping sales floor layouts, leveraging Group strengths to procure products, and developing and testing next-generation store concepts. In addition, our 7-Eleven online convenience store service will become fully operational with the integration of our brands as the new 7NOW. This service, resulting from our emphasis on DX, will provide new experiential value to customers. However, customer needs are constantly changing, and any failure to offer new value may affect the Group’s operating results and financial position.

      With respect to its food strategy, the Group aims to increase its share of the food market by strengthening the competitiveness of its food business. To this end, we are working to cultivate and strengthen our brands by mobilizing collective Group strengths across business categories. For example, our Seven Premium private brand products, which we have offered since 2007, are a source of competitiveness in terms of innovation, recognition level, and customer support. We are also embracing the challenge of establishing a highly efficient product supply system by building and sharing Group infrastructure and know-how in such areas as centralized kitchens and food-processing centers. In product development, we will strengthen the appeal of our products by promoting overseas procurement, including direct imports, sharing raw materials and recipes, and developing differentiated products such as meal kits.
      However, the Group’s business may be affected by various factors, including sharp rises in raw material and purchase prices of products or difficulties in procurement due to climate change, political/economic/social turmoil, and other factors. In addition, construction of common Group infrastructure, such as centralized kitchens and food-processing centers, may be hampered by such factors as soaring prices of construction materials, extended construction periods, and difficulties in attracting human resources as planned, resulting in the failure to achieve the initially anticipated benefits and strategic objectives. Any of these factors may affect the Group’s operating results and financial position.

      Regarding its large-scale commercial base strategy, the Group needs to further accelerate business structural reforms in its superstore and department store operations, which operate large-scale commercial facilities, in the face of significant changes in customer purchasing behaviour. Among such reforms, we are reviewing our existing store network while closing unprofitable stores, scrutinizing profitability, optimizing personnel allocation, and identifying prime locations based on commercial area analyses. In terms of store restructuring, we are rigorously analysing the commercial areas surrounding each store and reviewing product mixes and floor layouts based on the results of such analyses. At Ito-Yokado Co., Ltd., we are reorganizing shopping sections to reflect people’s different lifestyles while promoting product policies and tenant expansion to meet new lifestyles. This restructuring also addresses the growing need for one-stop shopping in the COVID-19 era and has resulted in increased customer traffic and improved profitability.
      However, if renovation investment costs increase due to soaring prices of building interior materials, or if the benefits of structural reforms are not achieved as planned, we may not be able to recover our investment, which may lead to a decline in profitability. At Sogo & Seibu Co., Ltd., we will review operations and personnel through store restructuring. In an effort to optimize personnel and restructure stores, we will apply know-how gained through property management (PM) implemented at suburban stores to core stores by FY2025. At the same time, we will improve the accuracy of commercial area analyses and create stores that better match the characteristics of each area. We will also improve the attractiveness of each store and use DX to increase customer contact points. In non-store businesses, we will strengthen external sales to expand business with affluent customers while growing our trading business. However, changes in business conditions or other unforeseen factors may make us unable to fully achieve these objectives, which may affect the Group’s operating results and financial position.

