Section 2 Vision for the Don Quijote Group of the Future Don Quijote Holdings Co., Ltd. Integrated Report 2018 Challenges and Growth Opportunities

To further the Don Quijote Group on its quest to become a retailer that is chosen by customers in every era, we emphasize an understanding of the challenges and growth opportunities in our business activities. This understanding is to be gained Growth As industry leaders suffer in terms of profitability, the Don through analyses of the operating environment. The Group endeavors to fully exercise its competitiveness to seize hold of Opportunity Competitiveness in Quijote Group has the opportunity to syphon shares away from growth opportunities and develop an undisputed presence in the industry. At the same time, we remain keenly aware the GMS Industry these companies by taking advantage of the competitiveness of of the challenges that may arise in the future as we boldly tackle new challenges to create value by positioning risks as 2 its low-cost operations. business opportunities.

Success in Reforming the GMS Format Going forward, we will step up our efforts to develop Strategies for Overcoming Challenges In 2008, we began converting the stores of Nagasakiya stores that are chosen by and bring joy to customers into the MEGA Don Quijote format, successfully achiev- of a wider range of ages in order to expand our share ing stable profits while rivals in the GMS industry suf- in this industry. Aging Population and Declining Birthrate Emergence of E-Commerce Shift in Consumption from Goods to fered in terms of profitability. P.20 P.24 P.26 The aging population and declining The Group is conducting trials of Experiences birthrate indicate the unlikeliness of new services and seeking to create The Group has continued to create Sales Growth Rates by Product Category at the market expanding, and this next-generation stores that utilize time-eating stores based on its Sales Growth Rates by Retail Store Format in Don Quijote Group Stores situation is leading to accelerated IT while leveraging the strengths CV+D+A concept,. which offers . reorganization among retailers and a of brick-and-mortar stores. Our aim customers convenience (CV), . . widening gap in the performance of in these ambitious endeavors is to discounts (D), and amusement. (A). . stores. We will overcome these chal- enhance customer convenience, We constantly strive to be a retailer 6. 6. .6 .6 lenges by developing stores that can an objective we will accomplish by that is loved for providing stores that 2. 2. 2. 2. 2.0 . 2.0 . be enjoyed by customers of a wider exercising the flexibility offered by foster feelings of excitement and 0. 0. 0. 0. 0. 0. Miscellaneous Foods Home Sporting Watches and DIY 0. 0. range of ages. physical stores and realizing a state anticipation and that allow customers Drug Electronics Convenience Others Department Home household goods electrical goods and fashion products stores stores stores stores centers appliances leisure merchandise of coexistence between these stores to enjoy the act of shopping itself. goods

and e-commerce. Source: Commercial industry statistics, Ministry of Economy, Trade and Industry Year-on-year comparisons for period from July 1, 2017 to June 30, 2018 P.20 P.24 P.20 P.20 P.24 P.26 P.28

Growth Opportunity Rising Popularity of Japanese Japanese products have become synonymous with high quality while gaining a strong reputation for safety, contributing to the Products Overseas 3 rising popularity for these products overseas.

Strategies for Seizing Growth Opportunities Medium- to Long-Term Strategy Eying Full-Fledged Ratio of People Viewing Products of a Given Country as Overseas Expansion High Quality The rising popularity for and reputation for reliability Growth The government has set the target of attracting 40 million Higher Inbound Demand of Japanese products outside of Japan presents the . Opportunity non-Japanese visitors to Japan in 2020, the year of the Accompanying Increase opportunity for our overseas stores to achieve com- Olympic and Paralympic Games 2020, and this target petitiveness by providing high-quality Japanese . 2. 1 in Visitors to Japan is being pursued through a joint public–private initiative. products and safe and delicious Japanese foods at 2.6 reasonable prices. We are currently laying the ground- .2 Goal of Becoming a Leader in Catering to Number of Non-Japanese Visitors to Japan and Stores work for full-fledged overseas expansion by opening Customers from Overseas Operated by Don Quijote Co., Ltd. / Ratio of Tax-Free Sales several stores on a trial basis each year. Japanese U.S. European South Korean Chinese to Total Sales at Stores Operated by Don Quijote Co., Ltd. products products products products products The strengths of Don Quijote Group stores include its P.22 Source: Survey on image and reputation of Japanese products conducted in 14 Asian cities, Hakuhodo Incorporated locations in shopping districts, late-night operation, 0.8 illion people rich product lineups, and discount prices. In addition 26.0 22. to these inherent strengths, we also have special New Initiative Aimed at Further Growth 6.2 8. counters for tax-free sales, offer service in multiple 6.2 . The first FamilyMart produced by Don Quijote was opened in June 2018 as part of a new initia- languages, provide free Wi-Fi access, and accept tive aimed at further growth advanced through collaboration with FamilyMart UNY Holdings . various payment methods. These conveniences Co., Ltd. In this initiative, three FamilyMart stores located in Tokyo were converted to this new culminate into a stress-free shopping environment for .0 2. .2 .8 illion people format, which offers a wider array of products and features unique display and pricing mea- non-Japanese visitors to Japan. FY2015 FY2016 FY2017 FY2018 sures that generate synergies between the two companies. As a result, these stores have been Visitors to Japan Visitors to stores operated by Don Quijote Co., Ltd. Ratio of tax-free sales enjoying substantially higher sales and customer numbers since being converted. P.22 Source: Japan National Tourism Organization

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