Risk Management

【Description of risks】
While the Group designs and plans its products internally, we outsource manufacturing to external companies, many of which are partner factories and companies (trading companies) in China.
Therefore, should manufacturing and distribution of products be hindered by changes in the society, economy, or political situation in China or statutory regulations and restrictions imposed by Chinese authorities, or if personnel expenses in China increase rapidly or exchange rates fluctuate drastically, leading to a sharp increase in import purchase costs, it may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
The Group will decentralize production areas and manufacturing bases within China and build a manufacturing system in Japan to mitigate the impact of situations in China on the manufacturing of products.
In addition, we will further diversify our production areas and manufacturing bases to multiple countries and regions to build a supply chain that enables us to flexibly respond to changes in the international situation.

【Description of risks】
If a defect in glasses, contact lenses, or other products sold by the Group causes damage to a customer’s body or property, significant costs that would be incurred, such as the payment of compensation for damages, cost of product recalls, and cost of providing replacement products, as well as the loss of trust from society, may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
In order to prevent safety defects in the products we sell, we have established a quality control department and assigned experts there and specialized departments visit the production sites to directly check the production management system, thereby preventing silent changes at the site. In addition, we have separated the quality assurance department from the production department and made it a stand-alone function to strengthen the checking system.
Additionally, we have established a customer consultation center to respond to complaints, etc. after product sales. Moreover, the Group has taken out a liability insurance policy in case the Group is held liable by customers for product-related incidents.

【Description of risks】
Although the Group opens stores mainly in city centers, major regional cities and surrounding neighborhoods, regional shopping centers, department stores and station buildings, it may not be possible to open stores as planned if the number of commercial facility developments or tenant replacements in existing commercial facilities significantly decreases.
Furthermore, the basic policy of the Group is to open stores by leasing locations. The Group provides leasehold, guarantee deposits, construction assistance fund receivables, and other payments to real estate lessors such as landowners and business operators of shopping centers and other commercial facilities, in accordance with lease agreements. If a lessor goes bankrupt, or if the Group withdraws from a location before the term of the contract expires, it may become difficult to collect all or part of the above-mentioned leasehold, guarantee deposits, etc. Should this happen, it may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
The Group strives to increase net sales per store by enhancing the ability to attract customers and maintain close communication with the leasing divisions of commercial facilities, in order to induce more solicitations from commercial facilities. In addition, we are making progress in opening roadside stores in addition to locations within commercial facilities.
When opening new stores based on lease agreements, the Group sufficiently examines the credit status and matters related to rights of the real estate lessor, and also keeps an eye on the collection and management of receivables such as leasehold and guarantee deposits after the stores are open. In addition, if the real estate lessor is not a listed company, the Group has credit insurance for the receivables to be collected.

【Description of risks】
In the overseas eyewear business, the Group expanded to China in 2010, to the United States and Taiwan in 2015, and to the Philippines and Hong Kong in 2018. The Group is also considering entry to other overseas markets in the future.
Operating business overseas contains several risks including those listed below, and should these risks materialize, it may have a significant impact on the business results and financial position of the Group.
- Unexpected changes in laws and regulations and tighter regulations
- Changes in government policies that are detrimental to business activities
- Changes in political, economic and social conditions
- Sharp increase in personnel expenses and difficulties in hiring
- Underdeveloped infrastructure
- Potential international taxation risk
- Social or economic turmoil due to an act of terrorism, war, disease, disaster, or other factors

【Measures to mitigate risks】
When entering an overseas market, the Group sufficiently studies and considers various conditions of the target country or region in advance, including its market size, competitive environment, statutory regulations, and social situations. In addition, the Group closely monitors any changes in the environment related to business operations even after the entry, striving to control risks.

【Description of risks】
Should a new vision correction method emerge due to the spread of alternative products and services such as laser vision correction surgery, or technological innovation that exceeds expectations, or if a competitor that offers higher added-value than the Group appear due to another company in the industry converting its business model or a company from a different industry or from overseas entering the market and the Group’s competitive advantage declines, there is a possibility that the business results and financial position of the Group may be significantly affected.

