It is time, so we would like to begin ZOZO's FY 2022 Third Quarter Q&A Session for Institutional Investors. I am Kobayashi, and I will be the moderator for today's Q&A session. Sawada, Yanagisawa, as well as the Director and COO, Hirose Fuminori, will be also taking part in this Q&A session. If you should have any questions, please use the Raise Your Hand button at the bottom, and please state your name and company before asking your questions. Thank you.
Mr. Sato, please go ahead. Mr. Sato?
This is Jefferies, Sato. Sorry, I am the first one up. I have three questions. First of all, congratulations on a great quarter. I think in the third quarter you saw a lot of profits, but at the same time, the promotions and the GMV percentage was more than 5%, so you were using some funds as well. The OP, is this because the GMV was growing at 12% or 13%, but also you had a slide on the promotional cost and also SG&A as well. It is a lot of the OP, due to cost savings outside of the GMV. I have not been really able to analyze all of the figures yet, but I just wanted to know what contributed to the larger OP.
I will respond to your questions. As you mentioned, the largest cost saving item was the shipping. Logistics, it is doing well in various different aspects. Internal operational costs have gone down and also external factors, higher retail prices.
The shipping against our sales has come down as well, so those contributed significantly. These conditions, do you foresee them to continue until in the fourth quarter as well as the first half of next fiscal year? The logistics centers, do we have any cost rise in the logistics centers for the fourth quarter?
In terms of the upfront investment, this fall, we will be opening up a new logistics center in Tsukuba. We need to start training staff and then implement machinery as well. Those costs, we will start to incur. That is basically in the first and second half, the first half of the year. Next fiscal year, right?
Yes, as you mentioned, this fiscal year, we should not see major cost increases pertaining to the logistics centers. The advertising cost. Advertising spend was about 5% or so. I forgot what page it was. I think it was on page 22. The actual promotion related expenses against the GMV.
Yanagisawa mentioned that you will be spending more on promotions, so the annual spend will be higher probably than 3.5%. In the fourth quarter as well, it might not be as high as the third quarter this fiscal year, but do you foresee spending about 5% of the GMV for promotions in the fourth quarter as well?
Yes. We cannot mention the actual figures, the specific figures. However, the fourth quarter for us is a quarter where we start investing and planning for the next fiscal year. In terms of promotions, it is a timing that we usually accelerate our efforts. We will use a certain level of promotional cost. This is not something that is transient. We will be investing in promotions that will, in the future, contribute to the lifetime value of our consumers. In the fourth quarter, would it be higher than the third quarter? We cannot get into specifics, unfortunately. But last year in 3Q and 4Q, if you can use that as reference, it might be similar. We are opening certain levels in the fourth quarter[audio distortion].
I have two minor questions. When we look at year-on-year, the costs are coming up. Next year, how will it trend?
With respect to the championship? Yanagisawa will explain.
I will. Once I am on camera, I will respond. This too, it is very difficult to get into specifics, but also explain itself. My Dear fragrance, a lot of different name brands are joining, so it is doing well.
That was very clear. Thank you very much.
Sato-san, thank you very much for your question. Kawano-san, please go ahead.
This is Kawano, can you hear me?
Yes.
Thank you very much. Happy New Year as well. First of all, I want to ask a question, but the big picture, the GMV, is growing around 10%. That has been the trend over the last couple of quarters, and we believe that you are growing faster than before. Is there any qualitative changes to the GMV growth? Sawada-san, have you felt any qualitative changes? Qualitative is fine, but you can give any color as to what is actually happening. That is the first question. Thank you.
Fortunately, together with Yahoo! Shopping, we have been able to grow the GMV in double digits. But what we initially thought was that because we are quite sizable, we are quite large scale now, and in terms of LTV, there are fewer customers that we can contribute to. Going forward, we thought that we would be reaching out to less cash and conscious people, but we are looking at different KPIs, so we have not seen that happen yet.
As I mentioned from before, maybe COVID was a tailwind, but people have started to buy online, during COVID, and I think they ended up liking our service and they are sticking to our service. We are continuing to see great traction among the customers. Looking at different figures, we have been seeing a great trend. Next fiscal year onward, however, we would like to talk about this when we announce the forecast for next fiscal year. But for now, that is all I could say.
Inventory from the brands, the allocation. Rather than the inventory allocation from the brands, is it you have more new users utilizing your service even though you have quite a sizable active member? So you are still seeing quite a strong demand, even among new customers.
Yes, that is right. Also, the brands are providing inventory to us. But whether which should come first, supply or demand, I think demand needs to come first. We have customers coming to our platform on a daily basis, and we can generate a certain level of GMV sales. So that is why brands are confident in providing us with inventory.
I understood very well. The second question is quite maybe related, but Z Holdings. PayPay Mall became Yahoo! Shopping, and we were a bit worried, but when we look at the holistic picture, you are growing strongly. It feels like, even if you were giving away less points or doing less promotions, the situation is still healthy. But is that something that we don't need to really worry about? How should we think about the impact from Yahoo! Shopping's promotions?
