Zozo Inc Ord

So we would like to begin the FY 2020 third quarter consolidated business result announcement. Today's announcement will be available only online due to countermeasures for COVID-19. And the business results session will be until 1735, 535, and on a different Zoom channel from 5.50. We will have a Q&A session for the institutional investors. Today we have with us representative director and CEO Kotaro Sawada. This is Sawada, thank you very much. This is executive vice president and CFO Kojiya Nagisawa. And also director and CEO Masahiro Ito. So we have three presenters today. And our CFO Yanagisawa will take you through the business results. I'm the Executive Vice President CFO Yanagisawa. I will be taking you through the business results for FY 2020 third quarter. The document that we will be using today is actually already uploaded onto our IR site. So please take a look. Now I would like to start with the business results announcements. Here are the highlights for the third quarter. So the GMV was 304 billion yen, up 19.8% year-on-year. GMV excluding other GMV was up by 18.5%, landing at 300.7 billion yen. 3.7 billion up 74.3% year-on-year. OPM was 11.2% and improved by 3.6 points year-on-year. Both GMB and OP did extremely well. With respect to OP as of the third quarter is actually record high. And against our plan announced On July 30th, 2020, we have achieved 78.6% of the target GMV and 85.5% of the target OP. We will surpass our initial forecast. So as of today, we will be making an upward revision of the targets. Other GMV during the third quarter, was is becoming quite large at 3.4 billion, and I would like to tell you a little bit more about the other GMV. This exclusive does not shop on Pepe Mall. And this is a sales by shops taking part in special programs or events. held within a pay-pay mall based on our proposal. And this is called Zozo option. And stores who have signed up for the Zozo option, their sales comprise the other GMV. And we have started to announce this starting this quarter. So we call it the other GMV, and we did not expect sales from other GMV at the beginning of the fiscal year. And it was 3.4 billion, so it's quite sizable. But in terms of costs, it doesn't have much impact in the immediate future. So from this page onwards, the GMB I will refer to will exclude other GMB, so it will be like in the past. Moving on to the second page, on page seven of the presentation document. This is a consolidated performance for the third quarter. The COVID-19 proved to have had a positive impact, improving the GMV by 22.2%. In addition to new users gained during this quarter, and more frequent visit by existing users, we continue to see a digital shift amid COVID, which offset the decrease in demand due to people staying at home. Moreover, last year we had a warm winter and saw a tax hike, so we booked higher growth than the first quarter. And the OP improved. significantly due to the high growth of GMV and gross profits. Furthermore, last year, we incurred high promotional expenses, including sponsorship fees from the Basque exhibit and giveaways of Zozo heat. And we're no longer seeing those costs this fiscal year. And this fiscal year, the improved operational efficiencies in the logistics centers Also reduced logistical costs significantly. Therefore, the OP improved by 126.4% year-on-year, so a significant improvement. And OPM was 12%, and this also improved greatly. Next, moving on to more detailed business results, I will cover some of the highlights. So page eight, this is the increase-decrease analysis of the operating profit. So the OP increased from 19.3 billion last year in the third quarter to 33.7 billion, so by 14.4 billion. The OP increased by 15.14 billion due to the increase in consignment shock commissions, including Pepe Mo. and 1.06 billion from the advertising business gross profits and 2.82 billion due to increase in other sales and increase in gross profits due to the decrease in PV related valuation loss, 2.65 billion from the decrease in promotion expenses and 0.59 billion from decrease in other expenses. OP decreased however by the increase in logistics centers and number of employees, So the fixed costs increased by 1.59 billion. And the variable costs that fluctuate with the GMV increased by 6.27 billion. Moving on to page nine. This is the balance sheet, but there isn't anything noteworthy to... mentioned here. Moving on to page 14, the shifts in GMV. The GMV as of FY 2020 third quarter and the breakdown, please refer to the earnings briefing. Now on page 19, you will find our SG&A. The SG&A as of the third quarter, this fiscal year, was equivalent to 23% of the GMV down by 2.4% year-on-year. The main reasons why this has come down is first, in 2020 April, we ended the 1% rework program for users and we also reduce point campaigns, so the point related expenses decreased by 0.9%. The second point in the third quarter last year we sponsored the Basquiat exhibition and also distributed Zozo heat for free, so the advertising expenses went down by 0.5%. as these were one-off expenses and GMV grew and the lease contract with some logistics centers and this rent expenses went down by 0.3%. Operational efficiencies within logistics centers improved, bringing down the logistics center related expenses within payroll by 0.3%. And we also saw less one-off expenses than last year, which brought down the other expenses by 0.7%. There's, we didn't really see an increase in the SG&A, but we did see an increase of 0.4% due to increase in shipping expenses resulting from the decrease in average order value. Now moving on to page 18. The OP and OP margins shifted, as you see here, but the SG&A has decreased, as I mentioned, and also we had aggressive