Business Risks

　The UNITED ARROWS Group believes that we need to continuously strive to allocate in-house human resources in a way that meets customer attributes and preferences, to secure the right personnel in the right places, and to develop human resources in order to respond to changes in the trends of the times.
　In recent years, new lifestyles, casual fashion, and online purchasing behavior in this post-coronavirus era, are forcing companies to devise new methods to sell their products (improvement in e-commerce site sales ratio, augmentation of digital marketing, etc.) and to showcase their product lineup in ways that are in line with the times. In order to respond to this environment, it is important to attract talented human resources required in the new era, such as marketing and IT personnel.
As the working population declines at an accelerating rate and job changes become the norm in our society, securing store personnel is another important hurdle to overcome.
　Although there are no serious obstacles at this time, if we are unable to properly assign human resources that are compatible with the sense of the times demanded by our customers or hire and train human resources compatible with our strategy, or if there is an unexpected outflow of human resources, it may affect the execution of our strategy and the achievement of our long-term vision.

■ Countermeasures:
As a response to these risks, we are working to raise wages appropriately, develop evaluation systems and positions, etc., and enhance training to attract human resources suited to respond to the times described above.
Regarding the personnel and evaluation system, we are striving to improve employee engagement by actively utilizing a talent management system that visualizes and centrally manages each employee's evaluation, transfer history, experience, skills, and future career aspirations. We are also promoting the allocation of the right people to the right jobs for various future initiatives and creating a highly motivated work environment.
To enhance education, we are expanding our education system, including support for business school attendance and qualification acquisition, so that employees can learn and enhance their abilities on their own initiative.
In addition, in response to the diversification of work styles, we have established various leave and shortened working hour systems, and are working to enrich and balance both life events and work.

■ Relevance to our management strategy:
UA CREATIVITY Strategy (Strengthen brand appeal)

■ Timing of influence:
Short-term (within 3 years)

　The UNITED ARROWS Group collects information from markets in Japan and overseas and is channeling our efforts into the planning and development of products that meet customer preferences (needs) and respond to changes over time. However, customer preferences (needs) and trends in the fashion market tend to change rapidly over a short period of time.
　In recent years, Japan has seen a sharp change in consumer behavior due to declarations of a state of emergency, etc. during the coronavirus pandemic, and this trend is expected to continue.
　Even in the post-coronavirus era, changes in consumption patterns (prevailing online consumption, casual fashion, and increased need for personal leisure, etc.) caused amid the pandemic have taken root as changes in consumer lifestyles.
　If the Group fails to successfully respond to changes in the trends of the times and other related matters, our competitiveness and brand value are highly likely to decline, affecting the medium to long-term business performance of the Group.

■ Countermeasures:
To address these risks, the Group will make effective use of external environmental data, such as consumption trends, trend information and weather information, as well as data on our customers, including customer attributes and purchase history, to provide highly accurate services optimized for each customer. In addition, this will improve the function of UNITED ARROWS LTD. ONLINE (our e-commerce site) on an ongoing basis, establish an environment in which customers can buy the products they want, where and when they want them, and provide a variety of services that enhance the value of their experience.
　In recent years, the Group has been enhancing various initiatives, such as developing apparel derivative brands for yoga, golf, and outdoors, in addition to those for apparel brands. Together with these initiatives, we will expand our business into areas other than apparel.

■ Relevance to our management strategy:
UA MULTI Strategy (Business development for business expansion)

■ Timing of influence:
Short-term (within 3 years)

In Japan, the supply of truck drivers is expected to be constrained by the so-called “2024 problem of logistics,” resulting in a decrease in the amount of transportation available to meet logistics demand.
In addition, our group purchases products manufactured not only in Japan but also in Asia and other countries around the world.
Under these circumstances, if the amount of transportation available to meet logistics demand decreases more than expected, or if the Group is unable to secure sufficient product supply capacity, it may lead to an increase in store delivery lead times, an increase in transportation costs, delays or inability to deliver products, and this may have an impact on business results.
In addition, political situations, conflicts, terrorism, or natural disasters in various countries may interfere with product procurement and affect business performance.

■ Countermeasures:
In response to these risks, we are working to establish a system that includes decentralizing suppliers and formulating emergency response manuals for product procurement.
Furthermore, to ensure appropriate procurement and logistics, we conduct interviews with suppliers, identify issues of concern, and hold discussions to resolve them.
In addition, we will promote digitization of product procurement and visualize the status from product ordering to delivery, thereby improving the accuracy of inventory procurement and the efficiency of operations.
In addition, we are working to reorganize our distribution centers in conjunction with future business expansion.

