new business plan - sanyo 株式会社三陽商会€¦ · sources: yano research institute,...

Copyright © SANYO SHOKAI LTD. All Rights Reserved.Copyright © SANYO SHOKAI LTD. All Rights Reserved.

New Business PlanSanyo Innovation Plan 2017

SANYO SHOKAI LTD.Febraury 14, 2017

Copyright © SANYO SHOKAI LTD. All Rights Reserved.

Today’s Presentation

Awareness of Market Environment and Company's Current Circumstances 2

Sanyo Innovation Plan 2017 (SIP 2017)

Major Measures of SIP 2017

10

17

Page

Strengthening Governance and Finance/Capital Policy 24


Awareness of Market Environment andCompany's Current Circumstances


Unable to respond to changes in the market environment and the purchasing behaviors andneeds of customers, there has been a significant decline in sales in the current mainchannel, department stores

Since July 2015, sales of two newly launched brands have seen well below plansand company-wide sales are 69% of previous year, and operating income is down to -8.4bn yen

-12％

7％

9％

▲31%

FY2016

676

42

466

6999

974

FY2015

29211

126

744

1,110

11930

643

FY2014

182

Operating margin FB & street-level stores

EC & mail orderDepartment storesOutlets etc.

Trends in net sales by sales channel and operating margin (FY2014-2016)

3

(Units: 100 million yen)

Net sales

Summary of 2016


With a market share of just 45% in our main field of "clothing" within the lifestyle consumergoods market, business development in the growth areas of clothing accessories andlifestyle goods is insufficient

1. Stationary, office supplies, toys, kitchen equipment, bedding/towels etc.Sources: Yano Research Institute, "Apparel Industry White Paper 2016", "Bags and Baggage Industry Yearbook 2016", "Shoe and Footwear Industry Yearbook 2017", "Home Fashion Brands 2016", "Cosmetics Marketing Overview 2016", "Eyewear Brand Market 2016", "Watch Market and Brand Yearbook 2017", "Jewelry and Precious Metals Market Yearbook 2016", "Stationary and Office Supplies Marketing Overview 2016", Toy Industry White Paper 2017"

8.9 9.1 9.2 9.3 9.4 9.4

1.8 1.8 1.9 2.1 2.3 2.41.3 1.3 1.4 1.4 1.4 1.40.9 0.9 0.9 1.0 1.1 1.12.3 2.3 2.3 2.3 2.3 2.41.8 1.8 1.9 2.0 2.0 2.01.8 1.8 1.8 2.0 2.1 2.119.0

2010

18.8

2015

Shoes/footwear

Cosmetics & beauty

Bags/small leather goods

Accessories

Interior

Other 1

20.8

2014

20.5

2013

20.1

2012

19.4

2011

Clothing

2.0%

Trends in market size by category in lifestyle consumer goods market(2010-2015, Units: trillion yen) Market composition

ratio(2015)

CAGR

10%

10%

11%

5%

7%

12%

45%

+3.4%

+2.6%

+1.0%

+3.8%+1.3%

+5.9%

+1.0%

Not started

Insufficient focus

Main areas

By category(2010-2015)

By area(2010-2015)

+2.2%

+4.0%

Fashion accessories

Lifestylegoods

Our company

Market environment awareness(1) Business Area

(Units: trillion yen)

4


10%

15%

22%

53%

▲4.8%

4.3%

▲1.2%

2.4%4.4

2.2

1.1

1.2

1.0%

Specialty stores (Street-level stores, SC, FB, etc.)

Department stores

4.9

2.1

1.4

1.0

2013

9.3

4.8

2.2

1.3

1.0

2012

9.2

4.7

2.2

1.3

1.1

2011

9.1

4.6

2.2

1.2

1.1

2010

5.0

2.1

0.9

1.4

8.9

EC & mail order

9.4Mass retailers, GMS, etc.

20152014

9.4

Market composition ratio(2015)

CAGR(2010-2015)

Market environment awareness(2) Deployment channels

Lifestyle consumer goods market

(Units: trillion yen)

11.4

9.4

20.8

2015

Non-clothing

Clothing

Trends in clothing market size by channel(Units: trillion yen)

Source: Yano Research Institute "Apparel Industry White Paper 2016"

5

Reduction in our main sales channel, department stores, with the market led by specialtystores and EC, etc.