discount campaigns, such as those at Arigato. And as a result, the gross profits this fiscal year improved, and OPM was 11.2% this quarter. Now moving on to page 23. These are some KPIs for Zozotown. These numbers do not include pepe mo performance. So it's only Zozotown. The number of annual buyers was 9.13 million of by 330,000. Active members were 7.77 million of by 330,000 and guest buyers went down slightly, ending up at 1.36 million. Due to COVID, we've seen a digital shift. So we've seen the number of active buyers increase at a very healthy rate. And in November last year, for the first time in a while, we ran a TV commercial. So we were able to gain new customers as well. However, the number of guest buyers has continued to decrease over the past couple of years because we have focused on offering even better service to our existing members. Moving on to page 24, the number of shops. As of the end of the third quarter, there were 1,433 shops, a net gain of 29 shops since the end of last quarter. We did have 47 shops join the platform this quarter, and key shops include the D2C brands that we have our influencers design. So this is, we named this Dozo Market. So we have shops from Dozo Market. And also, Muratas is a model and wearer of stuff, but she also, her brand Eden joined the platform. Nolopiana, which is a LVMH luxury brand and a popular Korean specialty store, A-Land, also joined the platform as well. On page 29, this is the average retail price. And as of the end of third quarter, ARP was 4,301 yen, down 4.5% year-in-year. This is because we've seen relatively low price point products sell well. And on page 30, you will see the average order value, which was 8,516 yen. down by 5.1% year in year. This is because of the decrease in average retail price. And it's the number of items purchased per order was slightly lower than the previous year same quarter. So the AOV average order value fell sharper than the average retail price. Now, lastly, on page 32, this is the business forecast and a dividend forecast, as mentioned at the beginning. We will be outperforming our initial targets. So we have made an upward adjustment. But if you calculate, you can see that in the fourth quarter, we will be making upfront investments for sustainable growth in the next fiscal year. So OP is slightly lower. than it currently is. The revised forecast is as follows. The GMV will be 5.6% higher than initial forecast landing at 409 billion. GMV excluding other GMV will be 402 billion. And OP will be 5.1% higher and yet 41.5%, which will be a 48.8% growth rate. but we will maintain the dividend payout ratio of 40% and dividends per share will be 38 yen. So these are some of the revisions that we have made. And that is it from myself. So next I would like to have Representative Director and CEO Sawada take over. Hello, good afternoon. From myself, I would like to provide some additional information about the third quarter and our plans for the fourth quarter. In the third quarter, as you know, the apparel industry is still facing tough times. And inventory was actually a significant change. In spring-summer collection, many brands did not produce as much inventory. but we do have a lot of customers and we wanted to make sure that we can fill this gap between demand and supply. That is the biggest challenge that we had faced, but the brands were very cooperative and because our customers remain loyal to us, we were able to end the third quarter strong. Now, moving on to some slides that we have, prepare for today, I would like to talk about the impact from the state of emergency. In terms of merchandise, we have continued to see a lot of inventories coming to our warehouse. Spring, summer, it was quite tight with a lot of inventory in the spring, but In the fall, winter, we added another logistics center. So we now have ample space in our warehouse, so we can operate without any issues. And with respect to demand, in comparison to April, May, it hasn't changed drastically. not as many people are rushing to buy an EC. Having said that, from June, we've seen the digital shift continue and it's still continuing at the moment. Lastly, in terms of people's working style, from April, we haven't changed the way we have We are working. Many of our office staff are still working from home. But the logistics warehouses and customer support centers, we are operating while undertaking various anti-COVID countermeasures or COVID countermeasures. Moving on, this shows that the demand is still strong. We also introduced this chart at the end of the second quarter business results briefing, but this is a graph showing the new user acquisition. Yellow is 2019, red is 2020, but you can see how it peaked in January, the new year season, but against, it has come down, but against the previous year, we're still doing great. In terms of the repeat rate of the new users, we've shown this graph before as well, but once you make an initial purchase, how many days does it take for that new user to make additional purchases and how much they purchase? So this is an average of these new users and their purchases. So In FY 2020, you can see that new users are still purchasing at the same rate and we're still seeing the same repeat rate trends. So it wasn't a one-off increase that we saw last year. We're seeing a gradual increase in the number of active users. And with respect to other services, I would like to introduce some, some information. So in the beginning of the year, fiscal year, we announced that we will be expanding our products, our lineup, and then the selling space as well. So I would like to tell you where we are in terms of our plans. First, so if you go one column to the right from the middle, We use the Zozomat