Zozo Inc Ord

It is time, so we would like to begin Zozo Inc's FY 2021 third quarter consolidated business results announcement. Due to COVID-19, we are only streaming this live. This is now taking place offline, and this will be taking place until 535. And then from 550, in another Zoom channel, we have a Q&A session for the institutional investors. Let me introduce those present today, President and CEO Kotaro Sawada, Thank you very much. And Executive Vice President and CFO, Koji Yanagisawa. Executive Director and COO, Kuminori Hirose. And Executive Officer, Christine Edmond. Thank you very much. There are four presenters today. and our CFO Yanagisawa will take us through the results briefings. Good afternoon, this is the Executive Vice President and CFO Yanagisawa. I would like to start the briefing for today. The document that we are using today, it's, we have manga and it's quite pop, but the design, tea,

It's in the third quarter in November.

The designer actually had a child. So we hope that you can actually tell him congratulations. That would be great. Thank you very much.

So let's jump in right in.

This is not in the presentation document, but it's a highlight for FY 2021 third quarter. The GMV for the third quarter in FY 2021 increased by 23.4% year-on-year to $375.5 billion. GMV excluding other GMV increased by 13.6% year-on-year to... 341.5 billion, and the OPM increased by 14.8% year-on-year to 38.7 billion, and the OPM was 11.4%, improving by 0.2 points. So this is where we landed, and looking at the fiscal year forecast we have announced, we have achieved 79.4% of the GNV, And with respect to the OP, we've achieved about 81.1%. So we are making great progress. Moving on. This is page seven of the document available on our IA page. This is a consolidated business results for each quarter. In the third quarter, the GMV excluding other GMV increased by 15% year and year. The state of emergency had been lifted and people's traffic had begun to recover. However, brands proactively provided us with inventory and also our active promotion activities proved fruitful. So we have made great strides growing over 10% year on year. With respect to the OP, although we actively conducted promotions The GMV grew and also our advertising business grew as well. So our gross profits increased. And we were also able to reduce logistical costs and payment collection costs as well. So our OP increased by 8% year on year. And the OPM for this quarter was 11.3%. So we had a steady quarter. Let me go into more detail about our business results. This is page eight of the document. Here's the increased decrease analysis of our OP from 33.78 billion. We have Increase our OP by 4.99 billion year-to-year to 38.77 billion. Factors that contribute to the increase of the OP, there are basically three. First one is the increase in sales due to the increase in consignment shock commissions, which accounted for 8.48 billion. Growth of the advertising business, which contributed to 1.74 billion. and increase in shipping revenues and payment collection revenues associated with the increase in sales, which amounted to 3.42 billion. On the other hand, the OP decreased. There's mainly four reasons. One is increasing the number of employees, logistics centers, and outsourced operations, which amounted to 2.72 billion in fixed costs. A variable cost increased by 3.78 billion in response to the GMV. And we increased at spend due to active implementation of TV commercials, which amounted to 1.99 billion and other costs increased by 0.16 billion. Moving on to the next page. This is page nine. This is the balance sheet. As we explained before, we have acquired treasury stocks in order to become eligible to join the prime market. Therefore, in comparison to the NLS fiscal year, cash and deposits have decreased and treasury stocks have increased. This is page 10. As we have explained this before as well, but let me take you through this again. To join the prime market, we have acquired treasury stocks and issued new stock acquisition rights as well. And this enabled us to fulfill one of the listing requirements, floating share ratio of at least 35%. And on October 1st, We have been contacted by the Tokyo Stock Exchange that we meet all the necessary criteria. As a result, as announced on the TSC website on January 11th, 2022, we