Among the matters concerning the status of the Group Company’s business activities, accounting status, etc., the following items may significantly impact investors decisions. Note that forward-looking matters are based on the best judgments of the Group as of the date and time of the last update. Not all risks related to business risk or investment in Company stock may be addressed.
1. Merchandise Buying System
Purchase of Reuse Goods
Buying reuse goods is the core activity that generates income for the Group. However, compared to the purchase of new products, the supply of reuse goods is less certain, depending as it does on the number of goods brought in by owners. To strengthen the stability of its purchasing sources, the Group improves search engine optimization (SEO), provides outstanding customer support, and offers pre-appraisals via telephone and LINE social media app., to encourage owners to sell goods at Group buying offices. Efforts are also being made to enhance the purchasing structure, through implementation of delivery buying, in-home buying, and online buying in addition to in-office buying. The Group has begun buying merchandise overseas. Its asset management app Miney is yet another tool to attract and uncover potential new customers.
Nevertheless, Group financial results may be adversely affected by challenges in sourcing reuse goods due to changing economic trends, growing competition, changing customer preferences, or changes in the market price of jewelry, precious metals, and bullion.
With the exception of gold and platinum, whose prices are set by the market, reuse goods lack predetermined market prices. The popularity of luxury brands and the recent increase in market volume for reuse goods requires concierges who are capable of inspecting the authenticity of reuse goods in line with the Group standards and providing appropriate purchase prices in accordance with individual circumstances. Accordingly, the Group recognizes the importance of developing concierges with specialized knowledge and experience.
The Group financial results may be adversely affected if the Group fails to develop sufficient concierges in line with projections. This in turn could hamper buying plans and the opening of new locations.
Risks of Purchasing Counterfeit Goods
Counterfeit goods of well-known luxury brand items such as bags and watches are broadly distributed and have emerged as a social issue. The Group cultivates concierges’ ability to confirm the authenticity of reuse goods to prevent the purchase of counterfeit goods. The Group also performs careful inspections to determine the authenticity of reuse goods before sale to provide safe and secure goods to customers (both partners and ordinary consumers). Counterfeit goods mistakenly purchased are returned or disposed of to prevent resale. The Group may ask third-party institutions to assess the authenticity of reuse goods.
The nature of its business—purchasing reuse goods from ordinary consumers through secondary distribution rather than from authorized brand stores—poses the constant risk of buying and selling counterfeit goods. Group financial results may be adversely affected by problems or loss of credibility associated with the purchase and sale of counterfeit goods.
Risk of Purchasing Stolen Goods
In the event that the Group identifies the purchase of any stolen goods, the Group attempts to return said items to the rightful owner at no charge within two years pursuant to the Civil Code or within one year after purchase as permitted under the Civil Code pursuant to the provisions of the Secondhand Articles Dealer Act and when purchased from public markets. The Group maintains structures to prevent the purchase of suspected stolen goods and works closely with law enforcement to prevent the distribution of stolen goods.
From the perspective of compliance with the Secondhand Articles Dealer Act and Civil Code, the Group has linked its secondhand articles ledger (detailed records of reuse goods purchase) with its business system to facilitate timely and appropriate cooperation with law enforcement investigations in the event the Group discovers purchases of stolen goods and to facilitate the return of stolen goods to the owner at no charge. Nevertheless, the nature of its business makes it difficult to eliminate the purchase of stolen goods entirely. Group financial results may be adversely affected by losses of purchases traceable to the purchase of stolen goods and the loss of creditability arising from such events.
2. Expansion and Operation of Stores and Offices
Future Buying Office Opening
The Group secures reuse goods through Nanboya, BRAND CONCIER, and Hakkoudo offices nationwide.
To achieve further growth, the Group must continue to improve its capacity to purchase reuse goods. Group financial results may be adversely affected if the opening of buying offices fails to proceed smoothly or the purchase of reuse goods falls short of plans.
Group Business Areas
The Group has numerous buying offices in the Special Wards of Tokyo, Osaka, Nagoya, and surrounding areas, all located at the center of three major metropolitan areas supporting relatively large markets for reuse goods. Group financial results may be adversely affected by the destruction of operating facilities or constraints on the use of a wide range of infrastructure in the event of large-scale disasters affecting the three major metropolitan and surrounding areas.
Closing of Buying Offices Due to Lease Contracts, Rent Increases
The Group leases its buying offices. Valuence Group financial results may be adversely affected if contracts cannot be renewed or rents rise upon contract renewal.
Group business depends significantly on IT systems to attract customers via the internet; to prevent fraud in cash payout at buying offices; to manage the flow of individual goods; to collect market price data for purchase and sale; and to sell merchandise through online auctions.
Group business is capable of operating via organizational response for a limited time in the event of system failures. However, Group financial results may be adversely affected by system stoppages that prove more significant than anticipated.
Asset Impairment Accounting
The Group operates buying offices and retail stores. Group financial results may be adversely affected if the profitability of each office decreases due to changes in the management environment, resulting in appropriation or losses associated with the application of asset impairment accounting. The Group strives to manage profits at each location to prevent impairment and takes appropriate measures at locations marked by low profitability. Nevertheless, an increase in unprofitable locations or the closure of locations may lead to significant impairment losses.
