It is time, so we would like to begin ZOZO's FY 2026 second quarter Q&A session for institutional investors. Sawada, Yanagisawa, as well as Fuminori Hirose, Director and COO, Yusaku Kobayashi, General Manager of Corporate Planning Office. These four will be responding to your questions today. We plan to finish this session at 6:10 P.M. If you have any questions, please use the icon and raise your hand. Those that are called upon, please make sure to state your name and company name before asking your questions. Ms. Hirai, please go ahead. Ms. Hirai, please go ahead. Ms. Yamaoka from Nomura Securities, please go ahead.
My name is Yamaoka from Nomura Securities. Can you hear me? Thank you very much. I have three questions. First, July, August, September, I would like to know about the sales environment. You mentioned that the summer demand was a little bit low.
On the other hand, when you think about last year, you mentioned that fall/winter products didn't sell as well in September. When we compare the two quarters last fiscal year and this fiscal year, can you talk about the environment and how sales trended? Should I just ask you three questions at once?
Yes.
That's the first question, and the second question, at the very end, you mentioned the AI agent strategy. Until now, you have talked about keeping the platform's value, and I think you've been talking about a strategy that was a little bit more defensive. If you have any initiatives that will, of course, help you achieve sales uplift, a little bit more aggressive strategies, that'll be great. Initiatives that'll be great. This is very detailed. Second quarter's SG&A others.
When we look at the three months in the second quarter, it looks like the SG&A expenses increased for others this quarter. Can you talk about that?
The first question, Hirose will talk about. Let me take that first questions. July to September, sales environment compared to last year. Last year, as you mentioned, last year was hot. This year wasn't. It was more moderate. July, August, YoY wasn't that great this fiscal year. As you mentioned before, we did ZOZO Week this year, but we didn't do it last year. September as well was colder. In September of last year, we sold mainly summer items. This September, we sold more expensive products such as sweaters, heavier items. So September was great this year.
September was the best, and then July and August. If you rank the growth rate, that would be the ranking. In terms of the GMV growth and AI strategy being more offensive, niaulab is an offline service that we offered. When people came there, a stylist was there to welcome you and would propose items that look best on you, and people could physically try on clothes. ZOZO members who came to our niaulab, actually, their purchase amount doubles after coming to the lab. We also have a YouTube program as well. We see that many people who are viewing or watching that program are buying more on our site. It's important that people actually recommend what looks great on you.
We believe that if we can make the optimal, accurate recommendations, purchase amount will increase. People have played a role until now, but we want to utilize technology and AI. We are trying to use AI and technology to make as accurate recommendations. We believe that if we can make that happen, then GMV will grow. The third question, Kobayashi or Yanagisawa-san, please go ahead.
I will take that. Increase in others is mainly two factors. The packing materials have increased from June of this year, and the second reason is AWS and cloud server usage rate has also increased as well. Those two factors contributed to the increase in others. July, August, September, the first question. Overall, external factors did not change drastically since last year, no.
Of course, there were ups and downs, but if you average it is not very different from what we saw last year.
Okay, thank you.
Thank you very much. Next, Yoneshima-sama.
Thank you. My name is Yoneshima from Citigroup Securities. Thank you. Can you hear me? I also have three questions. First question is similar to what was already asked. Others' expenses increased, and in terms of operating margin, I felt like it was not that great last year, but it did not grow as expected this fiscal year, is my thought. You mentioned some prices going up, and then you also consolidated LYST and HIGH LINK. There are those factors, but in terms of cost increases, do you see any increase or decrease in cost that was outside of your expectations? That is the first question.
The second question is not really related to the earnings briefing, but GMO as well, security is an urgent matter, and yourselves as well. In the first half of the year, you experienced some impact from security. AI, what kind of efforts are you implementing to ward off such cybersecurity attacks? That is the second question. The third question, Musinsa, you had pop-ups with Musinsa and Pokémon T-shirts as well. You mentioned that that is doing very well, but in October, maybe not. Can you talk about October and tell us if you are doing better than you expected or you are broadly in line with your expectations? Please let me know.
First question, Yanagisawa-san, can you take that?
Yes, first question, in terms of margin increase. The second quarter, as Kobayashi mentioned, some factors and consolidation as well.
We are seeing lower margins, but the second half, we do not foresee any factors that will drive the costs further up. We believe that we should see margins that are similar to the past, and we are going to be using more advertising expenses in the second half. That is about it. Thank you.
