Business risks

The risks that could potentially affect the business and other matters of the Group consist of the following. The Group engages in business activities with awareness of the possibility of the occurrence of these risks and works to prevent them from occurring and minimize their effects when they do occur.
The forward-looking statements among the matters presented herein are based on the judgements of the Group as of the end of the fiscal year under review.

(i) Risks related to changing consumer needs

The Group strives to develop unique and competitive products through Brand Centric Management in order to appropriately meet consumer needs for fashion goods. However, there is a risk that the Group will be unable to achieve the initially-planned revenue due to sluggish personal consumption caused by economic fluctuations, competition with rivals, and rapid changes in fashion trends, which thus might potentially affect the Group's financial results.
The Group reduces this possible risk by gathering product information needed by customers in a timely manner and reflecting it immediately in our product planning and other activities before creating a product.

(ii) Risks related to weather conditions

As the sales of the Group's mainstay fashion products tend to fluctuate due to weather conditions, we reinforce our planning and production systems, based on short cycles. However, sales opportunity loss could potentially be incurred in a peak season due to prolonged adverse weather, such as cool summers and warm winters, and frequent typhoons, which thus might potentially affect the Group's financial results.
To minimize damage when encountering various kinds of natural disasters and others that could potentially affect the Group's continuous business activities, the Group takes actions such as addressing its facilities, diversifying suppliers, setting up backup systems at its production sites, and ensuring adequate inventories.

(iii) Risks related to quality

Although the Group strives to control quality by establishing and complying with appropriate Quality Control Standards, it could potentially encounter a product accident involving product liability due to a matter caused by it or its business partners despite such control platform, thereby deteriorating its company/brand image and giving rise to significant costs, which thus might potentially affect its financial results. The Group reduces this risk by enrolling in a product liability insurance plan.

(iv) Risks related to business partners

Although the Group has reinforced its internal system for regularly checking the financial status and reliability of its business partners, the Group could potentially incur loss arising from a default caused by the credit impairment of a business partner or an unforeseen bankruptcy of a large shopping mall operator, which thus might potentially affect its financial results.
The Group conducts a credit and creditworthiness investigation as necessary when beginning to trade with a new business partner, thereby reducing such risk.

(v) Risks related to intellectual property rights

The Group holds intellectual property rights such as trademark rights in Japan and overseas and works to protect such rights pursuant to laws and regulations. However, the infringement of the Group's rights by a third party could potentially deteriorate its company/brand image and hinder its product development, which thus might potentially affect its financial results.
The Group manages the intellectual property rights it holds, and properly enters into and manages agreements on the acquisition of new intellectual property rights. In the event it potentially infringes a third party's intellectual property right, the Group conducts an investigation and gathers information in advance by utilizing experts.

(vi) Risks related to legal regulation

The Group engages in business activities with due care for laws and regulations related to the Antimonopoly Act, the Subcontract Act, the Act against Unjustifiable Premiums and Misleading Representations, the Consumer Product Safety Act, and laws and regulations related to the environment and recycling. We strive to pursue compliance-oriented business management by thoroughly raising awareness of the importance of compliance with laws and regulations and procedures for internal controls with a key role being played by the Onward Group Compliance Committee. Despite such management system, the Group could potentially encounter a problem caused by fraud or an illegal act by an employee or business partner, thereby deteriorating its corporate social credibility and giving rise to a significant expense burden, such as damage compensation, which thus might potentially affect its financial results.

(vii) Risks related to information

The Group has reinforced its management system by thoroughly ensuring the security of its information systems and strengthening them, establishing the Guidelines on the Act on the Protection of Personal Information, and making the guidelines known to all of its officers and employees as well as its business partners. However, the Group could potentially encounter a problem caused by information leakage resulting from unauthorized computer access or a criminal act, thereby deteriorating its corporate social credibility and giving rise to a high expense burden, which thus might potentially affect its financial results.

(viii) Risks related to overseas business

The Group's overseas business is exposed to possible local risks such as natural disasters, political turmoil, social and economic conditions, terrorism, war, exchange rate fluctuations, intellectual property litigation, and infectious disease. In the event any such problem materializes, the continuation of business activities there could potentially become challenging, which thus might potentially affect its financial results.
In addition to dispersing its production bases across countries and regions, the Group has put in place a system to respond swiftly and appropriately when a risk arises through gathering information from business partners and financial institutions by closely communicating with the bases in each region.

(ix) Risks related to business-capital partnership

As part of its growth strategy, the Group invests both within and outside Japan through mergers and acquisitions, among other activities. In the event the Group's operating and financial condition deteriorate, affected by an operating environment change that exceeds expectations, the Group could potentially record an impairment loss on goodwill, which thus might potentially affect its financial results.
The Group reduces such risk by engaging in investment after thoroughly considering the investment effect and risks in advance and making a capital expenditure plan for the purpose of attaining increased investment efficiency.

(x) Risks related to disasters

Although the Group has established a disaster response policy by preparing a disaster control handbook, the Group could potentially have no option but to suspend its operating activities due to an unforeseen natural disaster such as an earthquake or flood, or the occurrence of a sudden fire, accident, or epidemic, which thus might potentially affect its financial results.

(xi) Risks related to the effects of COVID-19

The Group's business results and financial condition could potentially be adversely affected by COVID-19 through supply chain disruptions within and outside Japan, a consumption slump caused by stay-home requests, temporary store closures, and reduced business hours.
The Group promotes efforts for new lifestyles and work style reform while reinforcing measures to prevent the spread of infection by thoroughly taking infection prevention measures at our stores and offices and putting in place a system that enables teleworking from home.