      Regarding our digital transformation (DX) strategy, we have formulated a Group DX strategy map. Using the map, we have determined Groupwide issues to address and are promoting measures needed to address them. We are also adopting DX measures to protect Group customers and, by extension, the entire Group. For example, we are implementing Groupwide security measures and developing a common Group infrastructural platform while at the same time promoting measures to build an infrastructure aimed at improving operational efficiency and maximizing Group synergies. In addition, we are taking DX measures to accelerate the businesses of each operating company. To address rapidly changing business conditions, for example, we verify the feasibility and competitiveness of new services through Proof of Concept (PoC), establish gates at each project stage, and make investment and other organizational decisions before proceeding to implementation. To reinforce systems that support our DX strategy, meanwhile, we are working continuously to promote in-house production and attract highly specialized human resources.
      To meet people’s diversified food-related needs, we believe it will be particularly important to not only sell products to people visiting our stores but also handle the “last mile” by delivering products to customers at the time and place of their choice. Leveraging its strengths in food safety, security, and freshness, the Group is embracing various challenges. These include expanding the scale of our online supermarket business through the establishment of large-scale centers, improving user interface and user experience through dedicated smartphone applications, and diversifying pickup methods through in-store pickup, in-store lockers, and the like. In the mobile sales business, we are working with TOKUSHIMARU Inc. to fulfil our social responsibility and role by providing shopping experiences to people who find shopping inconvenient for daily necessities while enhancing the value of the Group. In our food delivery service based on restaurant operations, we are setting up dedicated food delivery stores that do not rely on physical outlets. We are also working to provide a wide variety of high-quality home-meal products, including freshly prepared side dishes.
      However, our customers’ needs are constantly changing. Our competitors are also leveraging their respective customer bases and new technologies to enhance their last mile solutions. If the Group is unable to maintain its current competitiveness under these circumstances, it may lead to a decline in sales and affect the Group’s operating results and financial position.

      In our financial strategy, we are developing financial products and services that help enhance convenience for customers. To this end, we have formulated a DX strategy centered on 7iD, a common ID for the Group, and have newly established a Financial Business Strategy Office that works closely with Group operating companies. Our aim is to provide new value to customers across retail and finance.
      With respect to its financial and payment-related systems, the Group has established rules and regulations for information management and is taking appropriate security measures. In the financial business, information provided by customers is very important. Therefore, we comply strictly with the Group’s standards, and each financial business company strives to maintain rules and regulations based on various laws, regulations, and guidelines while establishing and implementing proper countermeasures.
      Even with such countermeasures, however, external attacks are becoming more diverse and sophisticated every day. Moreover, the risk of important information being leaked or tampered with due to internal human error or inadequate management of contractors cannot be completely avoided. Depending on the scale of the damage if such an event occurs, the Group may face claims for compensation from customers or business partners and loss of trust, which may affect its operating results and financial position.

  3. 3Existing business risks: Related strategies: (1), (2), (3), (4) and (5)

    Product procurement and price fluctuation risks

      To effectively conduct its business activities, it is essential for the Group to procure products and raw materials of sufficiently good quality in a timely manner. Accordingly, the Group is diversifying its procurement sources to prevent excessive dependence on specific regions, business partners, products, technologies, and the like. In particular, temperature increases, changes in precipitation and weather patterns, and other aspects of climate change may lead to reduced yields and lower quality of agricultural, livestock, and fishery products, as well as changes in agricultural product cultivation areas and fishing grounds, over the medium and long terms. In response, the Group emphasizes decentralized procurement and collaborates with primary producers to improve yields. However, any breakdown of purchasing channels stemming from temperature increases, changing weather patterns, and other aspects of climate change may affect the Group’s businesses.
      Some of the products handled by the Group are subject to fluctuations in purchase prices due to external factors. These include changes in political and economic conditions in the countries and regions where the products are made or the Group does business, deterioration of security conditions or social turmoil due to terrorism or conflict, changes in supply and demand due to weather conditions, and fluctuations in prices of crude oil and other raw materials. In addition, future prices of electricity and other forms of energy used in the product manufacturing process may drastically increase due to regulations, policies, or conflicts related to climate change. Any of these factors could impact purchase prices, which may affect the Group’s operating results and financial position.

    Business model risk

      The Group conducts its main businesses in Japan and also operates around the world. Therefore, any deterioration in economic conditions in Japan and other countries/regions where the Group does businesses, or in personal consumption trends and the like, may lead to a decline in customers’ purchasing power and/or consumer confidence, which could affect the Group’s operating results. The Group is also strengthening its development and lineup of products with an emphasis on regional characteristics. We also develop products through team merchandising in cooperation with manufacturers and vendors in various fields based on sales strategies designed to adequately address customer needs. In addition, we collect and analyse various data related to purchases made by customers who have registered for the Group’s common 7iD platform through our operating companies’ respective software apps, and we use this data to enhance the effectiveness of our sales promotion activities. However, any unexpected changes in consumer behavior due to economic policies or abnormal weather conditions may affect the Group’s operating results and financial position.
      To adequately address the changing needs of customers, moreover, the Group is working to develop products with higher quality and more appealing features while strengthening communication with customers and improving productivity. In our superstore and department store operations, meanwhile, we are implementing business structural reforms.
      In Japan, however, conditions for store management are becoming more severe as employment-related factors, including a shrinking workforce stemming from Japan’s declining birthrate, continue to deteriorate. These conditions may lead to downward pressure on product and service prices caused by price competition, as well as upward pressure on labour costs and other expenses, which may lead to a decline in the Group’s competitiveness and affect its operating results and financial position.