to sell shoes even better and stronger, and this is still doing very well. So we've been able to increase the contribution of the shoe category. So 30% of we are selling is contributing to 30% more sales. And so we would like to, We have implemented different measures to improve the sales of shoes. And we want to increase this even further to 50 to 70% contributions. And if we can do that, that we will be on track. And the next one is the next one on the top is the DTC influencer program. This is a challenge for the future. So we finished for winter season, we're launching on the spring summer collection, and we will be welcoming new influencers to continue to expand this program. Unfortunately, we cannot tell you right now, announce who they are at this point in time, but they're These influencers are very tied into fashion. And so we're working closely to further expand this program. And then on the bottom, you see cosmetics and luxury brands. We will add these categories as well, which we mentioned at the beginning of the fiscal year. And we're finally ready. With respect to cosmetics, Ito will describe this program in detail and luxury brand I would like to cover in more detail on the next page. But if you look to the left side of the chart, selling space expansion, Pepe Mall we've joined As we mentioned frequently, so we will be seeking synergies with the holdings and for the. In the first half of the year, it may have seemed like this effort was slowing down, but this is because it's a holding to us not promoting their services as much, but in the second half of the year, the holdings have decided to step up promotions. So they will spend more on promotions and we are seeing higher growth because of that. And we're seeing more repeaters. And we will continue to see this trend, most likely continue to see this trend until the end of the fiscal year. ZOZO China, we're adopting the know-how from Japan to increase the number of new users. That's where we are focusing on at the moment. And lastly, from myself, I would like to talk to you about our efforts in adding the luxury brands. This is something that we have wished for for a long time. We've tried in the past And we have been proactive in approaching these brands. And our efforts have started to bear fruit. So we are going to see a lot of luxury brands joining our platform soon. Some of the key brands are listed here, but many luxury brands has agreed to come on board. I think COVID-19 has a significant impact on their decision, but another factor is because Zozotan has a lot of young users, which is attractive. Of course, these brands want to introduce themselves to the younger generation, get to know this brand and learn to love the brand. So this poses our younger audience poses a lot of value for these luxury brands. And also as a mall, we're focusing on fashion and all of our employees love fashion, love clothes. So our sales team, we believe the passion of the sales team was well communicated to these brands and that's another reason why they decided to come on board. As a mall, there are many brands who are joining malls for the first time. So there are some specialty stores who offer some of these brands, but for the brands themselves to join a mall platform and operate their mall shop in the mall, it's the first time for them. So of course we will share our know-how because we understand fashion as well. So we would like to work hand in hand with these brands to make sure that it goes smoothly. And we hope that our audience, our users will be happy about these brands joining as well. And this is going to be very valuable for the Zozotan brand as well. how they will be joining within Zozotown. We will have a separate zone within Zozotown and all these luxury brands will be available in that dedicated zone. That's how they will be presented. And we will be opening that luxury zone in March within Zozotown. So we hope that you will look forward to that development. From now on, we would like to introduce our plans for Zozocosme. So, Ito, if you can take over. This is Ito. Thank you. I would like to introduce Zozocosme today. This is a completely new mall or zone area for us. March 18th is when we will start the service. It's going to be a hard launch, but why we want to do cosmetics and why now? On the next page, you will see, I think that many of you may know that our demographics, 70% of our buyers or users are women. The average age is 34. And if you look at the chart on the bottom left, you will see that the highest is Z generation. And then we have a lot of millennials as well. And having undertook a lot of research, they answered the first interest area of interest is fashion. And then cosmetics was equally interesting to them. And was the second most interesting area of interest for these customers. And on Zozotan, we have 5.33 million female active members. And half of this population is between the age 20 to 34. And we conducted numerous surveys to these women. And they said that they spent about 82,200 yen per year on cosmetics, the market average is 37,794 so it's nearly double the national average. And so they want to buy a lot of cosmetics and 73.7% of these people have bought cosmetics on EC and They spend 36% of their funds on cosmetics on EC. So many of our Zozo customers are used to buying cosmetics on EC and we hope that going forward, these customers will be willing to use Zozo Cosmetics to purchase. Cosmetics Online. And three key characteristics of Zozo Cosmetics is lineup, innovation, and traffic. In terms of lineup, we will have more than 500 brands and we'll continue to increase the number of brands that we will carry. And this will range from high brands to smaller brands. So it will be a very wide, diverse