Progress in Restructuring - SANYO 株式会社三陽商会€¦ · Progress in restructuring 1 Restructure the organization and how employees work Measures to increase gross profit

Copyright © SANYO SHOKAI LTD. All Rights Reserved.

Progress in RestructuringSANYO SHOKAI LTD.December 16, 2016


SANYO INNOVATION PROJECT Progress Report


Announcem

ent schedule

July 2016October 2016

February 2017

New business plan

announcementDirection of Restructuring and

New Business Plan

Retraction of Five-Year

Medium-Term Business Plan

The SANYO INNOVATION PROJECT (referred to below as “the project”) is being implemented with the goal of announcing a new business plan.

December 2016

Progress in restructuring

1

Restructure the organization and how employees work

Measures to increase gross profit and profit margin

Implement measures to stop the bleeding

Transform the management system into one with a leaner structure

Establish Business Restructuring Committee

Content of

announcement

Examination

system

Develop a strategy centered on six working groups (WG)

Two subcommittees and Business Restructuring Committee will compile information and make decisions

Progress in implementing the SANYO INNOVATION PROJECT

Today


Young leadersFront-line employees

Extract the issues and direction of reforms, mainly from young leaders responsible for the next generation and front-line employees.

2

Sales WGOperational Reform WG

Merchandising Reform WG

Existing Business WG

New Business WG

E-commerce (EC) WG

Operating officers

Each WG leader

Director Operating

Officer

Growth Strategy Subcommittee

Restructuring Subcommittee

Business Restructuring

Committee

Reforms generated from the font-line

The Project — State of Efforts

* WG = working group

WGs meet a total of 70 times.

Subcommittees meet a total of 10 times.

Business Restructuring Committee meets a total of 6 times.


This Project — Overview of Themes to be Examined

3

Share information on the progress of efforts, particularly those related to themes to be examined for the Project that have transitioned to the implementation phase.

Themes to be examined Expected impact

Increase sales

Improve gross profit

More effective use

of SG&A expenses

Enhance organizational

capabilities Improve BS

Discontinue unprofitable brands, withdraw from unprofitable sales areas, and improve productivity of sales areas

Redefine and improve efficiency of sales operations

Design a mechanism/system to strengthen the sales capabilities of sales areas

Standardize and raise the sophistication of merchandising processes

Redefine and increase the efficiency of planning and production operations

Promote efforts to dispose of slow-moving inventory

Optimize the overall supply chain (production, procurement, distribution)

Increase operational efficiency and boost motivation by reforming how employees work

Design a proposal for a new organization that is appropriate for the growth strategy

Redesign the employee evaluation system so that it matches the new organization and roles

Reinforce measures to expand the lifestyle store business

Inorganic growth, including M&As

Accelerate EC growth

Develop new businesses that make use of digital technology

Strengthen existing business brands and expand channels

Strengthen corporate brand (coat business)

Restructuring

Subcomm

itteeG

rowth Strategy

Subcomm

ittee

Sales

Merchandising Reform

Operational Reform

Existing Business

New Business

E-commerce (EC)

Strengthen governance

Financial reform

Examine strengthening the board of directors’ functions

Examine transforming the company into one with a nominating committee, etc.

Transitioned to implementation phase

Sell off additional strategic shareholdings

Make effective use of or sell off additional properties


Content of Today’s Report

4

Review up to October

Progress since October

Restructuring measures

Financial reform measures

Restructure the organization and how

employees work

Measures to increase gross profit and profit

margin

Top line growth measures

• Voluntary early retirements and greater employee efficiency• Discontinue unprofitable brands and withdraw from

unprofitable sales areas• Lower costs by reducing assets

• Review investment projects• Increase capital efficiency by selling off assets

• Design a proposal for a new organization that is appropriate for the growth strategy

• Increase operational efficiency and boost motivation by reforming how employees work

• Strengthen existing business brands and expand channels• Accelerate growth of the EC and digital business

(Items announcedpreviously)

• Standardize and raise the sophistication of merchandising processes

• Optimize the overall supply chain• Improve production, procurement, distribution, etc.