  4. 4Environmental risks: Related strategies: (1), (2), (3) and (4)

      To address various changes in the social environment, the Group has long worked to help customers lead affluent and convenient lives through the provision of valuable products and services. Meanwhile, climate change, plastic waste, and other environmental issues, as well as human rights and other social issues, are becoming more prevalent worldwide.
      The Paris Agreement was adopted at the 21st Conference of the Parties (COP21) to the United Nations Framework Convention on Climate Change (UNFCCC) in 2015. The agreement called for efforts to keep the global temperature increase well below 2˚C and limit it to 1.5˚C compared with the pre-industrial era. Furthermore, the outcome document of the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (COP26) in 2021 clearly calls for efforts to limit the temperature increase from pre-industrial times to 1.5°C, and the “1.5˚C target” has since been embraced around the world. To address changing social trends, we drafted our GREEN CHALLENGE 2050 environmental declaration, which defines “decarbonization,” a “circular economy,” and a “society in harmony with nature” as representing the kind of society we should envision, and we are promoting efforts to achieve these goals. With respect to climate change, which is a particularly pressing issue, we are working together with our customers, business partners, and all other stakeholders on various initiatives aimed at achieving net zero CO2 emissions by 2050. These include endorsing and disclosing information to the TCFD Consortium and joining RE100 and the Japan Hydrogen Association (JH2A).
      However, the Group is subject to a variety of environment-related laws and regulations, such as those pertaining to container and packaging recycling (including food waste and plastic) and waste management, as well as climate change countermeasures (including reduction of energy use and CO2 emissions). In the future, changes in these laws and regulations may result in additional costs related to legal compliance for the Group or restrict its operating activities. For example, climate changes countermeasures may include stricter regulations on greenhouse gas emissions and/or the adoption of new laws and regulations or policies, such as carbon taxes. In addition, tighter regulations could lead to changes in the cost of energy, including electricity and gas, resulting in higher expenses for store operations, which may affect the Group’s operating results and financial position.

  5. 5Personnel- and labour-related risks: Related strategies: (1), (2), (3), (4) and (5)

      The Group conducts its main businesses in Japan, which faces the social challenge of a shrinking workforce due to an ageing, declining-birthrate population. We also have many stores in Japan. In addition to attracting sufficient numbers of employees for each store, we aim to help our various human resources feel motivated to demonstrate their abilities. To this end, it is important that we support each employee’s voluntary efforts for self-improvement and link this support to our improved productivity as a company. In developing human resources, we are guided by the concept that a company grows as its people grow. With this in mind, we aim for mutual growth between employees and the Group by actively providing growth opportunities to employees and developing human resources who voluntarily continue learning and improving their skills at all times. We are also committed to promoting diversity and inclusion and work actively to create environments that welcome diversity and differences among workers while introducing flexible work styles.
      However, we may not be able to achieve these objectives due to various factors, such as revisions of laws and regulations or systems, which may affect the Group’s operating results and financial position. Each of the Group’s businesses essentially requires human resources with good communication skills when dealing with customers and other stakeholders. In the future, however, intensifying competition for human resources in each business field and region may lead to increases in employee compensation and wage levels and make it difficult to attract suitable personnel. This could result in an outflow of human resources, which may impair the efficiency of our business operations from a long-term perspective and thus affect the Group’s operating results and financial position.

