Risk Factors

Last update: October 18, 2021

  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)

      The global spread of COVID-19 is expected to have an impact on the business activities of the Group 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, and changes in rules for external and internal business meetings and business trips. At the employee level, they include asking employees to measure their body temperature before going to work, wear 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. In addition, we will work to build a system of close cooperation with our business partners and maintain our supply chain in order to ensure continuity of business operations. 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 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.
      In addition, the Group will strive to create valuable new customer experiences by staying close to them in their daily lives amid changes in values and behaviours (such as increases in take-out and home delivery, online purchasing, social distancing, and remote working) caused by COVID-19.
      However, the impact of COVID-19 may cause a decline in customers' purchasing capacity or willingness to spend, or an unexpected change 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 Company Group has formulated various growth strategies so as to respond to new lifestyles and to lead the changes of the times, such as through diversifying its contact points with the customers needed in the future and through efforts to expand shopping experiences so that they are plentiful and delightful.
      Regarding the overseas convenience store business strategy, 7-Eleven, Inc., which is at the heart of the Group's overseas convenience store business, executed the agreement dated August 3, 2020 with Marathon Petroleum Corporation (hereinafter referred to as "MPC") located in the United States 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, and other equity (hereinafter referred to as "transactions"), and the transactions were completed on May, 14th, 2021. The acquisition was done by SEI Speedway Holdings LLC, a newly incorporated wholly-owned subsidiary of 7-Eleven, Inc. At the same time, the parties executed an agreement which provides that MPC will supply fuel to the acquired stores for the next 15 years.
      With regard to business after the integration, in cases where the effects of the acquisition such as the growth opportunities obtained from the business acquired through the transactions or where the synergistic effects such as cost reduction through the integration do not materialize as originally envisaged due to changes in the business environment or competitive situation, or in cases where the integration process or the risks in terms of the legal regulations or tax regulations cannot be properly managed, or in cases where the applicable discount rate becomes high, etc., there is the possibility that there will be an impact on the Company's business performance and financial state due to the recording of impairment losses on large amounts of goodwill or intangible assets, etc. recorded in connection with the transactions.
      In addition, the Company has taken on a large amount of debt, including a large amount of borrowings from financial institutions, in order to be able to raise the funds necessary for the transactions. If the leverage is not reduced promptly through the initially envisioned profit generation, sales and leaseback, and disposal of other assets, the credit rating may be lowered, resulting in refinancing of existing debt or the terms of new borrowings possibly being affected. Moreover, some of the Group's debts are subject to financial covenants, and if such financial covenants are violated, the necessity for the early repayment of debts may affect the financial state of the Company.
      7-Eleven, Inc. has gas stations at some of its stores, but it is expected that the ratio of gasoline sales to all of the chain stores of the Company will increase due to these transactions. Regarding the risks of the gasoline business, the Company is hedging the risk of a decline in the profit margin due to fluctuations in the retail price of gasoline through vertical integration of the supply chain, but unexpected changes in the business environment such as sudden price fluctuations may lead to a decline in sales and an increase in the present value rate, which may affect the Group's business performance and financial state. In addition, if gasoline demand in the US market shrinks due to the effects of the automobile emission regulations in the United States, or medium to long-term policies regulating gasoline vehicle sales, or the popularization of electric vehicles, etc., there is the possibility of a decline in the volume of gasoline sales leading to an impact on the Group's business performance and financial state.
      If 7-Eleven, Inc. reduces royalties or there is a decline in sales due to a scandal or other reasons attributable to an area licensee that does not belong to the Group or stores operated by the area licensee, there is the possibility of an impact on the Group's business performance and financial state.
      Based on the spirit of "coexistence and co-prosperity", the Company may carry out corporate takeovers from time to time in order to pursue growth opportunities so as to provide the best value to all stakeholders, including shareholders and customers. Meanwhile, business activities around the world may face changes in laws and regulations, political instability, uncertainty of economic trends, differences in business practices and other risks, resulting in the initially envisaged acquisition effects and profits not being achieved. In addition, if the value of the acquired assets drops and a valuation loss occurs, or if the profit expected to be obtained from the integration of the acquired businesses is not realized, the business performance and financial state of the Company may be affected.