lineup of products and brands. Next is innovation. Come March 18th, We will renew the Zozotone app, and we want to make it more user-friendly, more easy to purchase. And we're expanding the product categories as well, but we will have different homepages for shoes and cosmetics. We've developed dedicated UI for product categories. And we also are going to be introducing Zozoglass, which will help customers purchase cosmetics in a completely new experience. And thirdly is traffic. We are part of the Z Holdings group. So we hope to gain a lot of traffic from our partners. So we hope to utilize all of these characteristics to expand this category. And in terms of lineup, we will have a cosmetics conference in March. And I don't want to go into details because this session focuses on business results, but when the timing's right, we will talk about the ambassador's promotion plan, UIUX, at a different occasion. But this will be part of the Zozo Town as well. So it will be, we, There's high affinity between fashion and cosmetics. So we want to come up with a new way to sell both unique to Zozotan. So let's say that somebody buys a brand or for specific users, maybe we can package samples of cosmetics or maybe suggest recommend cosmetics as well. So we want to do cross promotion as well. And in terms of innovation, if you see these screens here, it's so much more sophisticated than the current Zozo app, Zoztown app. So the UI UX will be updated. You will be able to check latest news and we will supplement all the information and functions that we're locking on the current app. And so you'll have new features and new functions available. And the same goes for shoes. We will be making updates for shoes as well. Now we're running out of time. So we would like to move on to ZOZOGLASS. Please take a look at the video.

It's about a minute long.

I've lived long days. Oh, oh, you can't catch me. No, oh, oh, oh. Oh, oh, you can't let me go. Oh, oh, oh, oh. Oh, oh, I'm nobody's baby. So I've lived long days. Oh, oh, oh, oh. I've lived long days. Oh, oh, you can't catch me. No, oh, oh, oh. Oh, oh, you can't let me go. Oh, oh, oh.

So as you have seen, we are wearing them right now.

Maybe we don't look that great in them, but we apologize in advance. But those are glass. let's, you only have to wear it and it lets you measure the skin tone. So you open up the app, you wear the glasses and you just look around once and it will tell you the melanin hemoglobin composition of your skin. And it will also do, perform a personal color diagnostics. So it's very convenient and It's actually, you will normally only find these. The performance is equivalent to $1,000 equipment that you will find in stores, but these, we are going to give away these glasses for free, but it's not very expensive. So it's not going to be like Zozoclub where we have to invest a lot. Anyway, what can we do with the Zozoclub? The more research we undertake, There are many reasons why people want to, we learned that there's many reasons why people want to go to the store because they want to try the color or they don't know what color will be best for them. So there's a lot of colors available on EC, but they don't know which color they should purchase. So using that glass and you take the measurements, it will suggest the right color for you. But this is the, color that's most closest to your skin tone, but you can decide to whether go one color brighter or darker, or maybe a little bit more pink in shade or blue in shade. So of course you might have your own preference. So we just will give you the standard from which you can make adjustments. And of course, we are listening to feedback from our survey responders. They mentioned the foundations are most difficult to purchase. And then there's also lipstick and also blush as well. So our product will be able to meet these demands as well. And also AR makeup is becoming very popular. But in principle, they just copy and paste the cosmetics image, but it doesn't perform any color correction. And of course it's fun as entertainment, but Zozo's AR makeup, it will take you about two minutes to take your measure or to calibrate your skin tone. And then you can actually try on makeup that has been color corrected and so it will be very close to and very real so you can be reassured when you make a purchase and we also have a face type diagnostics so you it can also measure the color hair color eyebrow color your teeth color but In recent times, the personal colors are becoming quite popular. So in the future, we may be able to propose the best pink for a specific customer. So those are glasses. We can also offer various different content from now on. So we have a lot of fun things in the pipeline. Already today, you can make a reservation for Zozo Glass and it's free. So please go to zozo.jp and register for your very own Zozo Glass. As I mentioned before, Zozo Suit and Zozo Mat, we've shared with many customers and we understand what some of the challenges are. And we put a lot of effort into create these glasses. But the cost is very, very low. So even if we dispute a lot, our investors don't need to be worried about incurring high costs. Lastly, in terms of traffic, of course, we are part of the Z holding group. So we can expect traffic from Yahoo and also Lime. And we're looking into this synergy or partnership. And we want to do a hard launch very soon. And we want to be the place to go for people wanting to purchase cosmetics. In March, we will have a brand conference, cosmetics conference, and we will be launching this service March 18. Thank you very much. That's it for FY 2020 third quarter consolidated business result announcement for Zozo Inc. Thank you very much for joining us today.