Market Trends and Management Issues

Within the retail sector in 2017, we saw big-ticket consumption among the high-income segment, encouragedby high share prices, and a recovery in consumption by overseas visitors to Japan. While some facilitiessuch as urban department stores benefited from this, the regions and suburban areas continued to face aharsh consumption environment, with a series of store closures and so forth. Apparel goods faced headwindsin all sectors, but year-on-year growth was reported by department stores for the first time in three years, andby shopping centers for the first time in two years. At department stores, we captured inbound demand forcosmetics, with inbound sales reaching a record high. At shopping centers, ladieswear sales struggled, butfood and beverages, general merchandise, and services trended upward. However, every sector saw a year-onyeardecline in the regions, and the prominent trend this year was one of polarization between the cities and the regions. Meanwhile, the e-commerce market continues to expand, with transactions between individual consumers via smartphone becoming commonplace and showing strong activity.Regarding changes in consumption trends, we are seeing increasing recognition of the sharing economy,where people share goods and services with others, a trend which is growing among the younger generation in particular. Sharing services are spreading into diverse areas including sharing goods, typified by fashion rental such as apparel, bags, and watches; sharing space, for example offices and conference rooms; and sharing transportation, including cars and bicycles. With the wider use of SNSs such as Instagram,“photogenic” consumption has become an everyday phenomenon, while the increase in working women is spurring the use of SNSs as a space for self-expression, such as self-improvement or selfinvestment,and we are seeing this trend expand into experiential consumption such as travel, health, and hobbies. On the other hand, values around physical goods are changing, with a shift in focus from the traditional brand value towards social consumption as values have diversified into areas such as organic, eco, and hand-made. The spread of smartphones has started to erase the boundary between private use of real-world and Internet stores, and while the ratio of real stores engaging in e-commerce is on the rise, there is also a move towards e-commerce formats entering the real store sector.Within this mix of risks and opportunities, the PARCO Group has advantages that make sustainable growth possible. The first is the Group's comprehensive capabilities, enabling it to produce everything necessary to maintain the attractiveness of its commercial facilities, from research and planning, to tenant leasing and presentation, advertising, sales promotion, and renovation. The second is the PARCO Group's unique philosophy of equal partnership. We recognize tenants as partners with whom we can grow together, sharing our values as we grow and develop. This philosophy also extends to store lease agreements, where we have developed a profit structure beneficial to both parties. We have also organized the PARCO Association, comprised of tenant stores, who work together as one, aiming to contribute to the community and achieve mutual prosperity. I believe it is important that we widen our unique provision of value by leveraging these strengths to steadily execute the strategies of our Medium-term Business Plan

Year-on-year sales comparison by retail format (existing stores)
EC market scale
Updated Aug. 24, 2018