      With regard to its domestic convenience store operations strategy, the Group's convenience store operations in Japan are primarily organized under a franchise system, centred on SEVEN-ELEVEN JAPAN CO., LTD., and chain operations are conducted under the 7-Eleven name. The franchise system is a joint enterprise in which franchised stores and the Group fulfil their respective roles based on an equal partnership and a relationship of trust. To achieve sustainable growth together with franchisees, we are implementing a variety of measures. In addition to enhancing our franchisee support system, we are continuously investing in labour-saving measures and conducting franchisee surveys in line with an action plan announced in April 2019.
      For example, we conduct self-inspections of our communication with franchisee candidates to determine the status of our explanations and transaction methods. Based on the results of such inspections, we implement various measures, such as enhancing explanations to franchisee candidates in advance and improving and standardizing employee understanding through better employee education. To maintain sustainable and positive relationships with franchisees, meanwhile, we will strengthen communication through constructive dialogue with them, including by establishing a dedicated consultation service for owners and holding owner opinion exchange meetings to receive their frank opinions and requests.
      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.
      In addition to changes in the domestic social structure that have been occurring for some time, such as the declining birthrate and aging population, there has been an increase in single-person households and the number of working women, as well as changes in consumer behaviour due to COVID-19. With these factors in mind, we will revaluate the significance of convenience stores for the future and work to provide customers with valuable experiences by changing store layouts and continuously improving the quality of our products and services.
      However, customer needs are constantly changing, and any failure to offer new value may affect the Group's operating results and financial position.

      With regard to its food strategy, the Group has approximately a 6% share of the domestic food market in terms of sales, including for the dining-out segment. Also, the Group's annual food-related sales amount to approximately \4.7 trillion, more than 60% of its total net sales. The Tokyo metropolitan area is characterized by a slowly declining population, an increasing number of elderly people, and a diversity of economic and lifestyle characteristics among customers. In such an environment, there is still scope for new supermarket store openings, and business opportunities for daily food provision are expanding. Seeking to fully entrench our presence in the Tokyo metropolitan area food market, we are strengthening our competitiveness by leveraging Group synergies to enhance our product proposal capabilities, including by reorganizing our food supermarket businesses within the Group. We are also embracing the challenge of building a highly efficient product supply system by utilizing land and other assets owned by the Company to build and share Group's infrastructure and know-how in such areas as centralized kitchens and food-processing centers. We are also stepping up development of original products that take advantage of our strength in fresh foods.
      However, it is not easy to secure land to build or strengthen centralized kitchens and food-processing centers, especially in the Tokyo metropolitan area. If we cannot secure appropriate land or promote business transformation toward centralization as expected, we may be unable to derive the benefits we initially expected or achieve our strategic objectives, which 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 identifying prime locations. At the same time, we are restructuring our stores while fully exploiting our accumulated strengths as part of our growth strategy. 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. In addition, Sogo & Seibu Co., Ltd. has introduced specialty stores and reformed its floor structures while making full use of its exceptional assets, namely locational advantage, network of business partners cultivated over many years, and the ability to address customer needs. These assets have led to good outcomes, including improved ability to attract customers. Based on such successes, we will continue creating spaces that meet the needs of local communities and accelerate reforms of all stores. However, changing business environment and other unexpected factors may prevent Ito-Yokado Co., Ltd. and Sogo & Seibu Co.,Ltd. from completely achieving their goals, 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 and are promoting Group wide DX measures. As for DX measures aimed at protecting the entire Group, we are implementing Group wide security measures and promoting a common Group infrastructural platform to improve operational efficiency and maximize Group synergies. We are also taking DX measures to accelerate the business of each Group operating company. To respond more effectively to changing business environment, for example, we have established organizational mechanisms for verifying feasibility and competitiveness through Proof of Concept (PoC) and for making investment decisions using a stage-gate process. To reinforce systems that support our DX strategy, meanwhile, we are promoting in-house manufacturing and working to attract highly specialized human resources.
      In order to meet people's diversified food-related needs, we believe it is 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, as well as its nationwide network of 22,600 stores, 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 the use of dedicated applications, and diversifying pickup methods through in-store pickup, in-store lockers, and the like. In the areas of food ingredients and regular home deliveries, we are striving to develop fresh products with a focus on freshness and quality, as well as products for households with children. In the mobile sales business, we are working with TOKUSHIMARU Inc. to fulfil our social responsibility and role by providing shopping experiences to people without easy access to stores for daily necessities while enhancing the value of the Group. In our food delivery business, 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 stepping up their responses to the last mile by leveraging their strong existing customer bases and new technologies. If the Group is unable to maintain its current competitiveness under these conditions, this may lead to a decline in sales and affect the Group's operating results and financial position.

