■Company overview of Joshin Denki <8173>

(2) Revenue by Product Category

Looking at the revenue ratio of each product category for the company's second quarter of the fiscal year ending March 2025, video and audio equipment such as televisions and audio devices account for 9.2%, home appliances focusing mainly on white goods such as air conditioners and refrigerators amount to 43.3%, information and communication equipment such as PCs, peripheral devices, and smartphones constitute 22.5%, while other products make up 25.1%. Notably, the largest segment within the 'others' category consists of gaming, models, toys, and musical instruments, which is different from other home electronics retailers and worth paying attention to. Despite the difficulty in expecting significant long-term growth in the home appliance market due to factors like population decline, companies are moving away from being solely "home appliance retailers". For example, Yamada Holdings, the largest player, has expanded its range to include furniture and the housing market, while Edion <2730> has entered into a capital and operational alliance with Nitori Holdings <9843>, selling Nitori's furniture and interior products in Edion's stores. While competitors advance business strategies that focus on everyday life sectors like "home appliances and housing" or "home appliances and furniture" which have synergy, the company is also actively engaged in non-home electronics areas such as renovation and entertainment for the long term. Regarding the entertainment sector, the flagship store in Nipponbashi, Osaka, not only has a section for selling smartphones and digital home appliances near the entrance, but also features toy displays, game consoles, and board games. The 'Super Kids Land' is Japan's largest specialized store for models offering plastic models like Gundam, railroad models, and die-cast cars, alongside specialized sales personnel for models. In addition, by visiting the company's internet shop, customers can find any game they desire for their gaming consoles, leading to increased consumer awareness. Despite the decline in the younger population, the domestic toy market has been expanding in recent years, largely due to the rapid growth in the game card and trading card market. The company also deals with trading cards, which have become one of the main products in the entertainment sector following gaming consoles.

At our company, we consider strengthening the handling of products in the entertainment sector and bold store operations like those in Nipponbashi, Osaka, which are not found in other home electronics retailers, to be highly significant from the perspective of creating customer loyalty. In a conventional business model where 'simply purchasing and selling home appliances' easily leads to price competition with e-commerce, making differentiation challenging, focusing on creating product displays in the entertainment sector alongside home appliances can stimulate customer visits and lead to the long-term improvement of customer loyalty through a variety of local events, including experiential activities. Additionally, by establishing a robust after-sales service system not easily imitated by other home electronics retailers, it becomes possible to create added value as an intangible asset. However, currently, our company's entertainment customers find it difficult to connect with home appliance sales. In the future, we hope to establish mechanisms to guide entertainment sector fans of our company to home appliance sales, and openly disclose the progress and targets as KPIs.

(3) Revenue by Prefecture and Store Expansion Strategy

Looking at the revenue ratio by prefecture for the fiscal year ending March 2024, the company's headquarters in Osaka Prefecture accounts for 43.4%, followed by Hyogo Prefecture at 13.9%, Aichi Prefecture at 6.1%, Nara Prefecture at 5.3%, and Kyoto Prefecture at 4.8%. Shiga Prefecture is at 3.8% and Wakayama Prefecture at 3.1%, with 6 out of the top 7 prefectures dominated by the Kansai region, except for Aichi Prefecture. In terms of directly operated stores, Osaka Prefecture leads with 54 stores, followed by 37 stores in Hyogo Prefecture, 15 in Aichi Prefecture, and 12 each in Nara, Kyoto, and Shiga Prefectures. On the other hand, in the Tokyo metropolitan area, Saitama Prefecture's revenue ratio is 2.5%, Chiba Prefecture at 1.8%, and Tokyo at 0.8%, relatively smaller. The number of directly operated stores remains at 5 in Saitama Prefecture, 5 in Chiba Prefecture, and 3 in Tokyo. The company considers the Kansai, Tokai, Kanto, and Hokuriku-Shinetsu areas as key regions, and has been promoting a dominant strategy. Unlike expanding the number of stores through new openings, the dominant strategy aims to enhance the sales performance per store, including scrapping and rebuilding existing stores, and maximizing the synergy between the EC business and service infrastructure to create an economic zone. Ranking 7th in the industry, the company holds approximately 5% market share domestically, with around 20% share in the largest revenue area of Kansai. Moving forward, besides the potential for further market share growth in the Kansai region, the company is prepared to expand their share in other regions from a medium to long-term perspective.

* Includes revenue from sources other than in-store sales.

Reviewing the store opening situation of various companies in recent years, national retailers like Yamada Holdings and K's Holdings, specialized regional companies like ours, and major players like Yodobashi Camera, Bic Camera, Edion, and Nojima <7419>, all show a gradual increase in the number of directly operated stores. The compound growth rate of the total number of stores of the 8 home electronics retailers also hovers around an average annual growth rate of about 0.9%. Businesses located in central areas near train stations, catering primarily to office-workers seeking information appliances, have been facing stagnant demand, leading them to target family-oriented customers by opening stores in the suburbs. Conversely, companies primarily situated along suburban main roads, due to a decrease in prime suburban locations, have been expanding into central areas, resulting in an oversupply situation. As a consequence, compared to the past period of aggressive store competition, home electronics retailers are now restraining new store openings and focusing on a 'scrapping and building' approach to store expansion.

On the other hand, while most of the company's operations are conducted through directly operated stores, the number of directly operated stores has been decreasing by two stores every term since the fiscal year ending March 2022. Amidst a declining population, expanding the number of stores blindly would ultimately result in a drop in customer service quality if employees cannot be secured, making it difficult to ensure returns on the capital investment. On the other hand, the actual in-store revenue per directly operated store (excluding e-commerce revenue) has been on a gradual expansion trend, except for the demand surge for white goods appliances during the Covid-19 pandemic in the fiscal year ending March 2021. This is believed to be the result of focusing on strengthening service quality in existing stores rather than pursuing unrealistic store expansion strategies. The company aims to achieve an increase in revenue with improved quality, under the slogan of "fan base strategy," by enhancing customer loyalty in the future, shifting from increasing sales volume through small margins to revenue growth accompanied by an improvement in quality. However, considering that the company places more emphasis on increasing profitability per store than blindly accelerating new store openings, and taking into account the consecutive price increases by manufacturers due to inflation, the decline of 2.9% in revenue per store in the first half of the fiscal year ending March 2025 appears insufficient.

(Author: Hiroki Nagao, FISCO guest analyst)