Executive summary

Core businesses

The Tri-Stage group provides end-to-end direct marketing solutions to companies involved in direct marketing through its TV, web, and Direct Mailing businesses. Of the JPY47.8bn in sales and JPY1.3bn in operating profit reported in FY02/21, the Direct Marketing Support segment (TV business, web business) accounted for 59% of sales generating operating profit of JPY1.1bn while the Direct Mailing segment accounted for 39% of sales, generating operating profit of JPY328mn. The company disposed of the Mail Order business and part of the Overseas business due to weak prospects for profitability and group synergies.

The Direct Marketing Support segment includes the TV business the company has been operating since its founding, and the web business it began when it made adflex communications, Inc. a subsidiary in March 2017.

In the TV business, the company provides one-stop support to TV shopping companies, from selecting suitable media and planning and producing TV shopping programs through taking product orders. Tri-Stage has the top market share of broadcasting slots, which it buys in bulk in advance, securing around 200,000 slots (for TV shopping programs and commercials) per month. By having available slots, Tri-Stage can flexibly respond to orders from TV shopping companies. The company has built an in-house database from basic information on nationwide broadcasting slots and product orders at contact centers, uses it to select broadcasting slots where target customer segments are most likely to respond to featured mail-order products and services, and draws on its experience and acquired data to produce TV shopping programs and commercials that enhance product sales. 

Advertising agencies compete in the offering of media, but Tri-Stage differentiates itself from competitors by selecting and providing optimal broadcasting slots for products and services based on its database, and offering comprehensive services ranging from product development to customer management. This core direct marketing service, which was launched in December 2019, is called Tri Direct Data Marketing (Tri-DDM).

Since the company’s founding in 2006, key clients have been mail-order companies handling supplements and medications. Japan’s aging population has led to growth in health foods. In the TV shopping market, supplements/medications had the highest transaction volume, and Tri-Stage has a higher ratio of transactions in this category than competitors (50% in 2019 versus approximately 35% for the TV shopping market as a whole). According to research firm Fuji Keizai Co., Ltd., in 2019, mail order supplements/medications (27.0% of the mail order market by value) grew an estimated 0.7% YoY, while apparel (the second largest category at 21.0%) rose more sharply, by an estimated 1.5%. Tri-Stage has over a hundred clients but the top five account for roughly 40% of sales, so sales are affected by these clients’ product life cycles.

In the web business, adflex communications provides one-stop support regarding online ads for companies involved in direct marketing. In 2018, the company started providing an ad service harnessing AI tools, which contributed to improved advertising efficiency. Sales of these services grew 14.3% YoY in FY02/21.

At the Direct Mailing segment, Mail Customer Center Co., Ltd. (subsidiary since November 2012) acts as a forwarding agent for direct mailings designed to encourage repeat purchases, and is one of the industry leaders by pieces sent (more than 300mn sent per year). The ratio of transactions through agents becomes high in order for Tri-Stage to secure the number of pieces sent and enhance price competitiveness, but the company aims to improve segment profit by increasing the ratio of more profitable direct clients. It has also increased handling of small package deliveries (product DM), demand for which is on the rise in recent years.

Trends and outlook

In FY02/21, the company reported consolidated sales of JPY47.8bn (-5.3% YoY), operating profit of JPY1.3bn (+110.2% YoY), recurring profit of JPY1.3bn (+230.5% YoY), and net income attributable to owners of the parent of JPY849mn (+364.8% YoY). The company’s decision to focus on only selected businesses contributed to sales declining in FY02/21, the final year in Tri-Stage’s medium-term business plan, Tri’s vision 2021. However, investment and the focused concentration of resources contributed to underlying earnings at the group (consolidated operating profit excluding the impact from specialized factors, which in FY02/21 included incidents of misconduct and the COVID-19 pandemic) improving by more than JPY100mn each year in the three years since FY02/19. 

The company made steady progress in the development of a DDM platform, the launch of digital transformation (DX) efforts in media and CC service operations, the investment to adapt to changes in business formats using AI tools, and the acquisition of new customers. Tri-Stage implemented groupwide measures, starting with TV-linked listings, and launched the Sokures service as a new broadcasting slot sales method. The company established Tri-Stage Media in February 2021 with the aim of strengthening its purchasing functions.