With respect to Yahoo! Shopping, I think if you look at the numbers, it is slowing down a little bit. We were growing at a strong, high pace, but it's starting to settle down, so that's a fact. On the other hand, ZOZOTOWN is doing well and supplementing for that. Sometimes it was the other way around. Back then it was PayPay Mall, but Yahoo! was doing a lot of promotions, and ZOZOTOWN was maybe underperforming a little bit in comparison to forecasts, but PayPay Mall supplemented for that. But the reverse is happening now. ZOZOTOWN is covering for any shortcomings on the Yahoo! Shopping side. But holistically, we are growing.
Thank you very much. The third question is maybe a question for Yanagisawa-san, but you mentioned earlier that the AOV is coming up and your efforts as well, the last 1 mi, the shipping cost is becoming more efficient. But I think we were seeing that trend in the first half as well. But the other expenses to change, it seemed like you made improvements in the other SG&A. But what other improvements have you made in terms of SG&A as well?[audio distortion].
Probably it changes by quarter as well, and next fiscal year, some costs may go up and there might be foreign exchange pressures as well, so it's hard to say. So maybe it's just a quarterly trend that we're seeing on the long term.
Understood. Thank you very much.
Thank you very much for your question. Next. Murata-san, please raise your hand. Sorry, please ask your question.
Can you hear me?
Yes.
Thank you very much. JP Morgan, Murata. Thank you very much for your detailed explanation. I have three questions as well. First question, it's not really a question. You revised the forecast, so I just wanted to double-check on the new forecast. The GMV, you haven't changed that, but that means that the 4Q will be quite low. Is it correct to assume that it might be higher than this? And the PayPay Mall is lower than the guidance in the past, and ZOZOTOWN is maybe higher than the past, and the costs are maybe improving than the past. That's why the OP is higher. Can you share with us the reasoning?
Yanagisawa will explain that part.
In principle, yes, you're correct. A little bit. But we have been I've been making the SG&A items quite cost-efficient, so those improvements contribute to the increase in OP and improvements in OP margin.
Fourth quarter as well, you mentioned that you will be spending on advertising as well, but the total GMV growth, should it be around the same as the third quarter in the fourth quarter onwards?
We will try to achieve the numbers that we have disclosed.
So your target is the numbers that you've disclosed. Understood. The same with the average order value or average retail price as well. The average retail price has been trending nicely. But on the other hand, the number of items has come down slightly. Having said that, until the third quarter, the average retail price increased more than this impact. Do you see this not as a problem, or do you think this as a challenge that you need to continue to buy?[audio distortion].
[audio distortion] Over the years, we've been tracking different KPI. But can be. [a udio distortion] As long as average value is increasing, that's fine. That's right. Going forward, we might see this kind of trend in the average retail price as well as number of items. Will people be purchasing less? But brands are charging more for their products. I think they started to do that this whole year. In the spring, summer, March or so, that's when it will be a full year since they started charging higher prices. But whether they will start charging even higher prices, we don't think that's realistic.
Understood. The third question is maybe a small impact on your performance, but the purchase items, purchase stock, and production support. It seems like it's growing. Made by ZOZO, maybe. Do you think that's going well? That's why we're seeing the number two item growing at 150% more than before.
Hirose will explain about this one, this question.
Thank you very much for your question. In terms of our purchase and production sales, it does include different items that we're purchasing. For some of the luxury brands, we are purchasing stock. That's included here as well. Influencer brands, we are working with Tsuyoshi-san as well, but this brand is included here. Also, the Made by ZOZO sales is also included here. All of these different items are included here. I think that this is actually, a lot of contribution was from Domoto Tsuyoshi celebrity brand.
In terms of overall, it's growing. But in the third quarter, the collaboration products that you created with Domoto Tsuyoshi did well. Yes. Also, we do IP collaborations as well. Those items are included here. Various different things are included here. Yes, depending on the quarter, it does change. The contribution changes.
Thank you very much, Murata-san. David Gibson, please ask your question.
Thanks very much. Two questions. Not sure if you can answer. Have the GMV trends improved at all recently, given the cold winter that we've been having in Japan? First question. They got rid of PayPay Mall on PayPay, and they replaced it with the daily items button, which doesn't have any ZOZO products. Have you discussed having a ZOZO button on the front page of PayPay with Z Holdings? That would seem to be obviously a good move for both of you. That's my first question.
[Non-English content]
Yes. The possibility of course exists, and we are still discussing. But by having our button there, we do not think that our GMV will dramatically grow. Of course, it will contribute to our GMV growth.
Okay. Thank you. Second question. Your guidance seems to imply operating profit will decline in the fourth quarter versus last year. Do you have any one-off costs in the fourth quarter that you expect?
Nothing transient or nothing one-off cost specifically. We will be spending on promotions, as we mentioned before, to improve our LTV in the next fiscal year onwards. We will be investing in that. And also payroll as well. We want to give out year-end bonuses to our employees. So those are basically the, not special, but maybe cost items that we will probably see in the fourth quarter.