【Measures to mitigate risks】
In addition to expanding its range of functional products for purposes other than vision correction (such as blocking blue light and pollen), the Group is constantly seeking to develop new businesses, not just in the eyeglass retail business, but also in community-based businesses, etc. We are also working to differentiate ourselves from other companies in the same industry, provide high added value, and maintain our competitive edge by increasing our points of contact with consumers through the use of DX and improving the customer experience.

【Description of risks】
While the Group plans to expand its business by actively opening new specialty eyewear stores, our ability to open new stores depends on securing and developing human resources including excellent store employees and store managers. Moreover, the Group believes that it is important to strengthen the management execution structure and enhance the human resources in the headquarters in the planning, development, production, IT, and management departments for promoting differentiation from our competitors.
Should we experience difficulties in securing human resources commensurate with the Group’s plans, our inability to open new stores as planned and differentiate ourselves from competitors may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
The Group secures human resources by actively employing mid-career hires who can be an immediate asset while hiring new graduates on an ongoing basis. With the rapid rise in prices in recent years, it has become a social imperative to create an environment and working conditions that allow employees to focus on their work. Against this background, in order to continuously provide higher quality services at our stores, which are the cornerstone of customer experience, we have raised the base wage of full-time and fixed-term store employees.
In addition, the Group conducts ongoing group training at the Tokyo head office, Maebashi head office, and several locations nationwide, as well as online training, for store employees in an effort to develop human resources. In addition, we established an educational system in-house, including “JINS Academy,” an internal educational institute established for the purpose of helping employees obtain the national license of eyeglass manufacturing engineer.

【Description of risks】
In Japan, the Group is subject to various laws and regulations, including the Companies Act, the Financial Instruments and Exchange Act, and the Pharmaceutical and Medical Device Act (hereinafter referred to as the “PMD Act”), as well as various other laws, regulations, and systems relating to taxation, labor, and consumer transactions. Our overseas bases are also subject to the laws and regulations of each government. Any change, enhancement, or reinterpretation of these legal regulations, or the occurrence of misconduct or violation of laws and regulations, could have a material impact on the Group’s business performance and financial position due to restrictions on business activities or loss of social trust.

【Measures to mitigate risks】
The Group has established specialized departments for legal affairs, pharmaceutical affairs, tax affairs, labor affairs, etc., and, with the support of law firms, collects information on the enforcement and revision of laws and regulations, and confirms the compliance of business activities, transactions, advertising expressions, etc. with the laws. The Group also strives to ensure thorough compliance with laws and regulations by improving the understanding of compliance among officers and employees through regular compliance education. In addition, the Group closely monitors any changes in the legal environment related to business operations in close cooperation with overseas bases, striving to control risks.

【Description of risks】
In Japan, Article 17 of the Medical Practitioners Act prohibits non-physicians from performing medical practices. Medical practice is interpreted as any action that could cause harm to health and hygiene if it were not performed by a physician. However, there are no clear legal provisions regarding whether or not the diopter tests conducted upon selling eyeglasses falls under the category of medical practice. A person who is not a physician may perform the test as long as there is little risk of harm to the human body, such as assisting customers in selecting appropriate eyeglasses for their eyes.
However, if the assistance in diopter tests mentioned above is deemed to be classified as a medical practice due to amendments to laws and regulations or changes in interpretation thereof, a decline in net sales associated with changes to the business model and other factors may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
Upon selling eyeglasses at our domestic eyewear stores, the Group conducts diopter tests at the customer’s request to select the strength that suits the customer’s eyes. However, this practice does not pose a risk of causing harm in terms of health and hygiene, and the risk of causing any harm to the human body is minimal. On the other hand, the Group believes that performing diopter tests must be backed by sufficient technique and knowledge, and focuses on enhancing the internal training system. We also strive to provide the best possible solutions for our customers’ eyeglass strength selection and to reduce risk, such as recommending that prescriptions from ophthalmologists be used for those who are junior high school students or younger, or for those who are using eyeglasses for the first time. We do not perform eye examinations or medical examinations that fall under the category of medical practice.