The company’s full-year FY02/22 forecast calls for consolidated sales of JPY48.4bn (+1.4% YoY), operating profit of JPY1.3bn (-3.2% YoY), recurring profit of JPY1.2bn (-7.2% YoY), and net income attributable to owners of the parent of JPY840mn (-1.0% YoY). Tri-Stage indicated that if there was any information requiring disclosure moving forward, including in regard to the impact from the spread of COVID-19, it would do so promptly. 

The mainstay customers in the TV business are those involved in TV shopping. However, the company aims to expand its clientele to include e-commerce and web service companies by strengthening the Tri-DDM functions, launching TV-linked listing ads services, and promoting cross-channel support services, including QR code ordering services and operational response commercial services. 

In the web business, the company aims to expand sales and move into profitability by attracting new customers through the provision of AI tools boosting ad performance, while bolstering synergies with the TV business and promoting cross-channel collaborations. 

In the Direct Mailing business, the company aims to continue building up capacity to handle small packages that can be sent through the postal system, such as Yu-Packet and Neko Posu, in addition to the existing direct mail forwarding agency business. In the Overseas business, Tri-Stage plans to work on maintaining operating profit. While the company expects the Retail business to continue to face difficulties in the face of the COVID-19 pandemic, it aims to reduce losses and move the business into the black as soon as possible through an expanded lineup of private brand products and enhanced efficiency in store operations.

Medium-term business plan: “Tri’s vision 2024”: Tri-Stage announced its three-year medium-term business plan, Tri’s vision 2024 (ending in FY02/24), at the time of its FY02/21 earnings announcement. The company targets underlying earnings, defined as consolidated operating profit excluding specialized factors, for FY02/24 (the final year in the three-year plan) of JPY2.0bn, largely through the implementation of growth strategies and moving loss-making businesses into the black. The company has also established net income as a key management indicator, setting a target for FY02/24 of JPY1.3bn, up from JPY848mn in FY02/21. The company will maintain its flexible stance toward shareholder returns, including dividends, by taking a comprehensive approach that factors in performance as well as the company’s financial condition.

Strengths and challenges

We think Tri-Stage’s strengths are 1) offering end-to-end development capabilities in the TV business from medium choice, program production, and order management through customer management; 2) scale economies in the Direct Mailing segment from sending 300mn pieces of direct mail a year; and 3) its ability to effectively make proposals and manage in the web business due to its consulting capabilities and use of AI tools. Challenges facing the company are 1) sales fluctuating with key clients’ product life cycles, 2) the TV shopping market reaching a plateau and constraining growth, and 3) inventory risks associated with buying broadcasting slots in bulk.

Key financial data

Recent updates

Announcement regarding the business plan and growth prospects

On November 15, 2021, Tri-Stage Inc. released explanatory materials for the company's business plan and growth prospects regarding the progress of its medium-term business plan, Tri's vision 2024. Accordingly, Shared Research updated the "Medium- to long-term outlook" section in this report.

Announcement regarding a change in consolidated subsidiary (share transfer) and the recording of an extraordinary loss

Tri-Stage Inc. announced a change in its consolidated subsidiary (share transfer) and the recording of an extraordinary loss. 

At a meeting of its Board of Directors held on September 14, 2021, the company resolved to transfer all its shares in consolidated subsidiary PT. Merdis International (hereafter, Merdis). 

The company acquired shares in Merdis in February 2016, and has been focusing on wholesale sales for television shopping in Indonesia. Although some success was achieved in terms of sales channels to ASEAN, when it comes to business results, the company booked a goodwill impairment loss in respect of Merdis in FY02/19, and over a prolonged period has not been able to obtain the results for which it was hoping. In such circumstances, in order to be more focused and selective with its businesses, the company decided in its previous medium-term business plan, after a consideration based on the future profitability and potential for group synergies, that the creation of synergies with overseas businesses such as Merdis in the Direct Marketing Support segment was unlikely. Accordingly, the company disposed of one consolidated subsidiary and one equity-method affiliate. Having interest into negotiations in respect of Merdis on the basis of the same judgment, the company arrived at the present agreement and decided to implement the share transfer.   

