Last update: May 26, 2023
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.
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.
Risk that may affect business strategies significantly, or risks that the Group dares to take within an affordable range. It is in consideration of the degree to which results achieved by planning and executing business strategies are above or below expectations, as well as the likelihood of occurrence.
Risk that should be avoided or reduced in consideration of the losses arising from operations that support the execution of strategies, as well as the likelihood of occurrence.
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 identify, assess, and analyse risks and discuss measures, and to determine the future direction going forward.
Meanwhile, with regard to various 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.
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.
The Group has established its main business strategies around our strengths in food, as follows.
Based on the recent Group Strategy Reevaluation, the Ideal Group Image for 2030 was established as “A world-class retail group centered around its "food" that leads retail innovation through global growth strategies centered on the 7-Eleven business and proactive utilization of technology.” To steadily execute various measures aimed at the achievement of this new Ideal Group Image for 2030, a Strategy Committee composed solely of independent outside directors was established to create a system to monitor progress of the Group’s strategic priorities and continue to review the optimal group structure and strategic alternatives. The Strategy Committee monitors progress of the Group’s strategic priorities and continuously performs objective and comprehensive analysis and review on the optimal group structure and strategic alternatives (IPO, spin-off, etc.), and provides advice to the Board of Directors on strategies to increase the Group’s medium- to long-term corporate value.
With regard to North American convenience store operations, 7-Eleven, Inc. that is the centerpiece of the Group’s overseas convenience store operations is strengthening original products, accelerating digitalization and delivery business, creating synergies between 7-Eleven, Inc. and Speedway, and expanding business through M&A and the opening of new stores.
With regard to original products, steps are being taken to enhance the quality and lineup of original products with a high gross profit margin by communicating advanced product development knowledge and manufacturing know-how from Seven-Eleven Japan Co.,Ltd., modernizing facilities for the purpose of enhancing the cooking manufacturing capabilities of dedicated factories, and strengthening the value chain of original products. Product sales in stores are operated through a logistics network or supply by suppliers, and increased product transportation costs and decreased profitability are anticipated in the event of disruption, etc. in logistics and transportation networks. As a result, this could bring about weakening of the value chain due to the inability to perform product development, store sales and swift delivery of products, and obstruction of continuous business growth due to reduced sales, affecting the performance and financial standing of the Group. With the strengthening of development and sales of original products, it is anticipated that the Company’s brand value will be harmed in the event of food safety problems occurring. Additionally, cases where trademarks and other intellectual property rights related to original products cannot be appropriately obtained, maintained and protected may lead to a decrease in sales due to a decline in customers’ consumer confidence, affecting the performance and financial standing of the Group.
With regard to digitalization and the delivery business, new experience value and convenience are provided through the “7Rewards(loyalty program)” combining real stores with the speed and convenience of digital and e-commerce platforms, but retail competition is intense, and it is possible that differentiation from rival companies cannot be achieved if new convenience based on constantly changing customer needs and expectations cannot be provided, affecting the performance and financial standing of the Group. Furthermore, the “7NOW” delivery service utilizing DX is also being promoted. Over 50% of America’s population is covered within 2 miles of stores, realizing a value proposition of swiftly delivering nationwide within an average of 28 minutes, and a growth plan providing diverse services in future is being formulated. To achieve these, we will partner with other companies and make investments in additional digitally supported products and services to satisfy customers’ needs, by the performance and financial standing of the Group may be affected if the relevant customer support technology cannot be manufactured, modified or developed in a timely manner.
We expect the integration synergies between 7-Eleven, Inc. and Speedway to bring about a variety of benefits such as complementary store infrastructure and store provision, and strategic opportunities. In addition to acquiring shares and other equity stakes in multiple companies operating convenience store business in 2021 and fuel retail business mainly under the Speedway brand from Marathon Petroleum Corporation (MPC) (excluding, however, the fuel retail business, etc. for direct dealers within MPC’s retail division), we concluded a gasoline supply agreement with MPC for the next 15 years for the acquired stores. The performance and financial standing of the Group may be affected by the recording of a large amount of goodwill or impairment loss if the growth opportunities and integration synergies from the business acquired in the transaction cannot be achieved as initially anticipated in the above business after integration due to changes in the business environment or competitive conditions, or if additional and unexpected expenses pertaining to the integration arise.