Company awareness: Our strengths and weaknessesCannot sufficiently respond to changing customers and markets with a mindset of simply"making good things”Weakness of a lack of conservative business models and mindset

Strengths:World’s leading

manufacturing base

• World’s leading production expertise, polished over a history of more than 70 years

• Strong production base, beginning with domestic company factories

• Honest employees, with serious craftsmanship rooted in our organizational climate

Weaknesses:Conservative business model

and mindset

• Weak awareness of customers and marketing due to the strong manufacturing idea that "if you make good things they will sell"

• Weakness of sales channel biased towards department stores and sales force focused on direct sales channels

• Lack of leadership and thinking to perform fundamental reforms which go beyond conventional methods and current frameworks

6


Young leadersFront-line employees

Retraction of 5-year Medium-term Business Plan in July 2016Started innovation project involving the entire company towards forming a new businessplan with implementing power

SalesWG

Operational Reform

WG

Merchandi-sing Reform

WG

Existing Business

WG

New Business

WG

EC WG

Managing OfficerEach WG leader

DirectorManaging Officer

Growth Strategy Subcommittee

Restructuring Subcommittee

Business Restructuring

Committee

Implementation of Sanyo Innovation Project

* WG = working group

7


Group top management classes selected for Business Manager class

Organizational structure review in this project

New organizational structure for the implementation of the new business plan (SIP 2017)began in January

8

July 2016 October 2016 Today

New business plan (SIP 2017)announcement

Direction of Restructuring

and New Business Plan

Retraction of5-Year Medium-term Business

Plan

December 2016

Progress in restructuring

Promote mid-grade and young employeesPromote the promotion of mid-grade and young employees to lead the new Sanyo Shokai

SanyoInnovation

Project

ProjectStart

Clarify responsibilities and authority, and accelerate decision-making speed by flattening the organizational structure

Chairman Iwata, of this project's Business Restructuring Committee, appointed Representative Director and President (from January 1)

Change of organizational structureStrengthen market response by establishing Marketing & Communication Head Quarter

Flatten organizational structure

Develop system to implement New business plan (SIP 2017)

Change of Representative Director and President

2017January 1

187 units

5levels

155 units

3levels

Top business manager classselected for Genaral Manager class

Mid-grade

Young

Management


Overview of themes to be examined in this project

Since the change to the new organizational structure in January, almost all major measureshave transitioned to the implementation phase

Themes to be examined Expected impact

Increase sales

Improve gross profit

More effective use of

SG&A expense

Enhance organizational

capacities

Improve BS

Discontinue unprofitable brands and shops and improve productivity of sales areas

Redefine and improve efficiency of sales operations

Design a mechanism/system to strengthen the sales capabilities of sales areas

Standardize and raise the sophistication of merchandising processes

Redefine and increase the efficiency of planning and production operations

Promote efforts to dispose of slow-moving inventory

Optimize the overall supply chain (production, procurement, distribution)Increase operational efficiency and boost motivation by reforming how employees workDesign a proposal for a new organization that is appropriate for the growth strategyRedesign the employee evaluation system so that it matches the new organization and roles

Reinforce measures to expand the lifestyle store business

Inorganic growth, including M&As

Accelerate EC growth

Develop new businesses that make use of digital technology

Strengthen existing business brands and expand channels

Strengthen corporate brand (coat business)

Restructur-ing

Sub-committee

Growth Strategy

Sub-committee

Sales

Merchandi-

sing Reform

Operational

Reform

Existing

Business

New Business

EC

Strengthen governance

Financial reform

Enhance board of directors' functions

Establish voluntary nominating committee

Transitioned to implementation phase

Sell off strategic shareholdings

Make effective use of or sell off owned properties

9

Changed management accounting period (to Mar.-Aug., Sep.-Feb.)


Sanyo Innovation Plan 2017 (SIP 2017)


Vision/Mission

Based on a shared awareness of the Company’s corporate principles, we will continue to identify the changes in thetimes and flexibly accommodate changes in consumers and society, thereby offering new value on a continuousbasis so that the Company will continue to be needed by consumers and society.