As a result of Merdis ceasing to be a consolidated subsidiary, the Overseas segment will no longer be a reportable segment as of end-FY02/22.

The execution of the share transfer is scheduled in October 2021. The shares are to be transferred to Mr. Kim Kyung Hyun and one other transferee. The transfer price is undisclosed.  

The company expects to record the loss relating to the transfer of its shares in Merdis as an extraordinary loss in Q3 FY02/22. Furthermore, although Merdis will be excluded from consolidation in Q3 if the share transfer takes place in October, the company expects that the effect on its consolidated earnings forecast for FY02/22 to be minor.

Trends and outlook

Quarterly trends and results

1H FY02/22 results (out October 12, 2021)

1H FY02/22 results 

1H FY02/22 results

In 1H FY02/22, the company reported consolidated sales of JPY23.7bn (-1.9% YoY), operating profit of JPY696mn (-19.0% YoY), recurring profit of JPY700mn (-20.5% YoY), and net income attributable to owners of the parent of JPY743mn (+74.6% YoY).

Rate of progress

In 1H FY02/22, sales achieved 100.4% of the company’s initial forecast for 1H FY02/22, while operating profit reached 131.5%, recurring profit 137.3%, and net income attributable to owners of the parent 220.6% (see below). The web business operated under the company's Direct Marketing Support segment incurred lower expenses than expected due to the cancellation of event exhibitions the company had planned to conduct during 1H, resulting in profits that exceeded projections. Tri-Stage generated solid results in 1H FY02/22, the first year of its three-year medium-term business plan, "Tri's vision 2024," which ends in FY02/24. The company launched a series of new measures, including the revamping of its Tri-DDM direct data marketing platform and the launch of Optmyzr, an AI tool that automatically optimizes listing advertisements.

At the conclusion of 1H FY02/22, sales had reached 49.0% of the company's full-year forecast, while operating profit amounted to 54.4%, recurring profit 56.5%, and net income attributable to owners of the parent 88.5%. In contrast, at the end of 1H FY02/21, sales had reached 50.6% of the company's full-year result, while operating profit amounted to 65.0%, recurring profit 65.9%, and net income 50.2%.

Sales

Sales decline 1.9% YoY to JPY23.7bn: Sales were down 3.6% YoY in the Direct Marketing Support segment, down 0.1% YoY in the Direct Mailing segment, down 20.3% YoY in the Overseas segment, and up 33.7% in the Retail segment. In the TV business under the Direct Marketing Support segment, the company focused on strengthening its ability to acquire TV broadcasting slots and enhancing its video production capabilities, including through its video resonance analysis service. In the DM segment, sales activities were generally stable, but companies in some industries continued to refrain from sending direct mail. Meanwhile, the scale of the Overseas business diminished because of the company’s FY02/20 withdrawal from JML Singapore Pte. Ltd. The Retail segment generated a YoY increase in sales driven by private brand product development and the expansion of the wholesale business, despite ongoing tough conditions, including store closures and shortened operating hours following the spread of COVID-19.

Operating profit

Operating profit fell 19.0% YoY to JPY696mn: Operating profit in the Direct Marketing Support segment fell 8.9% YoY due to a drop in sales, despite the web business turning profitable. Meanwhile, operating profit in the DM segment plummeted 56.2% YoY due in part to an absence of a partial reversal of allowance for doubtful accounts recorded in Q1 FY02/21. In the Overseas business, operating profit fell 27.3% YoY despite efforts aimed at improving profitability through expansion in e-commerce operations and temporary upward impact from the reversal of allowances. In the Retail segment, the company made steady progress with initiatives targeting improved profitability, including the use of various subsidies and the development of new private brand products, and operating loss declined to JPY44mn (versus JPY86mn in 1H FY02/21).

The company's GPM declined 0.2pp YoY to 11.2%. At the same time, despite ongoing cost control measures associated with COVID-19-related restrictions on its business activities, the company's SG&A-to-sales ratio rose 0.5pp YoY to 8.3% due to a partial reversal of its allowance for doubtful accounts in 1H FY02/21. Meanwhile, the company's OPM declined 0.6pp YoY to 2.9%.