The second question, security. I will respond to that question. Globally, it is an urgent matter, and for ourselves as well, we are putting all of our efforts into warding off such attacks, preparing. Last year, or maybe two years ago, group company, ASKUL, experienced some hardships. From that point, we have implemented security efforts in the past. Unfortunately, learning from ASKUL's experience, we have put in a lot more effort into protecting ourselves. On top of that, we have employed extra efforts.
So I think it's impossible to say that we're completely fine, but we are doing our best to prepare. In the second half, there are no costs. We won't see anything in the second half that will impact the P&L or impact cost due to cybersecurity initiatives. But third point, Hirose, can you take that question?
Yes, I will respond to your question. First, about Musinsa pop-up, that is a POC for cross-border efforts in the future. So we didn't really do that expecting huge sales. It's just a test marketing effort. Pokémon, we're going to be delivering in the third quarter, but it's doing extremely well, and this is something that we didn't expect in the beginning, so that's an upside. In October, it was much warmer than last year. That's an external factor. So we can't really sit back and relax yet.
However, November, we have ZOZO Week and Black Friday as well. So those are some main events that we will have. So we're preparing for those main events now.
This is a follow-up question. Cross-border, can you talk about what that was like? Also, I'm sure you haven't decided on the timing, but when will you have another effort?
So we did a pop-up in Musinsa in Korea, and we are selling Japanese brands in Musinsa. But the brand awareness is not as high yet. But going forward, Musinsa's power as a platform in Korea is great, so we want to utilize their power as a platform to see what kind of results we will see, and we'll decide what we will do next, depending on those results. We haven't decided on the schedule.
Thank you very much. That's it from me.
Thank you.
Moving on to Mr. Kasahaya.
This is Kasahaya. Sorry, I couldn't catch the company name. I couldn't hear him, but I have three questions. Two questions about numbers. First question, finishing the first half, you talked about GMV before, but ZOZOTOWN slightly fell short of plans, but LY did great. But first quarter, you implemented similar initiatives, but why was there such a gap in the performance of those two businesses in the second quarter? The second question, it's a question about GMV as well. Purchases, purchase stock is growing. Compared to the previous year, it seems like there's been a big change there. So is there Please let us know if there's anything worthy of mentioning there. Also, third point, from your point of view, fall/winter fashion industry, how is it trending?
I'm sure you're converse with the brands, and when you look at the data, can you talk about the macro environment surrounding fashion? Thank you very much.
Hirose, can you answer all three?
Yes, I will do so. The first half GMV, ZOZOTOWN fell short. LY did well. The gap here, ZOZOTOWN fell short, but it's not a huge gap, so we don't think that that is a big problem. LINE Yahoo, LY Commerce, they actually had a lot more ZOZO Festivals. The frequency increased, therefore this wasn't included in the plan. So because they have more ZOZO Festivals, we saw greater sales.
But Kotaro-san, can you talk about the purchase stock?
IP? Are you talking about IP? Sorry about that. It's a collaboration with Masuda-san from NEWS. So we saw a shipment of those products, sorry. So that's I had forgotten about that.
That's why we've seen the increase. Pokémon as well, this is also purchase stock as well. The third quarter, we will see an increase of that. Lastly, fall/winter environment, as we mentioned before, October is hotter than usual. With El Niño, we're going to probably see a warmer winter this year. It's not a great environment for us. That's a lot of headwinds. On the other hand, brands' product lineup over the last four or five years, the winter's been warm, so the brands have also adjusted their offering. Merchandising and inventory levels we believe will be quite appropriate. Thank you.
One follow-up. Thank you, Mr. Hirose. The ZOZO Festival, the decision to do so, the frequency changed. It wasn't initially planned, but can you talk about the decision-making process there?
LINE Yahoo and us, we discuss and decide whether we should have a ZOZO Festival. In the beginning, we do have a frequency in mind, but it's quite flexible. We might have a ZOZO Festival together with ZOZO Week to further drive sales. In terms of ZOZOTOWN, it is underachieved. However, it's broadly in line with your plans.
Yes, understood. Thank you. That's it from me. Thank you very much.
Thank you. Mr. Kawano, please go ahead.
This is Kawano from Goldman Sachs. Thank you. I have three quick questions. First question is about fall/winter environment. Brands continue to raise their prices, but when you look at the inventory that you're currently receiving, have you seen any changes in the average retail price? I'm sure the average retail price is positive, and it is impacted by the sales that you have, discounts that you offer.