have chosen to join the prime market. Moving on to the following page, page 16. Here is the quarterly GMV. In the third quarter, Z Holdings actively undertook promotions. Therefore, the pay-per-mall share of the GMV increased by 2.3% this quarter, and its contribution is now at 8.5%. In addition, other GMV that we have begun to list from the second quarter last fiscal year made up 9.2% of the GMV this quarter. Next page. This is page 20. As of the end of the third quarter, this is a breakdown of the SG&A. Against the GMV, SG&A was 22.8% and improved by 0.2% year on year. This is due to the fact that there's mainly four factors, four reasons. We adopted new revenue recognition standards and thus point related expenses are now being deducted from sales rather than being booked under SG&A expenses. Therefore, the point related expenses decreased by 0.5 points. The second factor is that we improved operational efficiency within our logistics center. So personal expenses in relation to logistics centers improved by 0.3 points. The third point, third factor is the financial terms with the credit card payment collection company improved. Therefore the payment collection ratio decreased by 0.3 points. Fourth factor is that we also changed the packaging materials for products delivered to customers, which improved other costs by 0.2 points. We changed the packaging material from the middle of second quarter last fiscal year. However, but actively undertaking promotions to increase traffic such as TVCM and web ads, and also by distributing Zozoglass for free, the SG&A increased by 0.9 points. So those are some of the major factors driving the SG&A up. This is page 21. Here are the changes in OP and OPM. In the third quarter, the advertising business grew and the operational efficiency in our logistics centers improved, so our OPM increased. However, we actively undertook promotions to increase traffic and sales and merge the technology subsidiary Haruki Nishimura- which temporarily increase the number of costs for employees. Haruki Nishimura- As a result, the OPM has come down by 0.7 points, we are near landing at 11.3%. In terms of the temporary costs for merging the technology subsidiary, it is temporary. So there, we don't foresee, there is not going to be a large cost until going forward. It's a temporary cost. And this is page 24. These are, here are the key KPIs for Zozotan. These KPIs, Do not include the pay-per-mall and the B2B business performance. This is just for Zozotan itself. The number of annual buyers. increased by 210,000 this quarter to 10.1 million, surpassing 10 million for the first time in our history. And active members increased by 200,000 from the last quarter to 8.71 million, and the guest buyers increased by 10,000 to 1.39 million. The number of active members increased steadily since we have managed to retain the new members acquired last fiscal year. And also during Zozo Week and the summer and winter sales season, we conducted or we launched TV commercial campaigns and managed to successfully attract new customers. So this has contributed to customer acquisition and the guest buyers increase at the same level as the first and second quarter this fiscal year. So the annual number of buyers, total buyers has been steadily increasing. Moving on, this is page 25. Here's the change in the number of shops. We had 1,560 shops at the end of the third quarter, which is a net increase of 14 shops since the second quarter. In the third quarter, we welcomed 30 new shops, including the Body Shop, a British organic cosmetic brand, as well as Currymore, an outdoor brand also from Britain, and a jewelry brand that has been gaining traction by utilizing Japanese technology and featuring a unique design called Ambush. Next page. Page 30. This is the average retail price. The average retail price was 4,167 yen down 3.1% year-on-year. Although the ratio of products sold at a discount did not change significantly, we welcome more users who prefer lower priced products, and the price of goods sold at a discount also fell as well. So those are the main factors. But if we go to the next page, page 31, the average order value was 8,592 yen, up 0.9% year-on-year. So it has come up for the first time in a while. buyers purchased more products per order. Therefore, the AOV has increased year on year.