“Sanyo Innovation”is for Sanyo Shokai to achieve a structural changeover

to an “integrated fashion company” by enhancing its manufacturing capabilities and innovating its business models.

Corporate Principles

We create social value by providing fashions and apparel that enrich the lifestyles of customers everywhere.

Vision/Mission

Evolution into an “Integrated Fashion Company” (maker/retailer/platformer) that offers comprehensive services relating to overall lifestyle issues, with apparel

being the core business.

11


Guiding Principles for Action

Aim to achieve the world's highest level of manufacturing as an apparel manufacturer

Expansion of the traditional coat business

• Expand the lineup of products, centering on “100nen coat (100 years coats), and expand the operations of direct retailing and wholesale at home and abroad.

Maximize our world’s leading factories

• Promote manufacturing of products under the factory brands.

• Promote the direct-selling business that directly connects the factories and customers.

Enhance proposal capacity in existing businesses

• Promote a merchandising revolution and enhance capabilities for product proposals in the existing business models centering on department stores.

Towards new sales channels, new customers and new product development

New sales channels

• Direct sales business (urban commercial facilities + EC)

• Expand to overseas markets (North America, Asia etc.)

New customers

• Acquire customers in their late 20s and 30s.

New products and services

• Develop and provide new products, services and businesses based on new value with the keywords of "Clothing, Food, Home, Beauty, Health, Play and Knowledge."

• Initiatives with other companies using our EC platform.

• Develop the value-added business of "earth-friendly fashion" as a sustainable and ethical business.

Inheritance Innovation

Pursuit of the world’s highest level of manufacturing as an apparel maker

New sales channels, new customersand new products/ services

The guiding principles for actions to realize the Vision/Mission are Inheritance andInnovation.

12


SIP 2017: Numerical targets

Focus resources into direct sales and EC, and improve top line and profit margins, to beprofitable in 2018 and achieve sales of 80bn yen, an operating profit margin of 5% and ROEof 5% in the medium term

650

Department stores

Other

14%

63%

5%630

66%

12%

10%1%4%6%

630

68%

11%

8%1%4%7%

676

69%

10%

Specialty store wholesale1%6%

7%Outlets

6%1%

12%E-commerce (EC)

Directly managed stores

4%

2016Actual

800

2017 2018

3-year Target (Units: 100 million yen)

Total 1.6%

▲13.0%

▲0.3%

23.0%

23.6%

14.7%

▲2.7%

▲84(▲12.5%)

Sales

Operating income(Profit margin)

▲30(▲4.8%)

Profitability 20(3.1%) Operating

margin 5%

ROE 5%

Medium-term target

2019 CAGR(2017-2019, %)

13


SIP 2017: Improved operating income

Add to measures reviewed by the Business Restructuring Committee, the target of 2bn yenin operating income by 2019 will have to be achieved

14

53

48

84

10

1212

2624

20

19

28

▲84

Total product

valuation/disposal

loss

Implementedmeasures

Growth strategymeasures

Reductionof personnel costs due to

voluntary retirement

Reduced SG&A

expenses from

discontinuance of brands

Enhancement

of opening directly

managed stores

Strengthen corporate

brand business

EC sales expansion

Decreasegross

profit from discontinu

ance of brands

Restructuringmeasures

MD ReformWG

SG&A expense reduction

by withdrawal

from unprofitable

shops

Gross profit reduction

from withdrawal

of unprofitable

shops

Productivity improvement

of storessalesperson

Office rent reduction

Sales WG

Operational ReformWG

Existing BusinessWG

EC WG

2016Actual

2016Projec

tion(Units: 100 million

yen)

14

Profitimprovement

by MDStandardization/

advancement

Reduced valuation /disposal loss from inventory control

Reduced product costs

byproduction by supply

chain optimization


Overall SIP 2017 Measures: Restructuring reform

Since July 2016, measures drawn up by Business Restructuring Committee havetransitioned to the execution phase

