Setting Aside Past Successes to Evolve
We have seen significant changes in the business environment around us, and I think that the pace of change will only get faster from now on. Technology, including generative AI, is evolving, Japan's birthrate is declining and its population aging, climate change is progressing, and customer values and behavior are also constantly changing. Moreover, the speed at which these changes are occurring is much faster than a few years ago and every one of them could become irreversible.
ASKUL's origin lies in its focus on removing the inconvenience of purchasing office supplies for small and medium-sized enterprises and on optimizing the multitiered distribution structure that leads to such inconveniences. We believe that society will be better off if we can achieve optimization across the board, starting from the improvement of value for our customers.
To this end, we have continued to evolve. Starting with mail-order catalogs, we then shifted our focus to online What Is ASKUL? Management Foundation 3 Management Strategies CEO Message shopping, and in the space of 30 years, grew to become one of the largest B-to-B e-commerce companies in Japan. The path of our growth reflects our history of constantly adapting to the pace at which the world changes and always innovating.
In the fiscal year ended May 20, 2024, both sales and operating profit reached new record highs, as they did in the previous fiscal year. In the B-to-B Business, we achieved a 17.5% increase in operating profit from the previous fiscal year, guided by the goal of changing the curve of our profit growth trajectory. The B-to-C Business, which has been engaged in efforts to improve profitability, was also able to maintain a profit for the second consecutive year.
That said, we did not achieve our initial net sales target. We downwardly revised the net sales target for our B-to-B Business, which we had committed to in our initial plan, from 417.0 billion yen to 404.9 billion yen during the fiscal year under review. Our failure to increase net sales means that we were unable to gain the anticipated level of customer support. In other words, our previous ways of thinking and acting are no longer gaining the support of our customers.
Companies are now facing increasing labor shortages. In addition, rising prices mean that companies are passing on these higher costs to customers, which is healthy for the economy. In this climate, if companies continue to focus solely on providing products at even one yen cheaper than their competitors, they will find themselves increasingly out of step with the values of society and their customers. We must unlearn the skills and knowledge we developed through our past successes in a deflationary environment, grasp the changes that our customers are currently facing, and reflect them in our services as soon as we can.
Promoting a Data-Driven Approach and Co-Creating Value through the Opening Up of Big Data
To accurately grasp the needs of our customers and give them a positive experience, we have begun promoting a data-driven approach. We will visualize data on customer behavior in great detail and shift our thinking to fully utilize this data in our approach to customers, point-of-sale design, product development, pricing, and decision-making.
The ASKUL Group has established its own value chain, from sales channels such as websites to product planning, procurement, and delivery. In terms of both the quantity and quality of the big data accumulated at each stage of the value chain, we are an industry leader in Japan. Taking a data-driven approach, we aim to create the best possible shopping experience for our customers by strongly promoting digital transformation (DX) throughout the entire value chain.
From the standpoint of offering even more value to our customers, we will not just keep our data in-house but will evolve our strengths in a way that enables the opening and sharing of data with various partners to co-create value.
Our Approach to the Next Medium-Term Management Plan
In July 2021, we announced our management goals in the form of a medium-term management plan for the first time. Basic Information ASKUL Report 2024 The fiscal year ending May 20, 2025 will be the final year of the plan, and we are currently in the process of formulating our next medium-term management plan with an eye on the next stage of growth for the Company.
In the current Medium-Term Management Plan, we set forth to both internal and external stakeholders our goal of transforming from an office supplies mail-order company, making it clear to our employees which direction we should be heading in, and also created a common guideline for communication with our investors, which I think was a positive thing. If we had not set performance targets in the Medium-Term Management Plan, we would not have been able to achieve record-breaking results.
However, when looking at the medium term-the next three to five years-it is easy to get stuck in the mindset of simply continuing with existing practices when setting goals What Is ASKUL? Management Foundation 4 Management Strategies CEO Message and managing the Company. With this in mind, we are discussing how to set the best goals for the Company and its stakeholders based on a longer-term vision.