The Company has a large amount of debt including a large amount of borrowings from financial institutions for the purpose of procuring the necessary funding for the above transaction. If the lowering of leverage cannot be swiftly achieved through the initially anticipated profit generation or disposal of other assets, the credit rating may be lowered, and this may result in the conditions of refinancing of existing debt and new borrowings being affected. Furthermore, some of the Group’s debt are subject to financial covenants, and the financial standing of the Group may be affected by the early repayment of debt, etc. in the event these financial covenants are violated.
7-Eleven, Inc. operates gasoline retail and wholesale business attaching gasoline stands to stores. With regard to risks in the gasoline business, the risk of decreased profitability associated with fluctuation of gasoline retail prices is hedged through vertical integration of the supply chain, etc., but the performance and financial standing of the Group may be affected by reduced sales or increased cost ratio due to unforeseen changes in the business environment such as sudden price fluctuations. Furthermore, a decrease in gasoline demand in the US market due to the impact of policies on automobile exhaust emission regulations in the US and regulation of sales of gasoline vehicles in the medium to long term in some states, and the spread of electric vehicles may bring about a decrease in the volume of gasoline sales, affecting the performance and financial standing of the Group.
In North American convenience store operations, we will continue our policy of continuous business growth through M&A and opening of new stores, but the performance and financial standing of the Group may be affected by the impact on business of intensification of competition or changes in environmental regulation, difficulties securing personnel or litigation.
With regard to global convenience store operations, 7-Eleven International LLC was established in 2021 to promote the implementation of global strategy through strengthening of coordination between 7-Eleven, Inc. and Seven-Eleven Japan Co.,Ltd.. We aim to establish a network of 50,000 stores by FY2025 in regions other than Japan and North America, and open stores in 30 countries and regions worldwide, including Japan and North America, by FY2030. We will not only develop new countries, but also organically combine the know-how developed by 7-Eleven, Inc. and Seven-Eleven Japan Co.,Ltd. to date including the strength of “food” through strategic investment and financing of licensees, and seek to expand profits by eliciting the potential growth of licensees. Furthermore, we will correctly identify markets with good conditions for entering new markets, and provide trusted partners with the necessary specialized knowledge and resources for licensees, accelerating the global growth strategy in cooperation with partners in order to increase the value of the 7-Eleven brand. Some of the risks pertaining to licensees in overseas areas are anticipated to be political and social instability in countries where we operate, economic fluctuations such as exchange rates and trade, and revision and strengthening of legal regulations including the environment and data protection. The performance and financial standing of the Group may be affected by these factors, or if the Company’s growth capacity is restricted and the initially anticipated effect or profit is not realized.
With regard to the Domestic convenience store operations, Seven-Eleven Japan Co., Ltd., which is responsible for core Domestic convenience store operations within the Group, will focus its efforts to strengthen the area of “foods” centered on “Seven Premium”, develop new store formats to adapt to changes in social structure, build new businesses using in-store products and services as a base, further enhance business competitiveness and accelerate earnings growth. In Japan, we are seeing not only the effects of changing lifestyles and diversity of values but also drastic changes in social structure, including demographics, which are expected to result in significant changes in forms of consumption. In response to these various changes, we will create new store format concepts that enable us to bring together a full line-up of fresh, frozen, and new product categories, and adapt to the change of the customer by blending the networks and knowledge that we have cultivated in the convenience store operations and the Group’s food business. In particular, in the new-concept stores we will strengthen the “Traceable Vegetables,” “Frozen Food (EASE UP)” brands developed by Ito-Yokado Co., Ltd., as well as “Seven Premium” and the new brand of “SEVEN THE PRICE.” This will enable us to adapt further to demand for food, even in a changing society. We will also strengthen products and sales promotions based around the theme of “co-creation” in preparation for the 50th anniversary of the founding of the Company, and work to ensure that our vision permeates the Group. In addition, we will seek to attract customers by holding fairs with original fresh food, and work to develop categories such as sweets and processed food, while taking steps to revitalize local communities. Moreover, we aim to achieve further growth by displaying the necessary nutritional information on our products in consideration of greater health consciousness among customers in all generations, including senior citizens, children, and working women. Through stores that utilize the “7NOW” delivery service and retail media to leverage our strengths in food, we will bolster new business on the foundation of our products and services. We have begun entering the advertising business as part of the Group strategy and we plan to achieve significant growth in retail media, primarily through app advertisement revenue. Through these measures we seek to establish a new direction for expansion and to accelerate overall earnings growth, but customer needs change unceasingly, and in the event that we are unable to provide new value, the performance and financial standing of the Group could be affected.