List of restructuring measures Details of measures

Gross profit improvement through MD standardization/advancement

Reduce valuation/disposal loss from inventory control

Reduce production costs due to supply chain optimization

MD Reform WG

PDCA cycle advancement through company-wide MD process introduction. This expanded the proper sales ratio, and realized a reduction in the value discount rate and value

Minimize fiscal year-end inventory through monitoring consumption rates and strengthening planning and addition through the period• Target fiscal year-end inventory balance of 9 billion yen (2019)

Reduce production costs from "selection and concentration of initiatives", "expansion of current direct trade ratio from 6% to 25%", and "evening and waster efficiency of SCM"

Improve productivity of store sales personnel

Design mechanism/system to strengthen sales capabilities of sales areas

Sales WG

Withdraw from 140 and 220 shops by end of June 2017 and end of December 2017 respectively

Reduce FA personnel expense advance sales ratio to 12.5% through sales personnel arrangements commensurate with sales of each brand/sales floor

Reviewe headquarters sales manager KPI and advance PDCA mechanism to increase sales floor force

Office rent reduction

Operational Reform

WG

Review the leases of office buildings under contract, and reduce rent and incidental costs

Reform how employees work• Introduction of flex-work, and free-address• Promotion of business reforms through surveys of all

employees etc.

Reinforce current organization• Flattening of organization, clarification of authority and

responsibilities• Changes to organizational structure to reflect growth strategies

Improve profits by 2019

(100 million yen)

8

8

4

10

-

4

-

-

-

15

Withdrawal from unprofitable shops


Plan to detail further growth measures through future review

List of growth strategy measures

Enhance direct management

Strengthen corporate brand business

Expansion of EC salesEC WG

Existing business

WG

• Target of 15 store openings by 2019 focused in urban commercial facilities (expected of investment 500-600m yen)

• Improve production systems in connection with MD reform WG

• Enhance store management capacity including digital use

• Develop specialty store wholesale, directly managed stores, and new overseas markets

• Expand product lineup centered on coats• Strengthen creation and marketing

• Expand EC sales from 4.2bn yen in 2016 to 8bn yen in 2019– Increase goods available only through EC– Strengthen iStore functions (recommendations, settlement

etc.)– Strengthen website by brand, etc.

Develop new sales channels

Develop new customers

Direction ofadditional

growth measures

Develop a factory brand "customer direct sales businesses" including EC, utilizing our world leading technologies. Also look at cultivating overseas markets

Widely seek out "new things" and "valuable things" based in fashion, and cultivate consumers in their late 20s to 30s

Develop unique new products and services in wide areas centered on ethical, organic and eco-friendly fields, and provide a platform for businesses in these fields (also consider collaboration, business tie-ups, M&A)

Develop and provide new products, services and businesses

SIP 2017 Overall Measures: Growth strategies

Specify through reviews of

each business dept. and WG

5

14

3

Details of measuresImprove profits by 2019(100 million yen)

16


Major Measures of SIP 2017


Major Measures(1) Improve GM through MD standardization/advancementRealize 50% gross margin rate in 2019 through MD standardization/advancement and supplychain optimization

Increase sell-through rate at manufacturers recommended retail price and improve discount rate

Improve sell-through rate• Reduce inventory

valuation losses and loss on abandonment of inventories

Reduce product costs

Improve gross margin rate to realize 50% in

2019(+4% vs 2017)

Standardize and raise

sophistica-tion of

merchandi-sing

Supply chain

optimization

Rationalize price line

Segmentalize seasonal merchandising

Category and subcategory standardization/category composition optimization

Expand direct trade ratio/review trading policy

Redefine production processes for each product grade

Eliminate waste and unevenness in the supply chain

Increase mid-term additional purchase ratio

Introduce product number design logic from a store perspective

Work out merchandising for each store type

Introduce a sales period and order quantity design logic for each product type

Monitoring sell-through rateInventoryControl

18


Recognizing customer and market trends, shift from planned production to seasonal MD,quantity planning and additional purchase during the season for all brands

Segmentalize seasonal merchandising

Jan–Jun Jul–Dec

Jan–FebMar–Apr May-Jun Jul–Aug Sep–Oct Nov-Dec

Spring and Summer Autumn and Winter

Winter andSpring

(Markdown period)