As expressed in our DNA, "Advancing forward for our customers," the services we provide should evolve in line with changes in society and customer behavior. From a longterm perspective, it is impossible to predict exactly what issues will arise and the kinds of technologies that will emerge, but irreversible trends, such as the evolution of AI, the declining birthrate and the onset of a super-aged society, and the resulting shortage of manpower, are picking up speed and bringing more and more issues to the fore. While we have a vision of the kind of company we want to become in light of these long-term social changes, I believe that a style of management that allows us to be somewhat flexible in deciding what kind of business we should provide and what indicators we should use to measure our progress is best suited to the Company.
We are currently in discussions about the management targets we plan to announce next, including approaches like this.
Promoting Ethical E-Commerce by Encouraging Employees to See It as a Personal Concern
Ethical e-commerce is a management ethos that shows what we aim to achieve through our business activities. Ethical e-commerce is a concept that provides "trade-on" services that balance economic value and social value, and in that sense, it takes precedence over the Medium-Term Management Plan.
Even if one sets the right goals, if they do not see those goals as a matter of personal concern, their efforts will not be sustained. To help employees feel a sense of fulfillment in their work and bring delight to customers, the planet, and society, in the fiscal year ended May 20, 2024, we worked on initiatives to make it easier for our employees to see ethical e-commerce as a personal concern by developing evaluation indicators and other tools.
Having established its own value chain, ASKUL is able to design products from an ethical perspective, right down to delivery efficiency. By introducing the LOHACO Water series of products, which are manufactured by Group company TSUMAGOI MEISUI CORPORATION, we have been able to adopt a new standard size outer box that fits snugly into the bottom of the cardboard delivery box, allowing us to deliver the mineral water in one cardboard box instead of two without damaging other products. In addition to making the product itself label-free to be environment-friendly, we also designed the outer box with user-friendliness in mind and with consideration to transport and delivery efficiency-a fundamental premise of e-commerce-developing a product that contributes to more efficient loading of packages. I think it can be said that the entire Company has come together to incorporate the concept of ethical e-commerce into its operations, with related departments such as merchandising, procurement, and logistics working together to come up with ideas.
I feel that employee awareness is changing as they gain a real sense of how their own projects affect customers, society, the environment, and the Company's profits. I think it is important for movements like ethical e-commerce to start by building up small successes.
Intensifying the Ethical E-Commerce Movement through Support from Our Partners
Ethical e-commerce is also a framework that enables customers to help to resolve environmental and social issues and participate in related activities by purchasing ASKUL products. This means that we, as a company that can obtain data through various contact points with customers, are in a position to propose such activities to our partners and take the lead for them.
In promoting ethical e-commerce, it is important to gain the understanding and involvement of external partners such as manufacturers and other suppliers. One change that we have seen since 2023 is a steady increase in the degree of commitment to ethical e-commerce from manufacturers.
For example, the Go Ethical initiative involves selling products that have been discarded by manufacturers due to reaching the end of their sales period or having defective packaging at a discounted price, even though there is no problem with the quality of the products themselves. Customers purchase Go Ethical products with the understanding that doing so helps to reduce waste, and the initiative has been well received by manufacturers, who see it not only as a way to reduce product disposal costs but also as a way to enhance their branding.
Many manufacturers do not have their own post- manufacturing sales processes in place, so they face a significant hurdle in developing products that have low environmental impact throughout the entire value chain. Having established our own value chain, we have the advantage of Management Foundation 5 What Is ASKUL? CEO Message Management Strategies P.67 being able to analyze customer feedback collected at each stage, including delivery.
I believe that ethical e-commerce will have greater appeal if we combine the data we obtain from our customers with the visualization of quantifiable numerical data such as CO₂ emissions and product environmental scores for each product. To further enhance our presence as a sustainable hub that creates sustainable value together with our partners, we will work to build a system that further engages stakeholders.
Enhancing Human Resource Development and Dialogue to Overcome "Big Company Syndrome"
We began as a catalog retailer and evolved into one of the largest B-to-B e-commerce companies in Japan by making full use of data. However, this kind of service is already becoming commoditized.