Okay. Thank you.
Thank you very much. The next, Mr. Kanamori-san, can you ask your question?
I have three questions. First one about Yahoo! Shopping GMV. In the third quarter, it significantly decreased the growth rate, but can you talk about why? Yahoo! Shopping business, can you talk about the positioning going forward? I think it was actually started to cater to customers who weren't so fashion sensitive, or they weren't interested in fashion. But you're being able to cater to those customers on ZOZOTOWN. So are you saying it's okay that Yahoo! Shopping is not doing as well as it did before? Or do you want to do something with Yahoo! Shopping going forward?
Hirose will take that question.
Thank you very much for your question. As you mentioned, yes, Yahoo! Shopping in the third quarter, compared to the first and second quarter, it grew significantly slower in the third quarter. After it merged with Yahoo! Shopping, they actually have point promotions on Sundays. But they actually changed the point reward system so that they weren't offering higher points over the weekend. They were offering the same points on weekdays as well. This during the weekend. The Yahoo! Shopping GMV going forward, it depends on what Yahoo! wants to do with its promotions.
For now, in the third quarter, we believe that it will be the same level as the third quarter and fourth quarter. January 1st, [audio distortion] I want to supplement on Yahoo. The second, so we don't have anything that worked specifically well. We did a different mix of campaigns or initiatives. For example, even when we do TV commercials, when's the best timing? What's the most cost effective or efficient timing? So we make sure that it's the optimal timing, and the mix or the balance between TV commercials and web ads. We try to make sure that we strike a great balance there as well.
We do use different media mixes. What we try to bear in mind is that we are spending these costs to get new customers. Working together with LINE is one initiative and targeting teens. We have launch promotion to reach out to the teens. What we try to focus on is new customer acquisition. For now, it's doing well. We know that the more new customers that we have, the higher the GMV grows. We bear that in mind as we undertake our promotions.
The next fiscal year onwards, you talked about the GMV. You wanted us to wait for your announcement, but with respective cost, you did mention the new logistics center and how the cost will increase. Generally speaking, payroll is increasing as well, and you wanted to hire more engineers as well, and I'm sure you're going to try to hire more engineers next fiscal year as well, but do you think that the base salary or operational staff or logistics center staff, how will the payroll trend next fiscal year?
Also, Sagawa's B2C sales has been in the news, and you don't work with Sagawa, and you already experienced a price hike from Sagawa, but bear in mind a lot of the issues that we saw in FY 2022. Do you foresee any risks and any potential cost pressures, any concerns that you may have?
Thank you very much. What we can say for now is we can't really say anything right now. We are working on the plans for next fiscal year. Of course, our partners are being cooperative. There are some cost pressures, and we want to absorb that as much as we can, but how much we can absorb is something that we're calculating at the moment. We don't have anything big on the horizon that will impact us. We want to just confirm.
In terms of logistic cost, do you think that it will go up or not because you've already experienced a hike?
It depends on outsourcing material and payroll. Those costs may go up. We can't. The amount was negotiated, but that is also included as well. There might be potential for renegotiation.
Kanamori-san, thank you very much. We are past the end of this session. We were supposed to finish a bit earlier, but we would like to have the last question from Kazahaya-san.
This is Kazahaya from Credit Suisse. I would like to ask one question or two questions. Sorry. The first question, I just wanted to confirm. Tsukuba 3, the new logistics center, is it on track? Will it be launching on schedule?
Yes. Fortunately, it is on track.
The cost as well, there's no changes?
For now, yes.
Budget as well. The second question, there were a couple questions about Yahoo! Shopping today as well, but from the president's point of view, Yahoo! Shopping, what's the issue?
I believe there are different issues, but from somebody might kill me if I answer honestly, and it's hard for me to answer that question. It's a parent company, but they're still a different entity, so we don't want to say what they're doing wrong. However, what I can say is that in terms of Yahoo! Shopping, what kind of assistance we're providing at the moment is that usability. We're trying to improve their usability. Those accounts, we have experience in usability, and it's hard to tell what's very user-friendly just by shopping on our site.
There's a lot of things that go on behind the scenes. We're telling them how they can improve their usability, how they can showcase their items. Over the last couple of years, we have provided that kind of advice. They have made improvements. Of course, there's no major drastic visible changes, but their performance is improving. It's only the fashion category that's improving. If the usability improves for other categories as well, we believe that they will be more user-friendly for their customers, and they should see an improvement in their growth.
If that's the case, in terms of the fashion category, it's not just the fashion category that needs to improve. Your security guard talked about the promotions as well, but it's not just about promotions either. There's other challenges as well.
I think so.
Even with promotions, the way you promote, there's different ways that different companies are promoting. If we can share our knowledge and find a good way, I think that will be best. Thank you very much. I understand.
Thank you very much, Kazahaya-san , for your question. That concludes our Q&A session. Thank you for joining us.