  6. 6Risks related to human rights: Related strategies: (1), (2), (3), (4) and (5)

      With the increasing globalization of corporate activities, communities are becoming increasingly concerned about the human rights efforts of companies. The Group has been committed to respecting human rights based on its Corporate Action Guidelines and Sustainable Action Guidelines for Business Partners. In October 2021, we established the Seven & i Group Human Rights Policy based on the International Bill of Human Rights (Universal Declaration of Human Rights and International Covenants on Human Rights), the ILO Declaration on Fundamental Principles and Rights at Work, and the UN Guiding Principles on Business and Human Rights. We will also strive to prevent or mitigate adverse human rights impacts by establishing a human rights due diligence mechanism.
      However, any deviation from these policies could lead to a decline in trust in the Group among customers and business partners, which may adversely affect the Group’s operating results and financial position.

  7. 7Market risk (currency, interest rate, etc.): Related strategies: (1), (2), (3), (4) and (5)

      The Group engages in derivative transactions, such as forward exchange contracts and interest rate swaps, in order to mitigate interest rate and foreign exchange rate fluctuation risk, reduce funding costs, and optimize future cash flows. However, any fluctuations in interest rates will affect interest income and expenses and the value of financial assets and liabilities, which may affect the Group’s operating results and financial position.
      The assets and liabilities of overseas Group companies, denominated in local currencies, are converted to yen for preparation of the consolidated financial statements. In addition, some of the products sold by the Group have been developed overseas and thus are impacted by exchange rate fluctuations, which may affect the Group’s operating results and financial position.

  8. 8Legal risk: Related strategies: (1), (2), (3), (4) and (5)

      The Group conducts its businesses in Japan, the United States, and other countries around the world and complies with the laws and regulations of each country and region with respect to consumer protection, fair competition, food sanitation, labor, the environment, and the like and obtains the necessary permits and approvals. We pay close attention to any regulatory changes and have systems in place to appropriately implement the necessary measures. However, in the event of an unfavorable judgment against the Group by an administrative or judicial body due to differences in interpretation of relevant laws, the Group may incur surcharges, compensation for damages, or other financial burdens, and its brand image may deteriorate. Any of these events may affect the Group’s operating results and financial position.
      In addition, the introduction of stricter laws and regulations or changes in the interpretation of laws and regulations by administrative or judicial bodies in the direction of stricter interpretation may increase the cost of compliance, which may affect the Group’s business activities, operating results, and financial position.
      The Group is also subject to various laws and regulations in each country with respect to opening new stores. In Japan, for example, we are subject to laws and regulations based on the Large-Scale Retail Stores Location Law, City Planning Act, and Building Standard Law. We always comply with these laws and regulations when opening new stores. However, it may become difficult to open new stores or renovate existing ones as originally planned due to revisions of laws and regulations or changes in regulations set forth by each prefecture, and new costs may be incurred to deal with such revisions, which may affect the Group’s operating results and financial position.

  9. 9Asset risk (non-current assets etc.): Related strategies: (1), (2), (3), (4) and (5)

      The Group owns many non-current assets, including property, equipment, and goodwill, and applies impairment accounting. Despite our efforts to manage the earnings of our stores and the like, any future deterioration of store profitability or significant decline in the market prices of owned assets may necessitate the application of impairment accounting, which may affect the Group’s operating results and financial position.

Operational Risks

  1. 10Information management risk: Related strategies: (1), (2), (3), (4) and (5)