I feel a sense of urgency that although we have been growing for the past 30 years, the pace of change has slowed and we are suffering from chronic "big company syndrome." This is the result of a combination of several factors and therefore cannot be solved immediately. The underlying problems and structural issues must be solved one by one. In doing so, I believe the key will be developing human resources and engaging them in dialogue.
Up until now, we have grown by hiring personnel with skills that align with our business growth and who can start contributing immediately. During our period of rapid growth, such an approach made sense, but in this phase where the service itself is becoming commoditized, it is important to reassess basic business skills, unlearn skills that no longer suit the changing business environment, and develop skills that are conducive to change through hands-on experience. Accordingly, our human resource strategy must also change.
If we are to transform into an organization that can think in ways that go beyond the conventional, we need to adopt diverse perspectives and ideas rather than just looking inward. To achieve this, we should proactively seek outside help when necessary and actively put in place systems that Basic Information ASKUL Report 2024 allow employees to gain a variety of experiences and training programs to help develop highly specialized human resources.
With more than 3,000 employees on a consolidated basis, we are considered a large company. As the number of employees increases, the gap between the front lines and management becomes wider. For this reason, I will place more focus on ensuring that management and employees share common strategies and engage in close communication while working to eliminate any gaps in understanding. It is also important to keep communicating the direction in which the Company is heading to employees. I have completed the first round of CEO town hall meetings for all employees (186 times with 1,011 employees) and plan to continue the initiative going forward.
Celebrating and sharing examples of success can also be effective. One specific measure we have taken in this regard is establishing the ASKUL WAY AWARD in 2023. This scheme recognizes positive examples of success within the Company and provides an opportunity to share with employees the kinds of initiatives that can be considered as promoting change. It also aims to encourage employees to take on new initiatives by sending a message from the management team that new pursuits are welcome.
For us to continue to create services that are embraced by our customers, we need to speed up the process of improving the skills of our employees. We also need to strengthen our training and investment in this area. To this end, we will create a framework to increase salaries, and we will establish a cycle that allows us to continuously recruit and invest in human resources.
The Future That Lies Beyond Our Transformation
Looking back on the value we have consistently provided, I take pride in the fact that we have contributed to increasing corporate productivity by focusing on the time our customers spend purchasing indirect materials and helping improve the efficiency of this process through our operations. The origin of our business lies in addressing the bothersome processes that our customers themselves do not notice.
For the past few years, we have been working to achieve a transformation from an office supplies mail-order company. As a result, we have expanded the scope of our service beyond delivering office supplies to offer products for medical and nursing care, manufacturing, and a wide range of workplaces. Now that we have one of the largest B-to-B customer bases in Japan, particularly in terms of the number of small and medium-sized enterprises, we believe that there is still great potential for services that go beyond the sale of goods to contribute to improving corporate productivity.
Office work is not limited to purchasing office supplies. It also includes a wide range of tasks related to human resources, general affairs, finance and accounting, and legal affairs, as well as the digitalization of these tasks and the introduction of IT tools. I think that we should head in a direction that broadens our perspective beyond the purchase of indirect materials to include indirect operations and provide services that will further improve our customers' productivity and help them to focus on their core businesses. One such service is Bizraku, a service that supports the DX of back-office operations.
Providing services that go beyond the sale of goods is a way for the Company to continue to provide value after its transformation.
Continuing to Bring Delight
As I have said in previous integrated reports, we must unlearn our old ways for ASKUL to continue to evolve.
I believe that we should view technological advances as a positive opportunity to create future value. We aim to create value by actively utilizing technology centered on AI and applying it to our business as soon as possible by leveraging the largest database of purchasing data from small and medium-sized enterprises in Japan.
However turbulent the times, our direction will remain unchanged. Through the services we provide, we will continue to give small and medium-sized enterprises in Japan and people in all kinds of workplaces the time they need to achieve their goals, and we will continue to evolve our business model so that our services bring delight to both the planet and society.
We will keep building the foundation for our evolution to ensure that ASKUL can continue to find its raison d'etre even decades from now.