■ Relevance to our management strategy:
UA DIGITAL Strategy (Supply chain optimization)

■ Timing of influence:
Short-term (within 3 years)

The group purchases products produced in countries around the world.
"In addition, the performance of the apparel business, the Group's main business, tends to be affected by personal disposable income and purchasing power."
Increases in energy prices and transportation costs, purchase prices, raw material prices, manufacturing labor rates, and other factors, as well as accelerated yen depreciation, or declines in personal disposable income and purchasing power due to inflation, could lead to increased expenses and a decline in sales, which could affect the Group's business activities and results of operations.

■ Countermeasures:
To address these risks, we are gathering information on the macroeconomic environment, setting precise prices and implementing cost control measures, as well as making efforts to procure adequate inventory and improve the ratio of regular price sales.

■ Relevance to our management strategy:
UA CREATIVITY Strategy (Grow and expand existing businesses)

■ Timing of influence:
Short-term (within 3 years)

The UNITED ARROWS Group operates many of its stores in rented spaces in commercial facilities such as shopping centers.
　Because more and more people are shopping online, fluctuations in the ability of such commercial facilities to attract customers may reduce the number of customers entering the stores, which may affect the Group's business performance.
　In addition, depending on the financial condition of the store lessor or commercial facility, it may become impossible for the Group to collect part of debts and the security deposit we have paid upon opening a store, the rent may soar due to increases in real estate prices, or an unexpected situation may occur and make it difficult for the store to continue operating, causing a drop in revenue. These could affect the Group’s business performance.

■ Countermeasures:
　To address these risks, before deciding to open a new store, we will pay close attention to market conditions in the area where the store will be opened and strive to optimize our sales channels, including stores and e-commerce.
　In addition, regarding new stores, we will conduct a credit check for business partners before concluding a contract, regularly monitor store profit and loss after the opening, and when there is a discrepancy between targets and actual results, actively push ahead with sales promotions in cooperation with developers and continue to implement follow-up measures. Furthermore, we will continue applying in-house rules regarding investment and withdrawal.
　In addition, by revamping our membership program and renewing our own e-commerce application, we are working to strengthen sales in both physical stores and online store, while expanding points of contact with customers based on the application.

■ Relevance to our management strategy:
UA CREATIVITY Strategy (Grow and expand existing businesses)

■ Timing of influence:
Short-term (within 3 years)

The UNITED ARROWS Group has worked to raise awareness of quality issues among employees and established a thorough quality control system. Even so, if a product is contaminated with hazardous materials, such as needles, due to improper inspection, etc., resulting in harm to a customer, customer confidence in the Group may deteriorate, affecting business performance.
　In particular, with the expansion of the e-commerce business, the level of labeling has increased, and the risk of improper labeling is growing year by year. Any violation of relevant laws and regulations due to improper labeling may lead to deterioration of our brand image.
　In the past, the UNITED ARROWS Group has been subject to administrative dispositions by the Fair-Trade Commission and the Consumer Affairs Agency for violating the Act against Unjustifiable Premiums and Misleading Representations. Any similar administrative punishment may adversely affect our social credibility, which would in turn affect business performance.

■ Countermeasures:
To address these risks, the Group will make continuous efforts to develop and build a management system in accordance with in-house rules and to ensure compliance. To ensure product quality, Quality Control (QC) meetings are held regularly at major production plants to further improve quality.　
When defective products or improper labeling occurs, company-wide meetings, etc. will be held to report and share information concerning the incident and to examine and determine countermeasures in order to prevent a recurrence.

■ Relevance to our management strategy:
UA CREATIVITY Strategy (Strengthen brand appeal

■ Timing of influence:
Short-term (within 3 years)

Companies in the apparel industry are required to give due consideration particularly to the environment and human rights across the supply chain in their business operations. Amid growing social demand for sustainability, the UNITED ARROWS Group believes that our top priority over the long term is to stop relying on sales growth that is based on mass production and mass consumption. This means "creating maximum corporate value with limited resources" while aiming to expand business operations, as well as properly procuring the right amount of products in consideration of the supply chain and selling them without waste, in other words, improving the ratio of regular price sales.
　Considering the disclosure of information on these sustainability initiatives is being legislated, if the Group fails to respond to the future tightening of sustainability-related laws and regulations, or if unforeseen environmental or human rights issues arise in the supply chain, our corporate value may be affected. For example, it is likely that our corporate activities will not be supported by customers and investors.

