It is now time to start the full year financial results and Q&A session of ZOZO for fiscal year 2021 ending in March of 2022. My name is Kobayashi. I will be the Emcee today. We have Sawada and Yanagisawa that presented in the announcement session. We also have with us Executive Director and COO Fuminori Hirose with us as well. We plan to finish at 6:20 P.M. today. If you have questions, please raise your hand. When we appoint you, please tell us your name, the company you belong to, followed by the question. Kawano-sama, the floor is yours.
Hello. Did you hear me?
Yes. Loud and clear.
Hello, Kawano from Goldman Sachs. Nice to meet you again. I do have a few questions. I am going to state the questions first. The first question is that for this fiscal year as well, PayPay Mall and ZOZO achieved 10% growth. You will achieve 10% growth for ZOZO and PayPay Mall. That is your plan for this ongoing fiscal year, FY 2022, but it seems like the margin is a little weak.
Yanagisawa-san, you also mentioned that the SG&A pressure is going to be a little bit stronger. Please walk me through the reasons for the decline of the profit we are planning for this fiscal year. That is my first question. From Sawada-san, we heard that even when the traffic recovers, the momentum will be strong. I believe that has been a consistent message from you. You have shown the inventory from brands and the merchandise. This time, you showed us the survey result. Would you say that for FY 2022, would you say that the growth rate of more than 10% is going to be feasible because people are coming back and maybe they will start to enjoy fashion more as they come to see more people?
My next question is about the cosmetics. Thank you very much for providing us the specific numbers around it this time. For this fourth quarter, you implemented active advertisement activities, but I believe that the awareness remains to be a little bit weak still. What are the challenges you see for cosmetic category? In order for you to achieve JPY 10 billion in GMV for cosmetics. You mentioned before that you would eventually like to reach to JPY 10 billion, but you just today mentioned that you want to achieve JPY 10 billion this fiscal year. It seems like the confidence level has gone up, and I would like to ask why that was the case.
All right. Thank you. I would like to answer those questions. First of all, 10% growth rate is our plan, but the margin seems weak. I may be just echoing what Yanagisawa mentioned, but there are several factors here. One is about the logistics. Next year, we will set up a new logistic base that is going to be very big. The equipment and the personnel, the staff to work in that big base, we need to prepare for that. Another one is that before these bases come into place, we believe that the fulfillment is going to be rather big because the fulfillment process is going to be rather complex before this logistic base comes into place. Another thing is the work efficiency problem that I can mention.
Another one is the CapEx. I believe that there are different types of capital investment, but in the back end, we have been upgrading our infrastructure systems. This is for this is to implement more robust operation in the future, so we need to upgrade all systems, and we cannot replace them overnight, all of them at the same time. There is going to be redundancy. But we need to implement this for sure, so that system pressure is going to be greater.
Last year, we also invested in capital investment, but we would like to have the same level of capital investment for this fiscal year as well. This will work to weaken the margin slightly. The 10% operating profit against GMV, this is something that we would like to sustain. I believe that this is going to be a significant point that we focus on for this fiscal year.
To answer your second question, more than 10% GMV growth, is this feasible or not? If you look at the overall industry, one thing that I can mention about the overall industry is that there are brands that do not have physical stores, and they are thriving on our platform. They are showcasing a new way to sell apparel, and if they continue to grow, I believe that can be a significant change we see in the whole industry, which will have an impact. There is the PayPay ecosystem that is bound to expand further. President Nakayama of PayPay just answered to an interview, and there was an article of that that came up today. We believe that we can also benefit from that momentum as well.
Of course, that will be decided by Z Holdings and not us, so we cannot talk in detail about what they do. But if that proves to be fruitful, then there is a chance that we do better than 10%. Regarding cosmetics, you are right. I have been able to have a good outlook on this. I have been able to have positive signs of that. When it comes to EC business, you need to have repeaters, and we are starting to see signs of people coming back and using the service again. The brands, when they can gain a certain outlook on the size of the sales, then they will start to show even more interest in being on our platform. So that is something that I see as good news.
Thank you. So about the first question, you talked about the cost, logistic cost, system cost, and also promotions. The order that you mentioned them, would you say that that was the order of how impactful they will be?
Maybe not necessarily. They will have pretty much a similar level of impact.
I see. Similar level. Got it.
Thank you for your questions. Next.
Hello, Kanamori from Nikko Securities. Hello. Three questions. I wanted to check with you about the SG&A. You mentioned that you are going to step on the gas for promotions. I believe that in the second half of this year, you really stepped on the gas, but it was not the case for the first half. Would you say that for the next fiscal year, you will step on the gas for both the first half and the second half? Or are you saying that the promotion cost ratio is going to be similar to what you had for the full year this year?
Regarding recruitment, I believe that in previous meetings, you mentioned that you want to focus on the recruitment of engineers as well. I would like to talk a little bit more about SG&A with you. Should I move on to my second question?