Can you talk about the average retail price as well as the price of goods that you've received so far? That's the first question. Second question, ZOZOUSED. Secondary market, there is a tailwind there. Tailwind continues, but it is getting to a certain scale. Can you share your thoughts on the ZOZOUSED? Mr. Sawada, you talked about AI. You talked about your plans for AI, and this is something that you need to do, but in the U.S., payments could become a barrier and could be an opportunity. In Japan and the U.S., payment regulations are different. Of course, you already have members, but in terms of payment, any impact that payment can have on AI? Can you touch upon that? That's my third question. Thank you.
Thank you very much. I will answer all of three questions.
First, in terms of the fall/winter prices, when we look at the average, it's slightly higher, a few percentage points. That's the date. Sales price, we don't think that the average retail price has gone up dramatically. Therefore, we don't think that the demand should weaken. The average retail price, we don't think that it will drastically increase either. We don't see major movement, major change this fall/winter season. When you look at each individual brand, it will vary by brand, but on average, no major change. Second, with respect to ZOZOUSED, it is growing faster than the time that's our plan, and it is doing well so far. This too, we want to strategically strengthen this. We've tried to do so over the last couple of years.
Because we sell mainly new items, we can purchase and we can resell these items in our unique original way. Usually, in the used business, you need to rein in costs. That is very important. But we have the data because we are selling these products as a new product, and we can predict. We understand very well how much we should be buying these products for. So we have a unique service. Going forward, we want to create a used market around products that are not as expensive. That is a strategic theme that we want to continue to grow and address. In terms of AI and payments, the path splits there. With respect to payments, who should make the payment? Is it EC or agent? Of course, there is a payment collection impact. Who is going to pay? Which would be better? Is it better if the EC players do it or the agents do it?
Who will benefit would be key. It is very valuable data to know what people bought nowadays. This person who is 37, male, living somewhere. The typical marketing initiative we do not do, bearing in mind the people's attributes, quick data such as he bought this yesterday, so he is going to buy this tomorrow. So payment data, purchase data is very important. It will be a huge gap whether we have data about what they bought today, two days ago. But of course, we want to find a way where we can have our users make the purchase on our site. That is it. Thank you.
Very clear. Thank you very much.
Thank you. Next, Ms. Kanamori, please go ahead.
My name is Kanamori Franiko. I have two simple questions. First, Pokémon T-shirt is my first question.
In the past, you had a collaboration with Tsuyoshi Domoto, but that collaboration was great. But why you did not do as great because you did not have another great collaboration, and I think that is a shame that you cannot keep the momentum going. You have the Pokémon collaboration this year, but when you keep in mind the YoY comparison, are you implementing some plans so that the collaborations can continue to generate positive impact? Second question is when you buy clothes, do people want to buy clothes that look great on you? Or, because some people can feel aspirational. Maybe they want to look like somebody else, even if it does not look great on them now. For women, I do not know about men, but for women, they actually try clothing that may not necessarily suit you, that is a little bit more aspirational.
Is there a market there in terms of aspirational dressing?
Hirose will answer the first question.
Thank you. I will respond to that question. Pokémon T-shirts are doing very well, and YoY comparison-wise might be tough next year, like Tsuyoshi Domoto collaboration. With respect to collaboration, we do have a team working on collaborations and sales teams, as well as management team and production team. We have three different teams working on collaborations. We have a comprehensive team in place addressing this. Depending on the content, the positive uplift might be big or small, but we want to strengthen IPs as well as collaborations with different IPs. Content will impact the performance, but this is something that we want to continue to improve and enhance.
The second question about what looks great on you, it might be a definition issue, but what looks good on you, maybe sometimes it is not the best word to use, but if you just think about what looks good on you might think about a service that a stylist provides. What we are thinking about in the algorithm, as you mentioned before, it does include the aspirational aspect, and what is big here is that, what looks good on you from your point of view as well as other people's point of view, and the perception will differ depending on who is looking at the styling. It is important to know we will provide different patterns on how clothing looks great on you, and we are actually thinking about both or referring to both with a word, what looks good on you.
We want to cover both aspirational as well as what looks good on you right now. There are people who love clothes and who do not love fashion as much, and so the balance between whether you think something looks good on you or what others think, you are trying to strike a different balance depending on their love for fashion. It is true for men, but men will be like, "We want to get recommendations about clothing where people will not diss you for wearing that." They do not know if it looks good on them, but they do not want to be dissed. It is very wide-ranging.
Thank you very much.
Any other questions? It is a little bit early, but since there are not any more questions, we would like to wrap up today's Q&A session. Thank you for joining us.