【Description of risks】
In its domestic eyewear business, the Group imports some of its lenses for glasses and ready-made reading glasses directly from manufacturers outside of Japan and procures contact lenses from companies in Japan for sales. Lenses for glasses and ready-made reading glasses are categorized as general medical devices under the PMD Act and contact lenses are categorized as specially controlled medical devices under the PMD Act, which regulates the acts of importing or selling these devices.
Any change, enhancement, or reinterpretation of these legal regulations, or the occurrence of misconduct or violation of laws and regulations, could have a material impact on the Group’s business performance and financial position due to the suspension of product supply resulting from the cancellation of licenses or loss of social trust.

【Measures to mitigate risks】
For eyeglass lenses and contact lenses, the Group has established specialized departments to deal with regulations and approvals based on the PMD Act, and is striving to comply with the PMD Act and related laws and regulations as well as to ensure proper quality control of lenses, etc.

【Description of risks】
In order to constantly propose advanced products to the market, the Group is continuously developing new products and technologies independently as well as in collaboration with partner companies, universities and other research institutions. However, the Group’s performance and financial position may be significantly affected in the event that there are obstacles to the protection or enforcement of intellectual property rights created through these activities, and the Group fails to effectively eliminate counterfeiting of its products by third parties, resulting in loss of market share, or in the event that the Group receives claims for damages or injunctions for infringement of intellectual property rights of third parties.

【Measures to mitigate risks】
We have established a specialized department for intellectual property, and have obtained patent rights and design rights for important technologies and designs, as well as trademark rights for the names of major brands and products and services to protect intellectual property rights.
Additionally, in the development of products and services, the Group thoroughly investigates intellectual property rights of third parties in advance to avoid infringement.

【Description of risks】
The Group is working to improve operational efficiency and productivity by promoting the use of IT. However, there is a risk that business activities may be temporarily suspended if there is a leak, loss, or alteration of important company information assets, including personal information, due to unauthorized access or malware infection, and there is also a possibility that the Group’s business performance and financial position may be significantly affected due to a loss of social trust, etc.

【Measures to mitigate risks】
We have established a specialized IT governance department and are working to reduce information security risks by taking security measures for each risk factor, such as cyber-attacks and information leaks by internal parties.
With regard to privacy protection, the Group has established a Privacy Policy, Personal Information Protection Regulations, Information Security Policy, Information Security Regulations, etc. As a business operator handling personal information, the Group is taking all possible measures to prevent the leakage of personal information, while also ensuring that our internal management system is in place and that all employees are fully aware of the regulations.
In addition, the Group holds meetings of the Personal Information Committee and Information Security Committee once a month to monitor the operation and management and to work on continuous improvements.

【Description of risks】
The Group has procured funds for new store openings and other capital investment as well as its working capital through bank loans, and may procure funds going forward according to future fund requirements.
Should the level of interest rates rise due to an increased reliance on interest-bearing liabilities in the future or changes in the financial environment, it may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
In order to flexibly respond to financial conditions, the Group strives to control its reliance on interest-bearing liabilities and raise funds appropriately in accordance with financial trends.

【Description of risks】
Future changes in financial conditions as well as the Group’s business performance and financial position may have a significant impact on financing for capital expenditures such as new store openings in the Group as well as additional working capital in line with increased sales.
In addition, on February 12, 2020, the Company issued euro yen denominated convertible bond-type bonds with share acquisition rights due 2025. If the Company’s stock price remains at a level lower than the conversion values and the convertible bonds are not converted to shares as expected, the Company would have to redeem all of the remaining convertible bonds at face value on each maturity date. Should this happen, the Company may have to take measures such as refinancing, which may include other means of financing.

【Measures to mitigate risks】
The Group has entered into loan commitment agreements with counterparty banks to flexibly and stably procure funding for capital investments and working capital, and the Group maintains good relationships with counterparty banks so as not to hinder necessary financing.