3. Influence of Changes in the External Environment
Changes in Sales Associated With Changes in the External Environment
The Group handles precious metals, watches, bullion, jewelry, and reuse luxury brand goods. By expanding to handle antiques, art objects, and tableware, the group has established a stable business structure that reduces dependence on specific goods. To increase earnings further, the Group is expanding its lines of merchandise handled to include motor vehicles, real estate, and other property.
However, the prices of some goods may decline due to economic obsolescence associated with changes in trends, exchange rate fluctuations, and changes in market prices of precious metals and bullion. Additionally, the prices of certain goods may differ significantly depending on the presence or absence of certain popular goods. Group financial results may be adversely affected by sharp fluctuations in exchange rates and stock prices or rapid changes in business sentiment.
Effects of Natural Disasters
The Japanese government’s declaration of a state of emergency in response to the COVID-19 pandemic had some impact on buying and selling of reuse goods during the fiscal year ended August 2021, resulting from the temporary suspension of store operations. As of the date this Report is submitted, sales were based on the migration of Company-operated auctions to an online platform. Buying occurred under the ordinary structure, with due consideration to prevent the spread of the virus and the highest priority on the safety of customers and employees. Nevertheless, another state of emergency may be declared or similar measures taken in the future; a natural disaster may pose grave difficulties in carrying out business activities, including in-office and in-home purchases of merchandise. In particular, since the prospects for the resolution of the COVID-19 pandemic remain uncertain and its impact on economic activities remains unpredictable, the pandemic may have significant effects on the Group’s financial status, business results, and cash flow in the next period and beyond.
Decrease of Sales and Profitability Declines Associated With Changes in Exchange Rates
The Group wholesales purchased reuse goods to reuse goods dealers both in Japan and overseas via its independent auctions. Certain reuse goods dealers participating in the auctions tend to quickly sell goods to overseas purchasers. Structurally, its business tends to be influenced by exchange rate fluctuations. Successful bid prices in auctions are influenced by exchange rates. When the yen is weaker, prices tend to increase; prices tend to fall when the yen is stronger.
While the Group believes this tendency will be diluted by the participation in the auctions of participants from a broader range of countries and regions, Group financial results may be affected by the timing of exchange rate fluctuations and the proportions of partners participating in auctions from specific countries.
The Group competes with other companies to purchase goods. The Company seeks to improve its competitiveness and promote differentiation from competitors by strengthening its marketing, opening convenient buying locations, improving service at buying offices, and continuing human resource training and education.
However, Group financial results may be adversely affected if competition increases due to new entries into the reuse goods industry.
Dependence on Interest-Bearing Debt
The Group depends heavily on loans from financial institutions to procure working capital. Accordingly, Group business expansion may be adversely affected if capital procurement fails to proceed as planned due to changes in its financial position. In addition, if an increase in interest rates increases the cost of capital procurement, Group financial results may be affected by the resulting pressure on profits.
4. Legal Restrictions
Restrictions Imposed by the Secondhand Articles Dealer Act
The Group is a Certified Secondhand Articles Dealer approved by the Local Public Safety Committee and is obligated to comply with the Secondhand Articles Dealer Act. While Secondhand Articles Dealer certification does not expire, violations of the Secondhand Articles Dealer Act or other laws and regulations regarding the secondhand article business, coupled with the inability to immediately identify or prevent the purchase and sale of stolen goods, may result in business suspension or the revocation of certification by the Local Public Safety Committee, in accordance with Article 24 of the Secondhand Articles Dealer Act.
The Group purchases and sells secondhand articles under the said certification and operates a market for the purchase and sale of secondhand articles among dealers and international partners with the permission of the secondhand article market owners. The Group complies with the Secondhand Articles Dealer Act by providing detailed internal training and education regarding the said act, confirming the identification of sellers in accordance with the said act, and the careful management of secondhand article ledgers. This strengthens the Company’s level of confidence that no problems affecting the group’s business continuity will arise.
However, Group financial results may be adversely affected if certification is revoked due to the events and conditions referenced above.
Personal Information Management
The Group handles customer addresses, names, occupations, ages, and credit card information, which are recorded and managed in ledgers in written form or by electromagnetic means. The Group has established a system that ensures appropriate protective measures for personal information. The Group has also acquired Privacy Mark certification and established internal regulations and other rules. It seeks continually to strengthen internal management structures, provide thorough employee training and education, and enhance information system security to improve its personal information protection management. The Company also strives to comply with the Act on the Protection of Personal Information to prevent leaks of personal information. The Group also maintains systems to ensure compliance with laws and regulations in other countries, including the General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Personal Data Protection Act (PDPA).
Nevertheless, the Group’s financial results may be adversely affected, its reputation and societal standing compromised, and significant costs incurred in the event of a personal information leak.
Laws and Regulations regarding the Prevention of Criminal Proceeds Transfer
The Criminal Proceeds Transfer Prevention Act applies to the Group’s businesses. Group financial results may be adversely affected if the Group fails to comply with the said act and is subject to guidance, advice, recommendation, or penalties by government agencies.
5. Overseas Business Expansion
The Group continues to develop overseas group businesses to expand its business. Group financial results may be adversely affected in the event of business fluctuations, political and social unrest, changes in laws and regulations, and significant changes in exchange rates in specific countries.
6. Weakening Share Values
The Company provides stock acquisition rights to Group executives and employees as incentives. It has adopted the Restricted Stock Compensation Plan; it provides shares whose transfer is restricted to Group executives and employees under this program. While the Group is considering using these programs in the future as well, the exercise of stock options or the issue of transfer-restricted shares may weaken the price of Company shares.