      The Group engages in a variety of business fields, including the retail and financial services businesses. To provide new value and services to our customers, we handle important information necessary for such business operations, notably personal information about customers and business partners, as well as trade secrets. In order to manage this information in a correct manner, we have formulated Groupwide regulations related to information management and also appointed information management supervisors at each Group company. Moreover, the Group’s Information Management Committee is responsible for classifying important information and the comprehensive implementation of human, organizational, physical, and technical safety measures.
      To address cyberattacks and other information security threats, the Group is redesigning its security policies and guidelines according to changes in the business environment while further increasing the number of personnel with security expertise. We are also pursuing various initiatives, such as position-based and specialized training and the development of an information security management system framework to spread security-related awareness throughout the Group. We are working particularly hard to strengthen cyber security measures aimed at preventing security incidents. For example, we set up an organization specializing in cyber security to conduct security reviews of our information systems and their operations, and we engage a third-party organization to perform vulnerability assessments. We also monitor unauthorized access, respond to vulnerabilities, and provide training on addressing targeted e-mail attacks. In addition, the Security Management Office, which oversees the Group’s information security operations, works with the promotion offices of each Group company to ensure compliance with the ISO 27001 international standard and the revised Act on the Protection of Personal Information. Recognizing that information security is an essential part of the services we provide to our customers, we will further strengthen our information security systems.
      Despite taking such measures, however, we acknowledge that external attacks are becoming more diverse and sophisticated every day, and there is no way to completely avoid the risk of important information being leaked or falsified due to internal human error or inadequate management by contractors. Depending on the scale of damage, the Group may be subject to compensation claims from customers and business partners, as well as loss of trust, which may affect its operating results and financial position.

  2. 11Business continuity risk (disasters, pandemics, etc.): Related strategies: (1), (2), (3), (4) and (5)

      In addition to its head office and stores of main businesses, which are located in Japan, the Group is expanding its operations around the world. Moreover, the Group’s core business is the retail business, which plays an integral role in people’s lives. In the event of damage from major earthquakes, windstorms, and floods, therefore, we are expected to quickly repair our stores and resume operations after securing the lives and safety of customers and employees. We have also prepared countermeasure documents to address major earthquakes, windstorms, floods, eruptions of Mt. Fuji, COVID-19, and other events. In addition, the Company and its consolidated subsidiaries hold preliminary countermeasure meetings to discuss assumed damage, establish task forces, and make decisions related to continuity of business operations.
      However, a multitude of factors may lead to disruption of the Group’s supply chain or suspension of store operations and other business activities or incur substantial costs in repairs of facilities. These include earthquakes, typhoons, floods, tsunamis, and other natural disasters; frequent abnormal weather associated with climate change; fires, blackout, nuclear power plant accident, and war; and illegal acts, such as terrorism. Such events could severely impede the Group’s business operations, which may affect its operating results and financial position. The impact would be particularly significant if a major disaster were to occur in the Tokyo Metropolitan Area, where a significant number of stores in our main businesses, especially convenience store and superstore operations, are concentrated.

  3. 12Product quality control/labeling risk: Related strategies: (1), (2), (3) and (4)

      In accordance with relevant laws and regulations, the Group strives to provide safe products and accurate information to customers by enhancing hygiene-related equipment and facilities, operating an integrated product management system that includes business partners (through quality control briefings and the like), and establishing CSR audits and other checking systems.
      However, the occurrence of a problem beyond the scope of the Group’s efforts could lower public trust in its products and incur costs stemming from countermeasures, which may affect its operating results and financial position. Further, the Group always strives to continuously provide customers with new value-added and high-quality products and services by further expanding its range of Seven Premium private-brand products and original products developed by respective Group companies. Therefore, the occurrence of a major incident that involves its products and leads to product recalls or product liability claims may affect the Group’s operating results and financial position.

  4. 13System risk: Related strategies: (1), (2), (3), (4) and (5)

      The Group owns many IT systems to carry out its business activities. To ensure the stable and appropriate operation of these systems, we have various mechanisms in place, including ongoing reviews from the requirement definition and design stages, rigorous pre-release testing, and meticulous monitoring of operational status after release. In addition, our Security Operation Center (SOC) conducts surveillance of external cyberattacks. Based on the results of such surveillance, we implement various security measures, including engaging an organization specializing in security to perform regular security risk assessments. We are also developing systems to ensure business continuity and periodically check the status of Group’s system risk management.
      Even with these measures in place, however, system failures or security incidents may still occur due to unforeseen circumstances, such as typhoons, earthquakes, and other natural disasters, as well as sophisticated cyberattacks and human error. The materialization of such system risk could impede business operations, which may affect the Group’s operating results and financial position.