And this is page 33.

This is the consolidated business and dividend forecast. There are no changes to this plan. We are on track. making steady progress. That's it from me. I would like to pass the microphone over to the president. Good afternoon, everyone. I would like to discuss these three topics today. Before we do that, though, as Yanagisawa explained, the performance in the third quarter, I would like to comment a little bit about that. First of all, We are doing well. We have various KPIs in mind, but most of the KPIs, we're seeing a very positive trend. So please bear that in mind when you look at Zozotan and PayPal Mall. As we mentioned, the number of active members are growing as well. And we've have over surpassed 10 million. And in terms of the new customer acquisition, we're like a stock business. So new customer acquisition is very important. And that. has been doing well this fiscal year as well. So we are welcoming a steady number of new customers. And in terms of the AOV, as we mentioned, it is coming back up as well. So various KPIs are trending well. And this is one reason is that the promotions are going well in the third quarter. In terms of promotional expenses, we did inject a lot of promotional costs and we have tried various activities and we accelerate when possible. So we have the spending control, but we were fortunate that many of our initiatives did well. And in the fourth quarter as well, we hope to do promotions very well so we can drive further growth. Now, moving on to these three points that I would like to explain to the first one, we would like to introduce the newly appointed executive officer. Last year, we did announce that a new executive officer will be joining, and she joined in December last year. So I'd like to take some time today for her to introduce herself. More fashion, fashion tech is something that we're bearing in mind as we operate our business, but fashion tech, fortunately, like Zozomat and Zozoglass, they have become key. So we are well-recognized as a technology company now, but more fashion, we still have a lot of room for growth. And there are some internal challenges as well. Therefore, we wanted to welcome somebody who understands fashion and business as well. And we're very happy that she has decided to join us. So we would like to take this time for her to introduce herself. This is Christine Edmond. Everyone who's listening today, nice to meet you. I was just introduced, I'm Kristin Edmund. In 2021, December 1st, I joined ZOZA as an executive officer. In the past, I've worked as H&M Japan. I helped the launch of the H&M. And I was working there from 2008 to 2016, eight years. And I opened many doors and also improved the sales. And then after that, I was working as a president and CEO of Givenchy, which is part of the FBMH. And I built and reinforced the sales team and created a flat organizational structure. But drawing on the experience from these two entities, I would like to further invigorate the Japanese fashion community, and we want to provide the most state-of-the-art cutting edge fashion in a more sustainable way, and we're going to enter the cosmetics and luxury categories as well. And we're going to utilize technology to propose a new way to enjoy fashion. And we want to do that as quickly as possible. And also from the SDGs perspective, we want to... support various initiatives to make sure that the fashion becomes more sustainable. And I also want to transform the organization so that it's a more friendly working environment for women as well. So I look forward to working with all of you. Thank you very much. We do have a lot of women working with us and also many customers who are women. So it's a great thing that a woman has joined our board and she has a wealth of knowledge as a business woman and also a mother as well. So we are looking forward to having her on board. The second point today that we wanted to introduce was Soso Base Tsukuba 3 last year. We did announce that we were going to build this, but we hadn't really introduced this in more detail. So I would like to give you some more information about this new base. So this is what it looks like from the outside. This is what it's going to look like when it's complete. Our logistics centers, we have increased with bearing in mind our growth in the future. So we have continued to increase logistics centers as we have grown. And of course, with the logistics centers that we currently have, we won't be able to continue to grow. Therefore, next year in the summer, this will start to start operation, but we are preparing to make so that we can actually expand our logistical capacity. And this is actually in Tsukuba and we already have a couple of logistics centers in Tsukuba, but we are well rooted in the local community. We're communicating with the local community and we're blending into the locale. And of course the people of the local community are working with us. part-time and helping us with our operations. And also, amid COVID, part-time work, part-time workers are on shortage, but the religious centers in Tsukuba we're actually seeing stickiness with respect to our part-time workers. They're staying with us for a long time. And so it has been doing well. And also going forward, we're not going to have an endless supply of working part-timers. So we want to implement automation. And we want to implement some innovative Japan-first automation. And I can't really explain everything in detail, but we did prepare a video. So please watch this video and get an idea of what we are trying to do in these new logistics centers. You can never sell clothes online. Zozo Town changed this common thinking. We have been creating various innovations ever since. And our next challenge is to create Zozo Base Tsukuba 3, a new distribution base which is now under construction. We will automate it with the latest technologies. Merchandise from brands are received from trucks to conveyors, then routed to our automated warehouse. Then it is automatically sorted based on the first-in-first-out and carried to the inspection area. In this inspection area, merchandise is carefully taken out from the box and checked. A unique Barco sticker is placed on the merchandise and it is put into a tray-type sorting robot called T-Sort. The store automatically carries merchandise to the appropriate destination according to its shape or the corresponding storage location. Sort of merchandise is put on the conveyor and routed to the lower floor. Once merchandise is carefully stowed, we simply wait for your order. For example, this customer ordered three items, lipsticks, heels, and a red dress.

Let's see how Zozobase handles this person's order.