      In our financial strategy, we have introduced 7iD, a common ID for the Group, as a fundamental initiative to strengthen our relationships with customers. We use 7iD to collect and analyse various data related to customers' purchases. Utilizing information thus obtained, as well as financial information, we are developing financial products and services that help enhance convenience for customers, such as loans, asset management, savings, and insurance offerings. The Company and its operating companies also work closely together to provide new value to customers across retail and finance.
      The Group's financial and settlement-related systems are handled by the System Operation Department, Information Security Department, and DX Department, which collaborate with outside contractors and others to develop and operate systems that can be used safely and securely by customers while paying proper attention to the protection of personal information. We are also working to attract and develop human resources with abundant expertise and experience in IT and security. However, if we cannot attract and develop such excellent human resources as expected, we may be unable to fully create adequate levels of service sophistication and enhance productivity with technology, which may affect the Group's 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. 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, changing weather patterns, and other aspects of climate change may lead to unexpected 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 business performance.
      Products handled by the Group include items whose supply and demand are affected by weather, items affected by changing prices of crude oil and other raw materials, and other items whose purchase prices may fluctuate due to external factors. In addition, future prices of electricity and other forms of energy used in the product manufacturing process may drastically increase due to regulations and policies related to climate change, which impact affect purchase prices. Any changes in such prices may affect the Group's operating results and financial position.
      In addition, the United Nations adopted its "Guiding Principles on Business and Human Rights" in 2011 and "2030 Agenda for Sustainable Development Goals (SDGs)" in 2015. These protocols underscore the social mission and responsibilities of companies, which include respect for and protection of human rights across the entire supply chain (including business partners handling products and services), legal compliance, occupational health and safety, global environmental protection, and information management. To ensure sustainable use of natural resources for future generations, the Group formulated its "Basic Policy for Sustainable Procurement." Under the policy, we are working on sustainable procurement throughout the supply chain in cooperation with stakeholders. Our aim is to achieve sustainable growth of the Group while maintaining sustainability of the earth and society. To help realize a sustainable society, meanwhile, we are engaging in various initiatives in collaboration with stakeholders. For example, we are working together with business partners to promote the "Seven & i Group Business Partner Sustainable Action Guidelines" and conduct CSR audits to verify the effectiveness of those guidelines. Based on the "Action Plan on Business and Human Rights (2020-2025)" released by Japan's Ministry of Foreign Affairs in October 2020, we will promote due diligence on human rights and compliance across our supply chain.
      If a problem occurs that goes beyond these efforts, however, it may lead to a decline in customer confidence and thus 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. As a result, any deterioration in economic conditions in Japan and other regions where the Group does business, 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 accurately 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.
      Although we actively handle and develop products in these ways, unexpected changes in consumer behaviour due to the government's economic policies, abnormal weather, or other external factors may affect the Group's operating results and financial position.
      In addition, in order to accurately address the changing needs of customers, 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 that include closure of unprofitable stores.
      In Japan, however, conditions for store management are becoming more severe as the declining birthrate, aging workforce, and other employment-related factors continue to deteriorate. Due to diversification of customer needs and aggressive sales promotion activities by competitors, moreover, competition with various other companies in the Group's business fields has increased significantly. 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. Accordingly, there is no guarantee that the Group will be able to maintain its current competitiveness into the future, which may affect its business performance and financial position.

    Store opening/closure risk

      The Group's opening of stores is subject to various laws and regulations, such as the Large-Scale Retail Stores Location Law, the City Planning Law, and the Building Standards Law. When opening new stores, therefore, our Group companies gather information on relevant laws and regulations, market potential, and store location candidates. However, in the event that those laws are amended or local authorities change related regulations, it may become difficult to open stores in accordance with initially prepared store-opening plans or remodel existing stores. Also, there may be a decline in potential candidate locations for future store openings, and costs related to legal or regulatory compliance may be incurred. Any of these events may affect the Group's operating results and financial position.