Yes.
How do you see advertisement business revenue for the next year? If you want to continue to have strong momentum there, do you have in plans new products? My third question is about the GMV growth of PayPay Mall. If my calculation is right, I believe that you grew by 2% or so in the fourth quarter. The hurdle was high because it was 29% in the plan. In the fourth quarter, would you say that the fourth quarter growth rate is about 29% without PayPay Mall?
Would you say that it is a little lower than that without PayPay Mall, and for this fiscal year, we are planning on growing that further than 29%? I want to understand the meaning behind this 29%.
Thank you for your questions. To answer the first question, I would like to do that. The second question, Yanagisawa-san will take it. Then the third question will be taken up by Hirose-san. About how to invest in promotions, there is nothing fixed. There is no fixed policy that we will step on the gas in the first or the second half. It is going to be monthly decisions, actually. For promotions, we want to be agile in the decision making. Let us say that for this Golden Week vacation period, there could be more people coming out from their homes. When that happens, our sales is likely to come down.
That means maybe we can refrain from doing too much advertisement during Golden Week, but do more of that after the Golden Week, because it is meaningful more that way. We do not have an overall policy like that. It is more concrete, and it is more specific by month. Recruitment of engineers, the system cost, and a big chunk of that is coming from the engineer costs, the payroll, and the recruitment cost in relation to engineers is going to play a big role here.
The second question. About our advertising business. Correction, about advertising cost. We are looking at 3.5% of GMV incurred for advertising, which is a little bit higher than other fiscal years.
Okay, third question. This is about PayPay Mall GMV. You are right. In the previous fourth quarter, the hurdle was set high. For this fiscal year, in the 29% growth, of course, there is going to be fluctuations by month. We will have collaborations with PayPay Mall, Yahoo Japan. There is no significant fluctuations every quarter.
Maybe I did not ask the question right. I want to rephrase my question once again. For promotion-related costs, Yanagisawa-san mentioned that it is going to be 3.5%, and I believe that this is inclusive of personalized discount. What was the actual from the last year's fiscal year? Is it going to be greater for the first or the second half?
For this ongoing fiscal year, we are looking at a similar level. I am sorry, I cannot disclose specific numbers, but on an annual base, we are aiming for something a little bit lower than 3.5%. Then, the distribution between the first and the second, I am afraid we do not disclose that. But on an annual base, it's about the similar level. Yes, I'd say so.
My second question was about the advertising business revenue, not the advertising cost.
Oh, sorry.
What's your outlook on advertising business revenue?
Oh, apologies for that.
I'll answer that. Advertising business revenue. Basically, this is search ad on ZOZOTOWN. We've been seeing steady growth for advertising business, and we'd like to continue to grow. As far as the new products are concerned, right now there's what's called a PR place at the top of ZOZOTOWN screen. That place is going to be sold on a bidding base at a higher rate. We started that, as a matter of fact, at the end of March this year. We're monitoring how much that's going to contribute. It's not a major contribution we expect from it, but that's what we're monitoring.
Thank you. The advertising business for the fourth quarter grew by 35%. This may slow down a bit, but you're planning on having 20%-25% advertising business. Is that the type of potential you see from advertising business?
Yes. We have quite a lot of inventory from the brands, so it's a question of how much of that we can showcase in those advertising places, in advertising slots.
Okay. Thank you. Kazahaya-san?
Kazahaya here. Hello. I'd like to ask a few questions. First, this is to confirm the sales of ZOZOCOSME. It was JPY 5.7 billion for 12 months. Am I right? As far as the timing of achieving JPY 10 billion is concerned, would you say specifically that you are targeting to achieve this within this fiscal year?
Going on to the second question, in your presentation, Sawada-san, you talked about top of mind awareness. How do you position yourself against other players? When you conduct this top of mind survey, where do you see the potential? Which specific segment? Which specific category? Which specific profile?
My third question is, you talked about collaboration with physical stores. Maybe I don't understand the information here quite well. I couldn't really understand this 1.1x and 1.3x quite well. If you can kindly provide me some explanation on that. Another one is that the CapEx is targeted to be JPY 10 billion. What are your future plans for your capital investment going forward?
Thank you for your questions. The fourth should be answered by Yanagisawa-san. I'll answer the first three. About COSME , as you mentioned, Kazahaya-san, JPY 5.7 billion is the annual result, and JPY 10 billion is what we'd like to achieve by the end of this fiscal year. About the top of mind, I'm sorry, I cannot give you details about this, but there are companies that have physical stores, so we compare ourselves against them as well. Within pure EC players, we are at the top. When you think of our competitors, of course, these malls will show up as our competitors, but we have our strength as a pure EC player, so we have a superior position against them.