Net income attributable to owners of the parent

Net income attributable to owners of the parent amounted to JPY743mn (+74.6% YoY). The company's decision to sell MERDIS, a consolidated subsidiary in Indonesia, will result in a deductible temporary difference (DTD) associated with a loss on the valuation of shares in MERDIS. Accordingly, the company recorded JPY272mn in deferred tax assets (JPY217mn in income taxes deferred in the income statement) in Q2 FY02/22 .

In Q3 FY02/22, the company expects to record extraordinary losses associated with the transfer of shares in MERDIS. The company expects the impact of this stock transfer on its full-year forecast for FY02/22 to be negligible after accounting for both deferred tax assets booked in Q2 and the extraordinary losses it anticipates in Q3.

Segment earnings

Direct Marketing Support segment

In 1H FY02/22, the Direct Marketing Support segment reported sales of JPY13.7bn (-3.6% YoY) and operating profit of JPY612mn (-8.9% YoY).

In the TV business, the company provides end-to-end solutions to direct marketing operators for all their direct marketing needs, including supplying TV program and commercial slots, program and commercial production, order management, and customer management. It excels in acquiring new customers through “provision of optimal media based on data analysis,” “hit video production,” and “efficient order management.”

The company’s new direct data marketing business infrastructure Tri Direct Data Marketing (Tri-DDM) brings together and analyzes all of its data (including broadcast timeslot and order data) to bring clarity to the value of specific broadcasting slots, and facilitates accurate assessments of the right operating conditions for contact centers. In 1H FY02/22, the company stably generated sales and gross profit as it focused on strengthening its ability to acquire TV broadcasting slots through Tri-Stage Media Inc. (established through an incorporation-type company split on February 1, 2021), improving the efficiency of order acquisition associated with its Tri-DDM service, and enhancing video production capabilities through its video resonance analysis and QR tracking services.

In August 2021, the company revamped its Tri-DDM direct data marketing platform. The platform has now become more convenient with a redesigned menu structure, revised screen specifications, and the addition of new screens. The renewal has enabled the company to more quickly and accurately comprehend necessary information and current states of progress toward target achievement, allowing for more precise and speedy proposals.

Introduced in July 2021, the company's QR tracking service directs customers to e-commerce sites and encourages them to purchase products with QR codes displayed during TV shopping videos. In the past, a certain number of viewers had searched the Internet on their own to purchase products, but the exact total could not be ascertained. The company's QR tracking service allows companies to determine exactly which TV broadcasts led to purchases made by consumers. In total, this service increases order numbers by 3–9% by enabling companies capture orders that had previously gone to other companies' products through online searches while maintaining the volume of conventional telephone orders. In principle, the company plans to attach QR codes to all TV shopping programs it produces moving forward.

In the web business, the company’s efforts centered around adflex communications, inc. The company endeavored to maximize sales and profit generated by its clients through actively implementing AI tools (listing ad optimization tools, etc.) and through making proposals that utilize both TV and web. Following previous losses, the web business generated profit in Q1 thanks to progress in terms of new customer acquisition and expansion in business conducted with existing customers, although this progress was slower than initially expected due to a decline in opportunities to engage in business negotiations. In August 2021, the company signed a partnership agreement for exclusive rights in Japan with Optmyzr, Inc. and began offering Optmyzr, an AI tool that automatically optimizes listing advertisements. The company made the switch to Optmyzr after the agreement associated with its prior AdScale service expired.

In April 2021, the company released "urutere," a programmatic TV advertising platform that enables data-based planning, production, and optimization of television advertisements and facilitates their linkage with digital measures while providing resources for verifying their effectiveness. Currently, the company is conducting relevant sales activities through coordinated efforts involving both its TV business and its web business. In 1H FY02/22, the company aired programmatic TV advertisement for HTB Energy Co., Ltd. , Hibiya-Kadan Floral Co., Ltd., and The Tokyo Star Bank, Limited.

Direct Mailing segment

In 1H FY02/22, the Direct Mailing segment reported sales of JPY9.1bn (-0.1% YoY) and operating profit of JPY106mn (-56.2% YoY).