  4. 4Environmental risk: 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 external diseconomies and other social issues, are becoming more prevalent worldwide. To address changing social needs and environmental issues, we drafted our GREEN CHALLENGE 2050 environmental declaration. We also joined the TCFD Consortium, RE100, and the Japan Hydrogen Association (JH2A). In these and other ways, we will continue working together with customers, business partners, and all other stakeholders to realize a prosperous and sustainable society.
      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), waste management, and climate change countermeasures. 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. Under official climate changes policies, for example, restrictions on greenhouse gas emissions may become more stringent, or new laws and regulations or policies, such as carbon taxes, may be adopted. In addition, tighter regulations could lead to changes in the cost of energy, including electricity, water, 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, 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 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 revision 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. 6Market 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 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.

  7. 7Legal risk: Related strategies: (1), (2), (3), (4) and (5)

      The Group is exposed to the risk of being subject to lawsuits and various legal proceedings by regulatory authorities in various countries ,including Japan and the United States, on topics including, but not limited to, consumer protection, fair competition, anti-corruption, food safety, labour environment, environmental issues and other issues in regard to the execution of its business activities. Currently, no lawsuits that significantly affect the Group's business performance have been filed against the Group. However, if decisions unfavourable to the Group result from lawsuits with a potentially significant effect on business results or social standing, the Group may face a large amount of damages and deterioration of its brand image, which may affect its operating results and financial position.
      Also, the introduction of stricter laws and regulations and/or the stricter interpretation of laws and regulations by authorities may subject the Group to substantial legal liabilities and/or adverse regulatory outcomes. Addressing such legal procedures could incur major costs, which may affect the Group's business activities, operating results, and financial position.
      The Group considers compliance with laws and regulations and social norms to be a pillar of its management and ensures the functioning and securement of sound corporate governance. For example, the Group established its FT Project, spearheaded by personnel in charge of fair trade (FT) from each operating company in Japan. The aim of the project is to prevent violations of laws and regulations by sharing the latest information on laws and regulations related to business transactions, unfair trade cases announced by the Japan Fair Trade Commission, and examples of successful improvement measures taken by various Group companies.
      To address ever-changing customer needs, meanwhile, we have built a portfolio of convenient services that support differentiated, high-quality products and lifestyles, while working with business partners to innovate our manufacturing, logistics, and sales processes, as well as the information systems that support those processes. However, if we become unable to maintain business relationships with our various partners, or if their technological capabilities decline significantly, we may face a decline in our product development capabilities and increases in product manufacturing and delivery costs, which may affect the Group's operating results and financial position.

  8. 8Asset 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. 9Information 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.
      In July 2019, the Group launched its "7pay" barcode payment service. However, due to the occurrence of unauthorized access to some "7pay" accounts, the Group reviewed its responses and concluded that it would be difficult to continue the service based on the existing scheme, then discontinued the service on September 30, 2019. To prevent a recurrence, we are redesigning our security policies and guidelines, increasing the number of personnel with security expertise, and conducting in-house education and other measures to spread security-related awareness throughout the Group. We are working particularly hard to strengthen cyber security measures. For example, we established a dedicated cyber security organization within the Group IT Strategy Promotion Division (currently the Group DX Strategy & Planning Division) to conduct security reviews of information systems and their operations. We are also working to improve cyber security measures aimed at preventing security incidents, including vulnerability assessments by a third-party organization, monitoring of unauthorized access, and response to vulnerabilities. In addition, we set up the Security Management Office as an organization independent from business execution to oversee the Group's information security-related operations. 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. 10Business 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 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. Based on typhoon trajectory forecasts and other advance information, 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 its 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. 11Product 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 suppliers (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 measures could lower public trust in its products and incur costs stemming from countermeasure, which may affect its operating results and financial position. Further, the Group always strives to 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. 12System 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 operation of these systems, we have various mechanisms in place, including ongoing reviews from the requirement definition and design stages, rigorous pre-release testing, system redundancy, network redundancy, and meticulous monitoring of operational status. In addition, our Security Operation Center (SOC) conducts surveillance of external cyber attacks. Based the results of such surveillance, we implement various security measures, including security reviews performed by professionals. We are also developing systems that will allow us to continue operations in case unexpected situations arise. Despite taking these measures, however, system failures may still occur due to various factors, including typhoons, earthquakes, and other natural disasters, as well as power outages, multiple failure of hardware, human error, and unauthorized access to our networks and systems due to cyber attacks. Any failure of these systems would impede business operations, which may affect the Group's operating results and financial position.