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Seiji Nishikawa Junko Kawano Keiko Yamahira Kinya Naito
Outside Director Outside Director Outside Director Outside Director
Introduction:
Deeper discussion focused on management strategies and business strategies is more necessary than ever.
Naito: The fiscal 2023 Board of Directors conducted multilateral discussion utilizing a wide range of knowledge regarding the issues from the previous fiscal year: reinvigorating the Board of Directors, brushing up medium- and long-term management strategies, and promoting more efficient management with a focus on capital costs. It also carried out other discussions, such as strengthening of monitoring through a major transfer of authority to the Board of Executive Officers. At the same time, the fiscal 2023 results fell far below the capital profitability indicators in the new medium-term management plan JT-2025 Management Plan. Deeper discussion is now more important than ever regarding the management strategies and fan base strategy that represent a shared understanding of issues among the independent outside directors, and I hope to discuss these matters with all of you.
A Look Back at the First Year of the JT-2025 Management Plan:
We must check whether the Board of Directors is effective and where the responsibility lies for the failure to achieve the targets.
Naito: Despite the large event following the championship victory of the Hanshin Tigers, which the Company is an official sponsor of, we did not take full advantage of this opportunity, and the results for fiscal 2023 failed to achieve the targets. There was some level of awareness that the Hanshin victory sale was a kind of festival, however it felt like the Board of Directors was not fully committed. The Board of Directors did not take any effective steps in response to the large postponement of buying prior to start of the Japan champion sale, or to the drop in sales after the sale concluded. We must recognize that advice to management and monitoring were not sufficient.
Kawano: I feel that monitoring of measures to connect the fan base strategy that is at the core of the new medium-term management plan to sales and profits was lacking. Everyone on the frontlines must consider what they can propose to all customers, including the customers who are core fans and fans, challenge themselves, share examples of success, and deploy them across the Company as strategies. I believe that we needed to operate this cycle at a rapid pace, for example every quarter. In addition, what is important when we propose ideas to the customers is the link with the social value that the Company wants to demonstrate. The Company has presented the two social values of “helping to strengthen the resilience of an aging society” and “achieving household carbon neutrality.” By refining these proposals to produce high quality that matches these values and connecting them to sales, this will lead to profits. It is important that we create this kind of flow. I first want to check whether the message from management to the frontlines was primarily focused on profits.
Nishikawa: Although partly due to the existing corporate culture at the Company, I feel a lot of the proposals were for bottom-up type measures. While this is also important, steering a great ship requires a top-down strategy in the form of a company-wide strategy, as well as the leadership to carry it out.
Sustainable Management and Growth Strategies:
Based on strong leadership, we should challenge ourselves to achieve structural innovations in home appliance sales itself on the dual axes of the fan base strategy and DX promotion.
Kawano: When I look at the recent external environment that faces our company, I feel that the future of the home appliance volume sales business is becoming increasingly uncertain. From my experience developing new businesses over many years and from my position in great support of the fan base strategy, I believe that a new area centering on renovations has potential. Our company has a base of fan customers that it has valued for 70 years, and as these customers grow older, the demand for renovations is expected to increase. Joshin Service, which is responsible for shipping, installation, and construction, also believes the value of visiting customer homes is large. When we visit them, it gives us an opportunity to find out what they need. The fan base strategy is the core strategy that will support the Company in the future. In fiscal 2024, we assigned an officer in charge, and the system for implementing this strategy reached full speed. We have great expectations for this strategy, and should provide it proper support.
Nishikawa: As Ms. Kawano understands, I believe that structural reforms of home appliance sales are a prerequisite for sustainable management at the Company. In order to steadily carry them out, there are two key points, namely the fan base strategy and DX promotion.
First, the fan base strategy: this should not simply be action on an extension of the course we charted in the past. I believe it must consist of comprehensive action that will resonate with the customers. For example, take changes to the organization system. We will create an organization where all actions taken by the Company are linked to the fan base strategy at its core (for example, a Fan Base Strategy Division), demonstrate it inside and outside the Company, and develop a sense of unity within the Company as a whole. This organization should be given authority including sales, marketing, and PR. Changing the way that we have been working in the past with a focus on the fan base is one idea, and I think reference should be made to the institutional customer strategies operated by department stores.
Next, DX promotion: the Company system runs the risk of becoming siloed because each organization has prepared the items that it requires. We need to rapidly construct or transition to a comprehensive platform focused on realizing the fan base strategy starting from the customers.
Yamahira: To be ready for the future, the initiatives that we carry out each and every year from the base are also important, but at the same time the target figures in the new mediumterm management plan are not easy figures to achieve. In order to achieve the targets, I believe we must constantly be reviewing the strategies for (1) stores, (2) products, (3) marketing and sales, and (4) costs, in order to determine whether continuing on our present course is the correct choice.
When we consider sustainability of the Company, over the long term there is the possibility of large-scale changes in the structure of the home appliance industry. In order for a company to continue growing and be sustainable in an age of high uncertainty, the management team must have sensitivity to identify the changes in the times, as well as passion and vision, and the ability to quickly take action. The key to success is spreading this concept throughout the Company.