Spring and Summer

Summer Summer and Autumn

(Markdown period)

Autumn and Winter

Winter

Past

Future

80

60

10

30

10 100Past

Future

Initial During seasonSurplus

90

Refine purchase quantities and quantity planning• Set SKU1 needed for standard stores for each

brand, to prevent excess SKU• Set sales periods by type for standard, sell-through

and promotional types, to prevent excess quantity• Introduce MD format company-wide and advance

PDCA

Increase mid-season additional purchase ratio• Suppress initial purchases, and increase repeat

purchase of sell-through items during the period to improve sell-through rates and control inventory

Change purchase composition through MD reform(Ratio image: %)

Expected effect

Subdivide MD cycle into 6 seasons, and adjust initial weight deviation of purchases• Set a 2-month planning cycle, to

improve achievement reviews and planning accuracy

• Change planning cycle to Mar-Aug/Sept-Feb to more easily handle consumption cycle

1. Size Keeping Units: Min. stock management unit (to size and color)

Increase mid-season additional purchase

ratio

Introduce product number design logic

from a store perspective

Introduce a sales period and order quantity

design logic for each product type

Work out merchandising for each store

type

19

Major Measures(1) Improve GM through MD standardization/advancement


Major Measures(2) Expand EC salesEnhance iStore and brand site functions, and focus on expanding EC products to expectgrowth of 24% p.a.Improve corporate margins by expanding high-margin EC

EC sales growth plan(2016-2019, Sales: 100million yen)

Major measures for EC sales expansion

2018 201920172016

40

1242

31

11

CAGR:24%

SanyoShokai’sEC

External EC mall

80

55

2565

45

2052

Expansion of personalization

functions

Provide recommendations and online services through customer behavior analysis

Enhance the settlement function

Improvement of withdrawal rates on payment screen, and simplification of membership registration

iStore improvement Re-design iStore, including UI1/UX2

improvement

Enhanced brand sites for major brands

Independent major brand sites, including Mackintosh philosophy

Expand external EC Begin deal with new EC mall, and add brands/products to existing malls

Expand EC-only products/brands

Expand purchase of EC-only products, and commit to the EC growth of each brand

Enhance royalty services

Introduce site re-design and specialized applications to Sanyo Membership

1. User Interface: Representation and operation including screen display, windows, menu wording etc.2. User Experience: Customer experience through the use of the service

20


Major Measures(3) Enhance corporate brand businesses

Corporate Brand business growth plan(2016-2019, Sales: 100 million yen)

Major measures towards the growth of the core coat business

Expand products and channels of Corporate Brand business, particularly coats as ourorigin, for planned sales of 2.5bn yen by 2019

25

2018

21

2017 2019

12

2016

7

New channel

development

Development of specialty shop wholesale/urban commercial facilities/overseas deployment• Expand product line for new sales channels

while maintaining elements to protect Sanyo coats. Strengthen select shop and EC/mail order sales

Collaborate with

external personnel

Develop new outerwear items, centered on coats, and collaborate with material manufacturers, and actively collaborate with media and sales channels

Enhance marketing

Strengthen online marketing• Re-design brand sites• Enhance content, making the appeal to the

technical strengths of our factories

New channel development

Collaborate with external

personnel

Channel development

Expand product lineup

2017-2018Expand wholesale to specialty stores and overseas, including select shops

From 2018• Material development• Expansion of design

variation

21


Major Measures(4) Design a mechanism/system to strengthen sales capabilities of shops

Improve PDCA and customer services at shops in department storesImprove sales capabilities through establishing customer analysis expertise at directlyoperated stores

Details of measures Expected effect

Shops in depart-ment

stores

Directly operated

stores

• Advancement and standardization of PDCA cycle through monthly and weekly sales manager training

• Implement pilot in Mackintosh London, and expand to other brands from second half of 2017 Further improve in-store customer

service quality, and target +10% of average retail sales of in second half of 2017

Plan and execute based on analysis of customer purchase behavior

Improve capacity of sales managers/FA to verify

assumptions

Standardize black box processes (weekly and monthly sales, KPI management), and promote comparative analysis between brands and the horizontal expansion of best practices