The segment is involved in the direct mail agency business for Yu-Mail and Kuroneko DM Bin, with most of the operations handled by Mail Customer Center Co., Ltd. (MCC). In Q1 FY02/22, the company strove to provide support for small package delivery services such as Neko Posu and Yu Packet, which are associated with rapidly expanding markets.

The company utilized its price competitiveness, which stems from its top-class direct mail handling volume, and was able to conduct generally stable sales activities. However, companies in some industries continued to refrain from sending direct mail. 

Overseas segment

In 1H FY02/22, the Overseas segment reported sales of JPY365mn (-20.3% YoY) and operating profit of JPY21mn (-27.3% YoY).

PT. Merdis International (Merdis) handles most of the group’s businesses in TV shopping and wholesaling in ASEAN countries.

The company endeavored to improve profitability through the expansion of e-commerce operations. Meanwhile, it benefited from a temporary upward impact from the reversal of allowances in Q1.

As announced on September 14, 2021, the company has decided to sell all of its shares in Merdis. As a result of the sale, Merdis will be excluded from the scope of consolidation in Q3 FY02/22, and Overseas segment will cease to exist as a reporting segment at the end of FY02/22.

Retail segment

In 1H FY02/22, the Retail segment reported sales of JPY583mn (+33.7% YoY) and an operating loss of JPY44mn (versus an operating loss of JPY86mn in 1H FY02/21).

Nippon Department Store Inc., which runs Nippon Department Store retail stores, is striving to strengthen the wholesale business and increase profits from each of its stores. 

The Retail segment generated a YoY increase in sales despite ongoing tough conditions, including the prolonged spread of the COVID-19 pandemic and store closures and business hour cuts stemming from the implementation of states of emergency. The company made steady progress with initiatives targeting improved profitability, including the use of various subsidies and the development of new private brand products, and operating loss declined YoY. 

The company revamped its "Nippon Department Store" brand while strengthening associated e-commerce sites in September 2021. The company is currently implementing measures that will lead to repeat purchases at both physical stores and e-commerce sites. These measures include the distribution of coupons at physical stores that can be used on e-commerce sites.

Company forecast for FY02/22

Overview

The company’s full-year FY02/22 forecast calls for consolidated sales of JPY48.4bn (+1.4% YoY), operating profit of JPY1.3bn (-3.2% YoY), recurring profit of JPY1.2bn (-7.2% YoY), and net income attributable to owners of the parent of JPY840mn (-1.0% YoY). The company indicated that if there was any information requiring disclosure moving forward, including in regard to the impact from the spread of COVID-19, it would do so promptly.

In FY02/22, the first year of “Tri’s vision 2024,” the three-year medium-term management plan ending in FY02/24 (see Medium- to long-term outlook), the company aims to achieve almost the same level of operating profit as in FY02/21, when operating profit increased 110.2% YoY, while implementing various initiatives for medium- to long-term growth. Considering the reversal of allowance for doubtful accounts in FY02/21 (not disclosed), Tri-Stage expects operating profit to increase YoY in real terms. Sales have fallen YoY for three consecutive years beginning in FY02/19 due to selection and concentration. However, the company forecasts 1.4% YoY sales growth in FY02/22.

Assumptions in the company’s forecast

In forecasting results for the TV business, the company did not factor in one-time positive effects of the COVID-19 pandemic such as appeared in 1H FY02/21 (lower media slot prices and better TV shopping performance at customers).

The forecasts do not factor in the impact of the Olympic Games.

The company expects to enhance Tri-DDM functions, strengthen group synergy, and spend upfront on new services.

The company expects to secure operating profit in the TV business and Direct Mailing segment, to bring results into the black in the web business, and to narrow the loss in the Retail segment.

In Q3, the company expects to incur extraordinary losses associated with discontinuation of the Overseas segment. However, it does not expect these losses to have a significant impact on its full-year forecast.