In the Superstore business, Ito-Yokado Co., Ltd. will accelerate the tightening focus on food, on which the Group strategy hinges, by withdrawing completely from the own-apparel business, consolidating operations in the Tokyo metropolitan area, and establishing strategic infrastructure that includes processing centers. In addition to store closures associated with the previous restructuring, another 14 stores will be closed. In relation to these initiatives, we assume that external experts in transformation will be appointed to fully implement transformative measures and to manage the process.
Through the above-mentioned major initiatives, we will consolidate the business, generate synergies in the Tokyo Metropolitan focus area, and maximize operational efficiency. At the same time, we will establish strategic infrastructure such as processing centers, central kitchens, and online supermarket centers to build an earnings structure that will enable us to achieve further sustainable growth. However, in the event that the build-out of central kitchens, processing centers and other common Group infrastructure and the transformation to large-scale centers does not proceed as expected, leading to the effects originally anticipated not being realized and strategic objectives not being achieved, the performance and financial standing of the Group could be affected.
For the Group’s online supermarket operations, which constitute the growth strategy for the Superstore business, we believe that it will become increasingly important going forward to respond to changing lifestyles and diversity of values by addressing the “last mile” issue, enabling delivery to the customer at a time and place of their choosing, rather than requiring them to visit the store. By leveraging our ownership of stores and the ability of the Group to provide safe, secure, and fresh products, we will expand the online supermarket business by shifting to large-scale centers, use a dedicated app to extend our points of contact with customers and improve the buying experience, and take on the challenge of providing a variety of ways for customers to receive the product, such as by enabling it to be picked up in store, or at in-store lockers. In mobile supermarkets, we will work with TOKUSHIMARU Inc. to provide a purchasing experience to people having difficulties with day-to-day shopping, thus fulfilling our social role and purpose, while working to enhance Group value.
However, customer needs change unceasingly. Moreover, competitors each have their own customer bases and are also utilizing new technology to support their response to the “last mile” issue. If in such circumstances the Group is unable to maintain its current level of competitiveness, the performance and financial standing of the Group could be affected by lower sales and other factors.
In Financial Services, in addition to continuing to expand our ATM platform business, we will focus on the e-money and credit card businesses. As part of these efforts, we made the decision to restructure Financial Services by transferring the operations of Seven Card Service Co., Ltd. to Seven Bank, Ltd. in order to pursue synergies through the integrated management of banking and non-banking businesses. At the same time, in accordance with the Group financial strategy we will develop and roll out unique financial products and services that are only possible through retail, based on 7iD, an ID that customers can use across the Group, and strengthen our ability to execute and drive restructuring and other changes to deepen relationships with our customers through a fusion of retail and finance.
The Group has put in place a variety of information management rules in relation to its financial and payment systems, as well as devising security measures. In particular, given the importance of the information provided to Financial Services by customers, we not only adhere to Group standards but also establish rules for operating companies based on laws and regulations and guidelines relevant to the business area, and strive to build and operate adequate measures.
Nevertheless, even if such measures have been implemented, external attacks are becoming more diverse and sophisticated with every passing day, and it is impossible to completely avoid the risk that important information is leaked externally or falsified following human errors within the Group or deficiencies in the management of subcontractors. Depending on the scale of the damage, the Group could be subject to demands for damages from customers, suppliers, or other parties, or suffer a loss of loyalty, which could affect the performance and financial standing of the Group.
DX underpins the above-mentioned growth strategy, and we have formulated a Group DX strategy map, determined the areas in which we want to engage across the Group, and are moving ahead with the required measures. In terms of DX measures that protect our customers and in turn the Group as a whole, while working to establish common Group security measures and common Group infrastructure on the one hand, on the other hand we are taking steps to build a foundation with the aim of improving operational efficiency and generating Group synergies. In preparation for further strengthening the structures that support the DX strategy, we are working continuously to recruit highly specialized human resources and to enhance the digital literacy of existing personnel.