Standardization of assumption verification process and horizontal

development of best practices

• Visualize the purchasing process in real stores, with their sensory experience using AI, and conduct quantitative analysis, leading to the implementation of measures

• Implement pilot in Mackintosh Philosophy at directly operated stores, and expand to direct sales brands, Crestbridge and Loveless, in future

Improve existing store sales rooted in continuous improvements of store management, VMD and product development

Target shop

22


Aggregate and deploy new content from other companies through our EC platform• Find customers through Sanyo

Membership

Provision of platforms

• Make the appeal of the high quality manufacturing in our factories

• Collaborate with major overseas EC players

Cultivate overseas markets

Offer "earth-friendly fashion" under our investment in "Skin Aware"

Brand and product development based on ethical, organic and eco-friendly concepts

"Skin Aware"

Direction of additional growth measures

23

• Expand direct sales business by building supply chains which connect factories with consumers

• Development of EC utilization and urban commercial facilities (to be opened in 2018)

Development of direct sales business

Cultivate customers broadly seeking "freshness" and "value" with a focus on fashion• Target customers seeking high quality real

clothing/daily necessities for everyday life, not the "specialties" that manufacturers think

Acquire customers in their late 20s and 30s

Realize new supply chains

by fusing “inheritance"

and "innovation"

Provide new products and services to new sales channels and customers, aiming for furthergrowth with a view to collaborations, business alliances and M&A etc. with other companies


Strengthen governance and finance/capital policy


Corporate governance

Further strengthen governance structure towards the steady implementation ofSIP 2017

Strengthen governance

Improve external ratio of Board of Directors1

Reduce term of directors (from 2 years to 1)3

Establish voluntary Nominating Committee2

Abolition of anti-takeover measures4

• Ensure procedural objectivity and transparency in nominating directors etc.

Chairman Outside Director

Committee members

Outside DirectorRepresentative Director, President and CEO

• Pursue greater shareholder perspective in management by shareholders’ evaluating the current management team at general shareholders meeting every year

• Fully work on SIP 2017, to reaffirm our commitment to the improvement of corporate value as contributing to the common interests of shareholders

Outside Outside

• Increase the ratio of outside directors towards more objective and effective discussions

25

Outside director ratio: 37.5% Outside director ratio: 42.9%


Financing/capital policy

26

Investment policy

Practice disciplined investment to achieve medium to long-term target of a ROE of 5%• Carefully assess investment efficiency and actively invest in opportunities towards

the inorganic growth of direct sales business, EC and M&A, etc., as growth policy• After investments are made, monitor continuously and develop a mechanism to

analyze investment effect

• Maintain a stable dividend of 4 yen per shareReturn to shareholders

Concepts of capital allocation

Basic financial strategy concepts

Emphasize asset efficiency and financial stability towards the improvement of medium to long-term corporate value, taking into consideration the balancing of

shareholder returns and flexible capital policy


This material was created to provide information related to the finances, business, etc., of SANYO SHOKAI LTD. and its affiliatedcompanies; it is not a full declaration or guarantee and was not created to solicit investments. Decisions regarding investing in theCompany should be based on one's own judgment, not the information provided in this material.

In addition to historical results, this material includes the Company's outlook for the future, and the outlook may change on accountof various social and economic developments. The Company bears no responsibility for losses incurred on account of the use ofinformation provided in this material.

As for the outlook included in this material, the Company is not obligated to revise it according to new information and futuredevelopments and to announce any revisions.

This material does not include all the information the Company discloses to entities such as securities exchanges and may useexpressions different than those used in disclosure material. Information in this material may be deleted or changed withoutnotification.

The Company has carefully prepared this material, and regardless of the reason, the Company bears no responsibility for incorrectinformation, troubles due to altered or downloaded information by third parties, etc.

Disclaimer

27


<Inquiries regarding this material>Yuzuru ItoGeneral ManagerCorporate Management Head QuarterTel: 03-6380-5421

new business plan - sanyo 株式会社三陽商会€¦ · sources: yano research institute,...

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