The merchandise picked from the shelves are routed to the shipment area on the first floor. This area is equipped with the latest sorting system that was introduced by Zozo for the first time in Japan. Merchandise is put into this pocket one by one and temporarily kept in the buffer area. Then lipstick and heels have arrived a little later. Now we have all the merchandise that customer ordered. Finally, it is time for packaging. Packaging and shipping labels are also, of course, processed automatically. By enhancing the operation efficiency with the latest technology, we can focus more on creating the future.

And does a base will help us make it happen? So that was about the Zozo base, the new logistics center.

And lastly, we would like to give you an update on the current situation of Zozokosume. I'm sure you're quite interested in this topic, but we would like to share as much information as we can at this point in time. First, this is the new buyers of Zozokosume. It's not for Zozotan, it's new buyers who are buying KOSMET on our platform. As we mentioned earlier, we are similar to a stock business as an EC. New customer acquisition is going to be key to our future growth. That's going to contribute significant. And of course we understand this, so we're keeping an eye on this. And fortunately, it's been a year now, but we can see that it's a healthy growth of new customers acquired through Zozo Kosume. Moving on. If we look at the demographics, or attributes of people who are buying kusume on our platform. As you know, Zozotown, the gender ratio, it's actually popular among younger generation as well. And with respect to Zozokusume, we are at the demographics even slightly younger. And so the younger generation are buying more cosmetics and also. The gender ratio. Apparel is 71 and men is for a pair of 7129 but for customers 92 and seven and, of course, this may seem like expect seem expected but. Men's cosmetics market is actually there's a lot of room for growth and there's high expectations for the men's cosmetics market so. We did launch, our service was launched for men to start with. And so we have more customers than other ECs. So we want to keep growing the men's cosmetics category as well. And when we break down the major cosmetics categories, we can see that the makeup is actually comprising of 50% of the GMV. So apparel users there's a high affinity with apparel and makeup. That is why we're seeing higher sales with makeup. So in terms of the, this is quite unique. You wouldn't see this kind of pie chart with other distribution with other services. And it is very important because it does lead to continuous sales skincare, but Makeup is actually selling well, so of course we want to make sure that that continues to be the case as well, and we want to further increase the skincare sales, which is still a little low, but we're going to focus our marketing efforts to help improve the skincare sales going forward. And also, if you look at the brand sales composition. Here what's unique is that luxury brands actually comprise about nearly half of the sales. Luxury brands such as Department Cosmetics. So those brands are selling very well. And so as a cosmeticsissimo, In terms of the SKUs and the store itself, we have a high confidence in what we're offering. And the initiatives that we are implementing at the moment include We are delivering products to our customers. So we are enclosing cosmetic samples within the shipping packages. So that's something, promotion activities that we are doing. And when some new product is introduced, we actually discuss with the brands to actually distribute samples to a targeted audience. And once we distribute the samples, we have seen that those brands sales go up as well. So this is something unique that we can do. So we hope to accelerate our efforts in targeted sampling. Next, our strength, our weapon is that people who are coming to Zozotan to buy apparel They are starting to purchase cosmetics as well. So the hurdle or the barrier to entry is very low. So that's something that we're trying to take advantage of. So we all have, like, for example, introduced video that feature both fashion and cosmetics. And once we do introduce some cosmetics in the video, we can see that those products sell well. By the way, in terms of cosmetics, 60%. of those sales are actually, people are buying together with apparel as well. And that's something that we did expect as well. So it's on par with our expectations. And in terms of the number of brands, when we launched last year, it was around this level, but it has grown steadily. However, there are still many brands out there. So we hope to reach out to many brands and invite them on board. Lastly, AR makeup menu is scheduled to be released. We are focused on EC, so we want to actually replicate the experience in stores online? And our answer to that is, for example, Zozoma and Zozoglass. With cosmetics, we believe that this kind of function is necessary. So we're developing and going to implement this AR makeup menu, hopefully in the spring. And March as well, it's going to be a one year anniversary for us, for Zozo Cosmetics. So we're going to be promoting to get momentum on leading up to the anniversary to continue to nurture this category. So our approach has not, attitude has not changed for cosmetics. And that's it from me. Thank you very much. That concludes Zozo Inc's FY 2021 third quarter consolidated business result announcement. Thank you very much for joining us.