Reduce the number of unprofitable sales areas

Discontinue two additional brands

Improve the efficiency of sales staff

Review investment projects

Sell off additional unutilized assets

Reduce shareholdings

Call for voluntary early retirees

Discontinue five brands

Reduce inventories

Reduce shareholdings

Cut compensation for corporate officers

5

Secure funds by increasing asset efficiency, etc.5 billion yen

Impact of fiscal 2017 cost

reduction efforts4.5 billion yen

Restructuring measures(–October)

Restructuring measures(Items added in October)

Financial measures(Announced in October)

In addition to cost reductions of about 4.5 billion yen through restructuring, it is expected that 5 billion yen in funds can be secured through financial measures.



Timeline for Discontinuing Brands and Withdrawing from Sales Areas

6

The number of sales areas is expected to fall 30% to around 1,100 from approximately 1,500 at the beginning of fiscal 2016 by discontinuing 11 brands and withdrawing from unprofitable sales areas.

Paul Stuart SPORT VINVERT VINVERT (L size) allegri FRANCO PRINZIVALLI

1 brand 3 brands

PRINGLE 1815(Women’s)

BIANCA EPOCA AMACA (L size)

LE JOUR

2 brands5 brands

Approx. 1,100sales areas

Approx. 1,500sales areas

-11 sales areas -21 sales

areas Approx. -140 sales areas Approx. -220

sales areas

February 2016 August 2016 February 2017 August 2017

Discontinued brands

Num

ber of sales areas

Reduce the number of unprofitable sales

areas for existing brands

22 brands37 lines

16 brands26 lines

Beginning of year

End of August


Content of Today’s Report

7


Progress since October

Restructuring measures

Financial reform measures

Restructure the organization and how

employees work

Measures to increase gross profit and

profit margin

Top line growth measures

• Voluntary early retirements and greater employee efficiency• Discontinue unprofitable brands and withdraw from

unprofitable stores• Lower costs by reducing assets

• Review investment projects• Increase capital efficiency by selling off assets

• Design a proposal for a new organization that is appropriate for the growth strategy

• Increase operational efficiency and boost motivation by reforming how employees work

• Strengthen existing business brands and expand channels• Accelerate growth of the EC and digital business

(Items announcedpreviously)

• Standardize and raise the sophistication of merchandising processes

• Optimize the overall supply chain• Improve production, procurement, distribution, etc.


Organizational Reforms

8

Issues concerning the current organization Response to and aim of the new organization

Dispersed and insufficient research and marketing functions to capture market and customer trends

Decline in the speed of decision-making and ambiguity in responsibility and authority due to excess number of levels and units

Decline in performance on account of ambiguity in the division of operations related to planning and production

Organizational structure that overemphasizes the existing department store business

Reinforce ability to gather and

communicate information from

customers and market

Clarify responsibilities/author

ity and accelerate decision-making

• Establish a Marketing & Communication Headquarters

• Achieve an integrated customer and market response

• Reduce the number of organizational levels and units

• Clarify people in charge and decision makers for each brand and business

Conduct a fundamental review of the current organization and begin transition to a new system towards achieving the growth strategy starting in the new year.

Design an organization optimized for

operations

• Have planning, production, and sales functions for each brand and business

Respond to the new growth strategy

• Establish a new organization whose focus is strengthening the corporate brand

A

B


Reinforce Ability to Gather and Communicate Information From Customers and Market

9

Establish a Marketing & Communication Headquarters and respond to clients and markets in an integrated manner.

Current organization New organization

Marketing & Communication

Headquarters

Face-to-face customer support

function

Web-based customer support

function

Market research function

Advertising/PR function

Marketing functions are dispersed among the various headquarters

Integrate and compile

Market research function

Advertising/PR function

• Strengthen research and marketing functions to capture market and customer trends

A

Corporate Management Headquarters

Business Headquarters

IT Strategy Management

Division

Customer support function(face-to-face and web)

Corporate Management Headquarters

Business Headquarters

IT Strategy Headquarters

New business development function

New business development function

Copyright © SANYO SHOKAI LTD. All Rights Reserved. 10

Business department, branch

office

Division

GroupGroup

General Business Division

Headquarters

Headquarters

Business division, branch office

Flatten the organizational structure from 5 levels to 3 levels and merge/eliminate units.