In particular, we believe that Group CRM is one of important DX measures that will increase lifetime value through broader and deeper contact with customers, which is made possible by the use of an ID (7iD) that customers can use across the Group. As of the end of February 2023, there were approximately 28 million 7iD members. We believe that this is the result of having been able to continuously provide new customer experience value, such as by addressing increasingly diversified payment methods, and providing convenient coupons, primarily through the 7-Eleven app. Going forward, we will continue to optimize our product lineup by pursuing more points of contact with our customers, and use the Group’s 7iD as a means of spreading a worldview in which shopping becomes even more convenient as a result of such initiatives as enabling customers to receive their items at a time and place of their choosing. Moreover, by also linking with our financial strategy, we will enable increases in the lifetime value of the customer. Our objective is to achieve 50 million 7iD members by FY2025.
However, competitors are each also working continuously to strengthen the services provided to their member base and others. If in such circumstances the Group is unable to maintain its current level of competitiveness, the performance and financial standing of the Group could be affected by failures to hit targets for registered members, reductions in the contribution made by Group CRM to consolidated sales, and other factors.
For the business activities of the Group, it is essential that we are able to purchase products and raw materials, etc. of adequate quality, in sufficient quantity and at the required time, and we seek to diversify procurement so that we are not overly dependent on specific regions, suppliers, products, technologies, or other factors. In particular, there is a possibility that rising temperatures, changes in precipitation and weather patterns, and other forms of climate change will lead to reductions in the yield and quality of agricultural, livestock and marine products, as well as changes in fishing grounds and regions suitable for the cultivation of agricultural products. In response to such potential changes we are making efforts to diversify procurement and to work with primary producers to improve yields, but in the event that rising temperatures, changes in weather patterns, and other forms of climate change, or the suspension of factory production due to the spread of infectious diseases leads to the interruption of some of procurement routes, the business of the Group could be affected.
For some of the products handled by the Group, purchasing prices may fluctuate in response to external factors such as deteriorating public safety and social disorder resulting from volatility in the political and economic situation, terrorism, or conflicts in the country or region of production or the country or region in which the business operates, as well as disruption to production structures caused by the spread of infectious disease, changes in demand caused by the weather or by the impact of fluctuating prices for crude oil and other raw materials. In future, purchasing prices could also suffer from the effects of soaring prices for energy, including electricity, caused by such factors as regulation arising from climate change, public policy, and disputes. In the event that such fluctuations in purchasing prices occur, the performance and financial standing of the Group could be affected.
The Group not only conducts its main businesses in Japan, but also operates in other regions around the world. For that reason, in the event that the economic situation in Japan or in other countries and regions in which the business operates deteriorates due to business conditions or trends in consumer spending, this could lead to a weakening of purchasing power or of the tendency to consume among customers, which could in turn affect the performance of the Group. On this point, in order to strengthen product development and product lineups to take regional characteristics into account and to respond accurately to customer needs, the Group develops products through team merchandising with manufacturers and vendors in a range of business fields, in accordance with its sales strategy. In addition, via the apps of each company we make effective use of sales promotions by collecting and analyzing a variety of data related to the purchases of customers registered with the 7iD common Group ID. Nevertheless, in the event that unexpected changes in consumer behavior occur as a result of economic policies, abnormal weather, the spread of infectious diseases, or other factors, the performance and financial standing of the Group could be affected.
In order to respond accurately to changes in the needs of customers, the Group works to promote the development of higher-quality and more appealing merchandise, strengthen communications with customers, and improve productivity.
However, employment situation in Japan remains challenging. The working population is falling due to the declining birthrate and aging population, and the operating environment for stores is becoming increasingly volatile. In such circumstances, downward pressure on the prices of products and services arising from price competition with competitors, or exposure to increasing upward pressure on expenses such as labor costs could weaken the competitiveness of the Company, and affect the performance and financial standing of the Group.