There's physical stores, real stores. If you include them, then of course, there's still some areas that we're running short of. We'd like to compete and also be at the par level as those physical stores as well. Kazahaya-san, I am sure you can easily imagine what those competitors are, those players that we are looking at are. I am sorry about that 1.1x and 1.3x . Maybe the explanation was a little bit insufficient. We do A/B test. When we conduct A/B test, we select similar customers, and by that I mean how much time they spent with us as a member and how many visits they have made to our platform recently, their geography.
We select A and B that are similar when we conduct A/B test. We selected one user A that did use the layaway service, and we compare that A person to B person who did not use the layaway service. Did that make sense?
Yes, I was able to understand that. Thank you.
Okay. I would like to talk about the capital investment, which was your fourth question. For this fiscal year, we are, as you mentioned, looking at JPY 10 billion worth of capital investment. In February of 2023, a new logistic base is going to be in operation that is called Ibaraki 4. As we mentioned in the previous session, we would like to automate a great deal of what is inside this logistic base. In order to have this up and running, we need to invest about JPY 10 billion. Out of that, we are making investment of about JPY 6.5 billion for that base. For the year to follow, it is probably going to be about JPY 5 billion worth of additional capital investment.
After that, we are forecasting to have about JPY 1 billion to JPY 2 billion capital investment after those years.
I see. That makes sense. It does not mean that the capital investment is going to suddenly skyrocket from this year and continue to be at the high level. Am I right?
Right. It would not be that way.
Thank you. That is it from my side.
Thank you. Murata-san.
Hello. Do you hear me?
Yes.
Thank you very much for your elaborate explanation. This is Murata from JP Morgan. Three additional questions from my side. First, is about B2B business. United Arrows has left, and with this year's plan, there is going to be a decline coming from the impact of United Arrows leaving. It seems like others are not forecasted to grow, but it seems like this has a good traction. I believe that the B2B business itself has quite a lot of traction from other brands. How do you look at that? UA has left, but I thought that maybe other brands will be able to offset that impact.
My second question is about the work efficiency of the logistics. In FY 2023, that is going to have an impact, but that is going to be up and running in FY 2023. If the operation increases, I believe that the load or the pressure is going to be weaker. When do you think will be the inflection point? Would you say that it is going to be a little bit better off once this logistic basis comes into operation?
My third question is about system-related costs. I do believe that this is something that you must invest in, but in the next fiscal year and in the medium term, how do you see this? Is it going to be a little bit heavier for this particular fiscal year? Would it be lighter in fiscal year 2023? Would you be able to kindly elaborate on this point as well?
Alright. I will answer all of them. Regarding B2B business, United Arrows has left and the impact of that, in all honesty, is great. We have known for quite some time that they were leaving and this B2B support to United Arrows, we supported the design of the website as well. From an early stage, they decided to shrink this, and we have decided to shrink this. We reached out to them and mentioned that we wanted to shrink the level of service that we had been offering to them, and we gave them time to prepare so that they can start to do this on their own. What we do for B2B is basically the support of the distribution.
The front website will be created freely by the brands, but in the back end, the fulfillment system will be created by us. That is the type of service that we offer under B2B business. It is quite difficult to just simply shift the entire distribution system to another company. If you ask us whether we have already found a brand that will be able to offset such a great size of negative impact coming from United Arrows, that is not the case yet. For the logistic efficiency, we will peak out at the end of the year because autumn and winter items are going to be heavy and they are bulky. It will peak sometime in December when we start to receive sales items. This is something that we can anticipate.
We are going to make effort as much as possible to raise the efficiency of that. Cost-wise, I believe that that will be the peak time as well. We would like to overcome that timing, and six months later, a new warehouse will be in operation. Once that warehouse is going to be in operation, we do not forecast to have a major problem. To answer your next question, it is rather complex because when it comes to system creation, there are existing businesses that we need to address, and there are also areas that we need to invest in. There is some redundancy between the two. That is one of the reasons why the cost will increase. We need to continue to hire people, hire staff. At the same time, we need to pursue efficiency.
In conclusion, is it going to go down or is it going to go up? It is quite difficult to answer that at this stage. Please forgive us for being rather ambiguous.
Just to add to my question. B2B business, so there is a need to run their own e-commerce site. There is a potential traction. Is it correct to think that way? You are saying that the amount will go down because you have not found a brand that is the equivalent size as United Arrows. Right now we are targeting mid-size players, and we are able to acquire about several a year. I think that is in correlation with the capacity of the distribution. Are you saying that you are not proactively promoting this?
For mid-size players, we try to have a long-term relationship. Small to medium-sized businesses, sometimes we need to kindly decline their offer.
Okay. Would you say that when the warehouse comes in operation in FY 2024, was it? No, 2023?
Yes, 2023.
The efficiency is going to be a bit low. When you say ratio, what do you mean? So logistic cost against total GMV. Would the ratio be higher?
I think so, yes. I think you can put it that way.
All right. Thank you.
Thank you for your question. It is already past 6:20 P.M. If you have no further questions, we would like to close this session.
All right. Thank you very much for joining us for this Q&A session.