187 units 155 units

Clarify responsibilities and authorityAccelerate decision-making speed

Clarify Responsibilities/Authority and Accelerate Decision-Making SpeedB

Current organization New organization


Dramatically update human resources by engaging in efforts to promote mid-grade and young employees, and further reduce compensation for corporate officers as a part of efforts to clarify responsibilities.

Clarify Responsibilities/Authority and Accelerate Decision-Making SpeedB

Promote mid-grade and young employeesIncrease/reduce compensation for corporate officers

July 2016–

Repay some compensation (15% max.)

January 2017–

Repay some compensation (30% max.)Mid-grade

Young

In addition to making the organizational structure flatter and reducing the number of units, move forward with efforts to promote mid-grade and young workers who will be responsible for the new Sanyo Shokai.


Reform How Employees Work

12

Move to a system where all employees work together to implement business restructuring through improvements to the workplace environment for employees, who are responsible for the new Sanyo Shokai.

Aim of the reforms Reform how employees work

• Optimize the use of time from a store/customer perspective

• Individual employees can flexibly select how they work to match operations

• Facilitate communication• Make effective use of space at the head

office

• Increase the motivation for all Sanyo Shokai employees and make it easier for them to work

• Continue to extract measures to improve operations from the front-line level

• Examine introducing a staggered work hour/flex-time system

Introduce a free address systemSingle large work area for each

business unit• Introduce a free address system

• Regularly conduct satisfaction surveys of employees, including sales staff

• Install and operate SANYO POST


Measures to Increase Gross Profit and Profit Margin

13

Strive to increase gross profit by 3%–5% through raising the sophistication and standardizing merchandising as well as optimizing the overall supply chain.

Increase sell-through rate at manufacturers recommended retail price and improve discount rate

Improve sell-through rate• Reduce inventory

valuation losses and loss on abandonment of inventories

Reduce product costs

Standardize and raise the sophistication of m

erchandisingO

ptimize the overall

supply chain

Rationalize price line

Segmentalize seasonal merchandising

Increase mid-term additional purchase ratio

Standardize/rationalize main product composition

Introduce product number design logic from a store perspective

Increase the direct trade ratio

Redefine production processes for each product grade

Work out merchandising for each store type

Introduce a sales period and order quantity design logic for each product type

Eliminate waste and unevenness in the supply chain

Improve gross profit• Strive to improve

gross profit by 3%–5%


Switch to Management Accounting That is Aligned With Seasonal Cycles

14

Current operation management

Operations and earnings management period consistent with the financial accounting period;manage operations and earnings using two periods, Jan.–Jun. and Jul.–Dec.

Jan.–Jun. Jul.–Dec.


FinancialM

anagement

Actual season

Spring and summer(SS)

Autumn and winter(AW)

Switch to a management accounting period that matches seasonal cycles in order to link it with customer purchase trends.

Future operation management

Operations and earnings management period consistent with seasonal cycles; manage operations and earnings using two periods, Mar.–Aug. and Sep.–Feb.


Mar.–Aug. Sep.–Feb.

FinancialM

anagement

Actual season


* “SS” refers to spring and summer (Mar.–Aug.) goods, and “AW” refers to autumn and winter (Sep.–Feb.) goods.

It is difficult to properly manage operations and earnings for each season• Because SS and AW earnings are mixed, various aspects such as the

product sell through rates and earned income for each season are unclear

This are obstacles to managing operations to maximize income for each season• Employees are conscious of end-of-term earnings evaluations, and

there is a tendency to reduce purchases in June and December• As a result, there is a greater risk of selling out of seasonal products

right at the time of the greatest increase in sales for the season

Rationalize operations and earnings management linked to seasonal cycles• Use items such as the sell-through rate and net income for operations

and earnings management and align with the actual state of front-line businesses

Rationalize seasonal earnings evaluations that match the actual state of businesses• Make it possible to align in a direction that maximizes benefits by

transitioning to earnings evaluations that are linked to purchases/sales for each season

Spring and summer(SS)



Top Line Growth Measures

15

Business field

Department stores Directly managed stores

(directly managed stores, EC, etc.)