Hitherto, the Group has responded to a variety of changes in the social environment by seeking to help its customers enjoy fulfilling and convenient lives by providing them with valuable products and services. On the other hand, a range of environmental problems have begun to emerge, including global climate change and the issue of plastic pollution. To address such changes in society, the Group has drawn up the “GREEN CHALLENGE 2050” environmental declaration, in which it designates decarbonization, a circular economy, and a society in harmony with nature as its vision for society, and is proceeding with initiatives to accomplish these goals. For the particularly pressing issue of climate change, the Group aims to achieve net zero emissions of CO2 by 2050, has endorsed the TCFD recommendations and began disclosing such information, and participates in RE100 and other programs. To address the issue of biodiversity, the Group also joined the TNFD forum in January 2023.
Conversely, the Group is subject to the application of a variety of environmental laws and regulations dealing with climate change measures, including reductions in energy usage and CO2 emissions, food waste, recycling of containers and packaging made out of plastic and other materials, and treatment of waste. In future, it is possible that regulations derived from such laws will be strengthened, for example regulations controlling greenhouse gas emissions may be bolstered as a climate change measure, or new laws and regulations and policies, such as carbon taxes, may be introduced. For the Group, compliance with laws and regulations could lead to additional costs and constrain its business activities. In addition, fluctuations in the cost of energy such as gas and electricity resulting from strengthened regulations could increase expenses associated with store operation, and affect the performance and financial standing of the Group.
With the increasing globalization of corporate activities, there is growing social interest in the human rights efforts of companies The Seven & i 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 performance and financial standing of the Group.
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 with its human resource growth. 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 performance and financial standing of the Group. 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 performance and financial standing of the Group.
The Group engages in derivatives transactions, such as those involving forward foreign exchange contracts and swaps, to optimize future cash flows, mitigate the risk of volatility in foreign exchange rates and interest rates, and reduce financing costs. However, fluctuations in interest rates have an impact on interest receipts and payments and on the value of financial assets and liabilities, and could affect the performance and financial standing of the Group.
Assets and liabilities of overseas group companies denominated in local currencies are converted to Japanese yen for the preparation of consolidated financial statements. Some of the products sold by the Group are products developed overseas that are affected by changes in foreign exchange rates, and so such fluctuations could affect the performance and financial standing of the Group.
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 performance and financial standing of the Group.
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 business activities, performance and financial standing of the Group.
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 performance and financial standing of the Group.
The ratio of property, plant and equipment and goodwill, etc. to consolidated total assets is high, and revenue management is implemented rigorously for stores, etc.
However, in the event that it becomes necessary to record impairment losses going forward due to deterioration in the profitability of stores, etc., and significant declines in the market value of assets owned, the performance and financial standing of the Group could be affected.
In order to provide customers with new value and services in each of its businesses, beginning with retail and financial services, the Group handles important information required for its operations, which includes personal information or confidential commercial information from customers, suppliers, and other parties. To ensure that such information is handled correctly, regulations pertaining to information management have been put in place for the Group as a whole. In addition, each company has appointed an information management supervisor, established an information management committee to maintain important information, and taken an integrated approach to personnel, organizational, physical, and technical safety measures.
In response to information security threats such as cyber attacks, the Group revises security policies and guidelines to address changes in the environment. While continuing to expand personnel with expertise in security, the Group conducts specialized training by rank in order to instill security awareness within the organization, and is working on rolling out a framework for information security management systems and other initiatives. To reinforce cybersecurity measures in particular, a specialist organization responsible for cybersecurity has been established, which conducts security reviews of information systems and their operation. It also strives to further strengthen cybersecurity to prevent incidents by using third-party organizations to diagnose vulnerabilities and monitor for illicit access, addressing vulnerabilities, delivering targeted threat email training, and other measures.
The Group Security Management Office, which manages matters pertaining to Group information security, is working in concert with the promoting secretariat of each company to ensure that operations are being conducted in accordance with the ISO27001 international standard, and in compliance with the Act on the Protection of Personal Information.
However, even if such measures have been implemented, external attacks are becoming more diverse and sophisticated with every passing day, and it is impossible to completely avoid the risk that important information is leaked externally or falsified following human errors within the Group or deficiencies in the management of subcontractors. Depending on the scale of the damage, the Group could be subject to demands for damages from customers, suppliers, or other parties, or suffer a loss of loyalty, which could affect the performance and financial standing of the Group.