■ Countermeasures:
　To address these risks, the Group established the Sustainability Committee, a subordinate body of the Management Committee, chaired by the President and CEO, with directors as members and full-time outside directors, executive officers, and general managers of each division as observers, to deliberate on strategic policies and specific measures.
　The Group set five themes for the key issues of, “supply chain,” “resources,” “community,” “human resources,” and “governance,” and in 2022, established three categories of priority appeal, “circularity,” “carbon neutrality,” and “humanity,” and seven quantitative targets associated with each.
　Regarding the Supply Chain, we established the UNITED ARROWS Group Human Rights Policy in April 2023, in addition to the formulation of Behavioral Guidelines (Code of Conduct) for Business Partners Related to Product Procurement, which aims to increase transparency across the supply chain, prevent human rights violations, and give consideration to the environment.
　In addition, as part of our human rights due diligence, we are assessing human rights risks, and we will work to build a responsible supply chain by implementing priority measures for high-risk items such as “forced labor” and “child labor” targeting our overseas production plants.
　Regarding “resources,” we are actively incorporating a variety of environmentally friendly materials, such as organic cotton that reduce environmental impact during production, and resource-recycling materials made from recycled plastic bottles and other materials.

■ Relevance to our management strategy:
UA DIGITAL Strategy (Supply chain optimization)

■ Timing of influence:
Medium- to long-term (3 years or more ahead)

　The UNITED ARROWS Group stores are concentrated in large cities in Japan, with distribution centers and head office functions also concentrated in the Tokyo metropolitan area.
　Natural disasters, such as a major typhoon or torrential rain, which are both physical risks in these areas, may hinder product procurement or result in damage to store facilities, and store closures, which may affect our business activities and performance.
　On the other hand, if changes in the Max. and Min. temperatures or a shift in the seasons occurs, affecting demand and the purchasing behavior of customers, etc., it is highly likely that the Group will not be able to adapt to these changes under current product plans.
　An abnormal climate and increases in average temperatures may also cause a hike in costs to produce the raw materials.
　The transition to a decarbonized society aimed at avoiding climate change will be accompanied by changes in regulations, markets, and other areas that introduce policies to curb greenhouse gas emissions, such as carbon taxes and carbon pricing, and there is a risk that the Group will be unable to respond to these changes, resulting in a significant chance of financial impact on the Group. Materialization of such risks may tarnish the Groups’ reputation (evaluation or review by customers and society), leading to a decline in brand value.

■ Countermeasures:
To address these risks, the UNITED ARROWS Group is working to diversify raw material suppliers and considering alternative materials.
　In addition, we have incorporated and established a risk management system in our Risk Management Regulations to respond to natural disasters, and will continue to review our Business Continuity Plan (BCP). In order to enhance the effectiveness of our crisis management system, we are regularly conducting drills to confirm the extent of damage in the event of a disaster.
　In addition, we are working to increase the ratio of regular price sales by strengthening product appeal through the introduction of product ranges that aren’t affected by season and by reviewing product plans and launch timing.
In addition, the Company endorsed the TCFD recommendations in 2022 and obtained SBT certification in 2023. As a specific initiative to reduce greenhouse gas emissions, we have already started using renewable energy in some of our stores. We will continue to promote further measures to realize a decarbonized society.

■ Relevance to our management strategy:
UA DIGITAL Strategy (Supply chain optimization)

■ Timing of influence:
Medium- to long-term (3 years or more ahead)

The UNITED ARROWS Group is strengthening our global expansion to further expand our customer base and broaden the range of value we offer. In particular, we recognize Taiwan and China as markets with high medium- to long-term growth potential and are working to develop the Chinese market in addition to expanding the number of new stores in Taiwan.
China also plays an important role as a producer of products offered by the Group.
　However, there are currently growing concerns about China-Taiwan relations, and any future political turmoil or conflict in these countries for business expansion could affect our strategy, supply chain and business performance.

■ Countermeasures:
To address these risks, we are gathering various information on China-Taiwan relations, diversifying production areas, drawing up and disseminating a business continuity plan (BCP), and developing overseas emergency response manuals to ensure the safety of employees overseas. Based on this, we confirm contingency measures, etc. with the Taiwanese subsidiary.

■ Relevance to our management strategy:
UA MULTI Strategy (Global expansion)

■ Timing of influence:
Medium- to long-term (3 years or more ahead)

Aiming to become a highly sensitive and value-added lifestyle provider group, the UNITED ARROWS Group is working to streamline its corporate management and increase the value we provide to customers.
　Considering the growing tendency to purchase online, the evolution of digital technology, and increasing data utilization, it is vital to digitize our sales activities and internal operations in order to improve our competitiveness.
　If the UNITED ARROWS Group fails to provide customers with the online purchasing experience they desire or promote digitization of our internal operations due to a lack of specialized in-house personnel, the Group’s competitiveness will not be enhanced, which may have a negative impact on the execution of strategies and achievement of our long-term vision.