【Description of risks】
Because the Group imports most of the glasses frames and some of the lenses, which are the Group’s main products, directly from China and other foreign countries, purchase costs are affected by exchange rate fluctuations. In addition, the Group holds seven overseas consolidated subsidiaries, four of which are operating companies, as of the end of the fiscal year under review. Because the amounts denominated in foreign currencies in financial statements of overseas subsidiaries and affiliates are converted to Japanese yen in consolidated financial statements of the Company, the Company’s consolidated financial statements are affected by exchange rate fluctuations between the Japanese yen and each currency. Should exchange rates fluctuate drastically, factors including a sharp increase in import purchase costs and fluctuations of yen denominated figures in financial statements of overseas consolidated subsidiaries may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
Regarding purchase costs, the Group monitors exchange rate fluctuations and controls the exchange rate fluctuation risk to minimize its impact on the Group’s business results and financial position, such as appropriately reviewing selling prices while considering the movements of competitors for foreign exchange impacts that cannot be absorbed. The Group will also work to reduce the impact of exchange rate fluctuations on purchasing costs by establishing a domestic production system.
In addition, we are striving to reduce the impact of the conversion of foreign currency denominated financial statements of overseas consolidated subsidiaries into Japanese yen on our consolidated financial statements by reducing assets, such as inventory

【Description of risks】
If a large-scale disaster such as an earthquake or tsunami, or an accident, fire, terrorism or war, etc. occurs near the Group’s store facility, logistics base, head office facilities, partner factories or other production facilities and causes serious damage to such facilities, or should the Group become unable to engage in business activities for an extended period of time, including selling products and supplying products to stores due to a pandemic, it may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
A BCP plan has been formulated in case of an emergency such as a large-scale disaster or a pandemic, and we have made thorough preparations to quickly collect information and to be ready for a company-wide response in the event of an emergency. In order to minimize damage to product inventory and ensure continued supply of products to stores or quick recovery, logistics bases at two locations in Kanto and Kansai regions have been established.

【Description of risks】
The Group is engaged in the planning, development, production and supply of products and services in cooperation with its supply chain, including partner factories in Japan and overseas, and its business partners, including vendors. In the course of such business activities, if any incidents occur that seriously damage the human rights of those involved, such as forced labor, child labor, harassment or discriminatory acts, it could lead to a decline in the trust of customers and business partners in the Group, and have a significant impact on the Group’s business performance and financial position.

【Measures to mitigate risks】
As part of its human rights policy, the Group’s Guidelines for Code of Ethics stipulates respect for fundamental human rights and dignity of individuals and prohibits discrimination and acts that may harm an individual’s dignity. In addition, we conduct regular external audits on our major suppliers, and promote human rights due diligence to confirm the prohibition of forced labor, child labor, inhumane treatment and discrimination, as well as the working environment, in an effort to prevent human rights violations. Moreover, the Group has established multiple consultation services for various stakeholders, including business partners, employees, customers, shareholders, and local communities who are involved in the Group’s business, and accept consultations regarding human rights. In the unlikely event that a human rights violation is identified, we have a system in place to promptly and sincerely take relief and remedial measures.

【Description of risks】
When opening a new store, the Group either constructs a building for the store on a piece of leased land or installs decorations and fixtures inside a leased building or a part of a building, and these buildings, decorations, and fixtures are recorded as non-current assets. Should there be significant deterioration in the profitability of the store, a need to record an impairment loss of non-current assets related to a particular store will arise.
In addition, although we hold investment securities such as contributions to expand business or develop new business, an impairment loss will be recorded in the event of not achieving the profitability expected when the decision to contribute was made, or if profitability or results are not expected. These recordings may have a significant impact on the business results and financial position of the Group.

【Measures to mitigate risks】
The Group monitors the profitability of each store, and if there is a sign of deterioration in profitability, the Group appropriately determines recoverability and records impairment losses as needed to minimize the impact on the business results and financial position of the Group.
For investment securities, we work to reduce the risks by continuously monitoring the progress of results, etc., after the contribution.