In addition to the Group head office and stores, etc. for the main business in Japan, the Group operates locations all over the world. Furthermore, because retail, which is the core business of the Group, acts as a lifeline to local communities, in the event of damage being caused by a major earthquake, wind, water, or other phenomena, the Group is required to first protect the lives and ensure the safety of customers, employees, and others, and then to work to restore store operations as quickly as possible. The Company has prepared written measures to deal with a major earthquake, wind and water damage, the eruption of Mount Fuji, COVID-19, and other incidents. The Company and its consolidated subsidiaries together participate in meetings to discuss measures before such incidents actually occur, and operate mechanisms to investigate such matters as the projected level of damage, the establishing of measures headquarters, and decisions pertaining to business continuity.
However, natural disasters such as earthquakes, tsunami, typhoons, floods, and abnormal weather events occurring frequently as a result of climate change, and man-made disasters such as fires, power outages, nuclear power plant accidents, war, and acts of terrorism, could lead to interruptions in supply chains, the discontinuation of store operations, and other suspensions of business, as well as substantial costs for the repair of facilities. In the event of a major hindrance to the operations of the Group occurring, the performance and financial standing of the Group could be affected. Particularly in the event of a major disaster or similar development in the Tokyo Metropolitan area, where the stores and other facilities of the main businesses, including convenience stores and superstores, are concentrated, the impact is expected to be correspondingly large.
Furthermore, due to the global spread of COVID-19 from 2020, depending on the state of the spread of infected individuals within the Group, the impact on business activities is projected to continue. Retail is the core business of the Group and a lifeline to local communities, and so the organization would strive to continue operating in order to fulfill its responsibilities to the community and society, after protecting the lives and ensuring the safety of employees, customers and others, and while continuing to pay attention to hygiene measures and infection control measures. In order to preserve business continuity, the Group seeks to maintain the supply chain by building tight networks of cooperation with suppliers, and will also promote the protection of human rights by checking for discrimination based on the spread of infection, or the presence of unfair dismissal.
However, depending on the spread of infection and the prevalence of disease, it is possible that measures such as shortening store operating hours, suspending store operations, and limiting the number of stores in operation being taken, or interruptions etc. to the operation of the supply chain, will make it impossible to provide products. In such an event, the performance and financial standing of the Group could be affected. The Group has responded to the changes in values and behavior that have already occurred as a result of COVID-19 (expanded use of take-out and home delivery, emergence of online consumption, remote working, etc.) by striving to become part of the daily life of our customers, while creating new customer experience value. However, in the event that another spread of COVID-19 resulted in a weakening of purchasing power or of the tendency to consume among customers, or to unexpected changes in consumer behavior, this could lead to lower sales and affect the performance and financial standing of the Group.
The Group strives to provide safe products and accurate information to customers by installing fully equipped facilities for food hygiene based on relevant laws and regulations, implementing thorough product management measures, such as QC briefings, that include suppliers, and establishing CSR audits and other systems for ensuring checks are performed. Nevertheless, in the event that a problem occurs that exceeds the capabilities of our initiatives to deal with it, the loss of trust in the Group’s products and the occurrence of remedial costs could affect the performance and financial standing of the Group. Furthermore, although the Group is taking on the challenge of expanding “Seven Premium” and original products from Group companies in order to continue to provide new value and high-quality products and services to customers, in the event that a serious accident, etc. occurs that involves products handled by the Group, product recovery costs and product liability damages may arise, which could affect the performance and financial standing of the Group.
The Group operates a large number of IT systems to enable it to perform its business activities. To ensure that each system is managed appropriately and operates reliably, the Group implements reviews from the stage of requirement definition/design, conducts full testing before release, and performs monitoring of operational status after the release. In addition, the Group monitors and responds to cyberattacks and to assess security risks by specialized security organizations, and the Group has also established systems to enable business continuity, and performs periodic checks on the management status of system risks for the Group as a whole.
Despite the Group having devised these measures, typhoons, earthquakes and other natural disasters, faults in cloud services used by the Group, unexpected situations such as a sophisticated cyber attack, and human error could result in the occurrence of system failures and security incidents. In the event that these system risks materialize, business operations would be compromised, which could affect the performance and financial standing of the Group.