■ Countermeasures:
To address these risks, we renewed our e-commerce site, UNITED ARROWS LTD. ONLINE and linked the inventory to our brick-and-mortar stores in March 2022, and have been working on a variety of other OMO measures, such as digitization of customer service skills and online customer services.
The Group will also seek to improve the efficiency of our corporate operations and increase the value we provide to customers through the revamping of our core product management system, which centralize inventory data of actual stores, online shopping, and distribution warehouses.
In addition, we will promote the digitalization of the customer service and sales capabilities of physical stores by expanding online store content, such as sales staff recommendations and styling photos, and by expanding chat customer service. As a measure to increase sales staff motivation, we have put in place a system to reflect not only regular face-to-face customer service but also the contribution to sales in the online store in individual evaluations. In this way, we are spreading the influence of our sales staff, which is one of our strengths, not only offline but also online.
(*) OMO: Online Merges with Offline, the integration of online and offline channels.

■ Relevance to our management strategy:
UA CREATIVITY Strategy (Grow and expand existing businesses)
UA DIGITAL Strategy (Promote OMO / Supply chain optimization)

■ Timing of influence:
Medium- to long-term (3 years or more ahead)

　The UNITED ARROWS Group handles a large variety of confidential information, including personal information, and pays close attention when handling such information. If a leakage of confidential information occurs due to attacks by computer viruses, cyber-terrorism, management mistakes by employees or contractors, etc., the brand image of the Group may deteriorate and the Group may have to bear the cost of legal obligations, which is likely to affect the Group’s strategies and business performance.

■ Countermeasures:
To address these risks, the Group has high quality security systems and conducts risk management in cooperation with companies specializing in security and in line with the Information Security Regulations. Such systems and management include measures against unauthorized access, anti-virus measures, data protection measures, and user authentication. Furthermore, in order to prevent leakage of information from within the Group, we have established an Information Security Policy to ensure appropriate information management, and provide Information Security Training and targeted attack e-mail training, etc. for all employees (including contract employees)　In addition, the Information Security Committee was established within the Risk Management Committee, chaired by the President and CEO, with directors as members and outside directors as observers, to discuss these types of risks with employees, including management, and thereby countermeasures will be planned and implemented at an early stage to mitigate such risks.
Regarding personal information, the Management Committee has established “Personal Information Protection Regulations” in compliance with the “Act on the Protection of Personal Information,” and has established, evaluated and reviewed the management system for personal information.

■ Relevance to our management strategy:
UA DIGITAL Strategy (Supply chain optimization)

■ Timing of influence:
Medium- to long-term (3 years or more ahead)

　Should an event occur that makes it difficult to continue business operations in the logistics network or information systems that support our business activities, or in the operation of our e-commerce site, the supply of products could be disrupted, which could affect our business performance.

■ Countermeasures:
To address these risks, the Group will promote the development and review of BCP, including redundant configuration of information systems and e-commerce sites in a cloud environment and the dispersion of such systems to multiple locations.
　In addition, we will continue to enhance business operations and communication with our contractors.

■ Relevance to our management strategy:
UA DIGITAL Strategy (Supply chain optimization)

■ Timing of influence:
Medium- to long-term (3 years or more ahead)

The Group calculates the below-cost selling ratio and the estimated amount of inventory to be sold in order to determine the valuation of products. Since these calculations are based on the forecast of inventory to be sold in the future, if such forecast differs from the actual situation due to changes in economic conditions, etc., the book value of products may be reduced in the consolidated financial statements for the next fiscal year.
　In addition, since the recoverable amount used for the impairment assessment of noncurrent assets is calculated based on their value in use, and the calculation is based on business performance forecasts for the future, etc., if the actual result is different from the forecasts due to changes in economic conditions, etc., the amount of impairment loss in the consolidated financial statements for the following consolidated fiscal year is likely to be affected.
　Furthermore, the UNITED ARROWS Group owns numerous intellectual property rights and endeavors to protect them. However, an illegal infringement of rights related to the Group by a third party, etc., may impede our business activities, lowering our brand image. In the event of such, the Group’s business performance is likely to be affected.

■ Countermeasures:
To address these risks, the Group will continue to control merchandising based on marketing research in domestic and overseas fashion markets, weather forecasts and monitoring results of sales trends when forecasting future inventory.
　In addition, the Group is taking prompt action against infringement of its intellectual property rights by conducting periodic investigations using outside firms and by having the Intellectual Property Management Department, in cooperation with legal experts, issue warnings to infringers.