Apparel

Non-apparel

Current conditions

Direction the Company should

move in

Overseas

Strengthen the corporate brand

Expand channels for existing businesses

Strengthen the lifestyle store

business

Accelerate growth of the EC and

digital business

Inorganic growth, including M&As

The direction of each of the 5 growth strategies continue to be examined.Today, we will share information on the progress made to expand channels for existing businesses and accelerate growth of the EC and digital business.

A

B


• For BLUE LABEL/BLACK LABEL CRESTBRIDGE, efforts were launched on a trial basis in AW 2016 and their impact confirmed.• New channels will be deployed by implementing the same efforts for the MACKINTOSH PHILOSOPHY brand starting in SS 2017.

Deploy new channels

Strengthen measures to attract customers to directly managed stores and EC stores

• Product rework plans, customization, customer events, made-to-order clothing plans, etc.

Expand deployment to urban commercial facilities and buildings containing mainly fashion-related stores, targeting highly-sensitive youth

Merchandising that differentiates goods from those sold through the existing department store channel

• Set price line for new channel• Shift to mid-weight clothes and miscellaneous

items• Dramatically expand goods sold only via directly

managed stores and EC• Expand sales of collaborative miscellaneous items

in order to attract customers

Expand Channels for Existing Businesses

Merchandising for new customer

groups

Examples of measures for BLUE LABEL/BLACK LABEL CRESTBRIDGE

POP UP SHOP Customer events

Collaboration with creators

Reworked goods sold only at directly managed stores

A


Accelerate the EC and Digital Business

17

EC channel sales (unit: hundred million yen)

2015

11

42

31

External EC

8

30

22

2016

Sanyo Shokai EC

128%

142%

138%EC total

Year-on-year

There was substantial growth in for both external and Sanyo Shokai EC compared to the previous year. For next year and beyond as well, we will aim to grow further by engaging in additional measures such as strengthening the brand/product focus, improving system infrastructure, and reinforcing the organization system.

Strengthen brand/product

focus

Improve system/operation

aspects

Reinforce current organization

• Establish an independent brand EC site and strengthen branding

• Increase goods available only through EC

• Introduce web-based customer service tools

• Enhance the recommendation function by making use of the MA tool

• Enhance the settlement function

• Establish an EC Promotion Group within each business division

• Establish a Customer Support Division and enhance customer service

* The marketing automation tool (MA tool) is a web-based tool to increase the efficiency marketing activities

B

Additional measures

• Create and then strengthen EC infrastructure• Integrate real and web-based inventory data• Introduce SANYO MEMBERSHIP• Launch the CRESTBRIDGE brand site

Implem

ented m

easures


Future Efforts

18

Transition to the new organization with the goal of announcing a “New Business Plan” in February 2017 and plan to create and compile medium- and long-term sales and income projections for each brand and business.

Grow

th Strategy Subcom

mittee

Restructuring

Subcomm

ittee

Existing Business

New Business

E-commerce (EC)

Sales

Merchandising Reform

Operational Reform

Strengthen governance

Financial reform

Establish a Business Restructuring Committee

Create direction and policy for the company-wide strategy• Direction of the

growth strategy• Propose restructuring

measures

Implement and monitor restructuring measures• Substantiate some

of the measures that are currently being examined

Substantiate growth strategy measures

Transition to the new organization (January 1–)

Create/compile new business plan Sales and income

projections for each brand and business

Implement and monitor new business plan

Substantiate measures to strengthen governance and reform finances

July 2016 October 2016 December 2016 February 2017

New business plan

announcement

Direction of Restructuring

and New Business Plan

Retraction of Five-Year

Medium-Term Business Plan

Progress in restructuring


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In addition to historical results, this material includes the Company’s outlook for the future, and the outlook may change on account of various social and economic developments. The Company bears no responsibility for losses incurred on account of the use ofinformation provided in this material.

As for the outlook included in this material, the Company is not obligated to revise it according to new information and future developments and to announce any revisions.

This material does not include all the information the Company discloses to entities such as securities exchanges and may useexpressions different than those used in disclosure material. Information in this material may be deleted or changed without notification.

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Disclaimer

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Progress in Restructuring - SANYO 株式会社三陽商会€¦ · Progress in restructuring 1 Restructure the organization and how employees work Measures to increase gross profit