Naito: The reason that we took up the subject of structural changes in home appliances in the agenda for this discussion was due to the concerns that we felt over the in inventory and interest-bearing debt trends in the fiscal 2023 results. Since the Company was founded, we have engaged in sales by placing all kinds of electrical products from large products such as refrigerators to dry-cell batteries on display in stores. There is room to reconsider whether it is actually necessary for the stores to maintain this level of product lineups. The Company has presented “helping to strengthen the resilience of an aging society” and “achieving household carbon neutrality” as the creation of two social values in the management philosophy structure. In order to provide value consistent with these policies in the future, we must consider reviewing the ways that we promote product lineups and product value, and consider the store strategies and product strategies that incorporate original elements for each individual store.
Yamahira: I consider the designated price system led by the manufacturer to be an opportunity for us to make best use of the customer service abilities that are a strength of the Company in the short term. However, whether or not we can continue with the same perspective in the medium and long term is a question that will require continued discussion by the Board of Directors in the future. At present, we have carved out five business categories. In order to grow them and establish them as the business portfolio of the Company, we must establish a medium- and long-term future image for each business, set targets for size and other characteristics, and the Board of Directors must check the progress of and reliably carry out the annual KPI for target achievement. For now, the strategy is to work to grow these businesses, and to develop businesses that will be a second pillar of the Company after home appliances. I intend to provide strong support for this strategy. Without solid earning power in our core business of home appliances, we will be unable to formulate the next growth strategies. Without investing the generated cash flow into not only our core business but also into growth investment, we will be unable to proceed to the next step. In the renovation business, there is much potential for the Company with its large base of customers, and I believe this may become an extremely attractive business if we adopt the correct strategies. If we are able to clearly demonstrate to the market that we are developing these five businesses to be business pillars supporting the Company, PBR (Price Book-value Ratio) will also go up.
Nishikawa: In order to achieve these growth strategies, we must move forward with a broad range of measures at a rapid pace. This will require working together with third parties; however what is most important at this time is the formulation of strategies and policies within the Company. The Company itself must carefully consider what it wants to accomplish. When the what has become clear, in the implementation phase (how), we can achieve our goals by gaining assistance from third parties, and accumulate knowledge within the Company.
Initiatives for Employee Engagement：
In order to increase empathy with the management philosophy, trust in the management team, and motivation for work, we require top-down message communication and frontline leadership.
Naito: Based on the results from the engagement survey, the Company is rated highly by its employees for the comfortable work and working environments. On the other hand, there remain issues related to empathy with the management philosophy and trust in the management team. If we do not improve these results, we will be unable to achieve strategy implementation by our employees. I feel that more messaging and communication of suitable measures for obtaining understanding of and trust in the management strategies are necessary.
Kawano: Dialogue is important in order to achieve greater penetration of the management philosophy and vision. For example, we should create opportunities for discussion at each store about what the employees can do on the frontlines in regards to the two social values of “helping to strengthen the resilience of an aging society” and “achieving household carbon neutrality.” One more potential concern is the low level of engagement among female middle management. Through career support forums and other initiatives, we are slowly making progress in female career development. We are also making steady progress with other D&I programs, focusing on practical effectiveness.
Nishikawa: I believe the roles of the management positions that connect the management team and frontline staff are important. One other step we can take is developing leaders who can be role models for employees.
Yamahira: The turnover rate at the Company is extremely low, and I feel that there is a truly comfortable working environment. The Diversity Promotion Office is also carrying out improvements to working conditions and compensation. However, in order to reach a higher level of engagement, it is necessary for the employees to feel a higher level of motivation. If all employees understand their roles within the Company, align the vectors of their goals with the management philosophy and vision, and can truly feel growth, this will be a large strength for the entire Company. For this purpose, it is necessary to carry out proactive initiatives, including by management and workplace leaders.
Advice from Outside Directors:
The management team must exercise leadership and carry out strategies from a top-down perspective, and must further strengthen monitoring of business performance and the progress of agenda items through the Board of Directors.
Yamahira: We recognize that now is an extremely important phase for achieving the medium-term management plan and realizing the vision that extends beyond it. Although all members of the Board of Directors fulfilled their roles as an advisory board, I believe there is room for improvement in terms of monitoring and follow-up of strategies and business performance. We must further strengthen the reporting of agenda items and progress status at Board of Directors meetings, as well as follow-up of the contents. I will provide my full support as an Outside Director towards achieving our targets.
Naito: Fiscal 2023 also featured the Hanshin Tigers championship event, and I painfully feel the issues in the Company performance, especially considering the high expectations of those around us. We must not repeat that failure this fiscal year. All directors must take this to heart, and should consider the best approach to management. Each director should conduct discussions focused on being sensitive in identifying changes in the external environment, and rapidly and promptly performing follow-up related to the progress of strategy and policy implementation, and of business results.
Nishikawa: I have two points I would like to make. The first is that the management team must exercise leadership and carry out strategies from a top-down perspective, and we must develop this kind of corporate culture. The other is that we must consider how we will react in different scenariosconcerning potential large changes in our existing business caused by changes in the external environment, such as the designated price system and manufacturer direct sales.
Kawano: Right now the Company is preparing to make large changes aimed at the future. At this time, strengthening our human resources is also of great importance. When we make changes, we will also require different human resources than we did before. I intend to provide support so that strengthening ofhuman resources leads to strengthening and improvement of the organization.