2H Company Forecast

In 1H, sales were commensurate with the company's projections. Operating profit exceeded the projection, but the company maintained its existing full-year forecast, regardless. For 2H, the company expects sales to increase 4.8% YoY and forecasts a 26.1% YoY rise in operating profit. In the TV segment, it expects 2H sales to remain level with sales in 1H. Meanwhile, in its web segment, the company expects to target new client acquisition by holding event exhibitions that were cancelled in response to the COVID-19 pandemic during 1H. In the Overseas segment, the company plans to book extraordinary losses associated with its upcoming sale of shares in MERIDS, but the company does not expect these losses to have a significant impact on its full-year forecast.

Forecast by business

TV business

The company expects sales prior to consolidation adjustments of JPY23.3bn (-1.9% YoY) and operating profit of JPY1.0bn (-23.7% YoY). It anticipates that sales in 2H to be roughly level with sales in 1H. These projections are partly due to a reactionary decline from one-time positive effects of the COVID-19 pandemic (lower media slot prices and better TV shopping performance at customers) that appeared in 1H FY02/21. Tri-Stage plans to expand its cross-channel service “urutere” and enhance Tri-DDM functions. The company also aims to acquire customers* in new areas. It will book expenses related to upfront spending in the TV and WEB businesses under the TV business.

Web business

The company forecasts sales prior to consolidation adjustments of JPY4.7bn (+2.8% YoY) and operating profit of JPY61mn (versus loss of JPY204mn in FY02/21).

Excluding one-time factors such as moving costs, the web business returned to the black on a quarterly basis in Q4 FY02/21. Although there was a slowdown in new customer acquisition in FY02/21, the company expects growth in new customers to contribute to performance in FY02/22 (assuming that the number of projects will increase with each passing quarter).

Due to the pandemic, the company cancelled events it had planned to hold during 1H for the purpose of attracting new clients but intends to proactively stage these events in 2H.

In the web business, the company aims to expand sales and move into profitability by attracting new customers through the provision of AI tools boosting ad performance, while bolstering synergies with the TV business and promoting cross-channel support with “urutere.” The company plans to use AI tools that are highly effective in improving advertising as a means of growing the client base. It aims to build an efficient operation system.

Direct Mailing

The company forecasts sales (including internal sales and transfers) of JPY18.7bn (+2.9% YoY) and operating profit of JPY61mn (-29.3% YoY).

In the Direct Mailing business, the company aims to continue building up capacity to handle small packages that can be sent through the postal system, such as Yu-Packet and Neko Posu, in addition to the existing direct mail forwarding agency business. Factors expected to push down operating profit YoY include the reversal of provisions for doubtful accounts booked in FY02/21.

Overseas

The company forecasts sales (including internal sales and transfers) of JPY939mn (+9.7% YoY) and operating profit of JPY37mn (+42.3% YoY).

In the Overseas business, the company plans to work on maintaining operating profit, including by using existing resources to expand sales channels, and by bolstering earnings at Merdis.

Retail

The company forecasts sales (including internal sales and transfers) of JPY1.3bn (+26.6% YoY) and operating loss of JPY52mn (versus operating loss of JPY140mn in FY02/21).

While the company expects the Retail business to continue to face difficulties in the face of the COVID-19 pandemic, it aims to reduce losses and move the business into the black as soon as possible through an expanded lineup of private brand products and enhanced efficiency in store operations. The company expects sales to increase in December due to seasonal factors.

The company revamped its "Nippon Department Store" brand while strengthening associated e-commerce sites in September 2021. The company is currently implementing measures that will lead to repeat purchases at both physical stores and e-commerce sites. These measures include the distribution of coupons at physical stores that can be used on e-commerce sites.

Medium- to long-term outlook

Medium-term business plan: “Tri’s vision 2024”

Overview

Tri-Stage announced its three-year medium-term business plan, Tri’s vision 2024 (ending in FY02/24) on April 12, 2021. On November 15, 2021, the company released explanatory materials for the company's business plan and growth prospects regarding the progress of the medium-term business plan.

Key management indicators

The company targets underlying earnings, defined as consolidated operating profit excluding specialized factors, for FY02/24 (the final year in the three-year plan) of JPY2.0bn. The company has also established net income as a key management indicator, setting a target for FY02/24 of JPY1.3bn, up from JPY848mn in FY02/21. From FY02/22 to FY02/23, the company aims to turn around its loss-making businesses (FY02/22 for the web business and FY02/23 for the Retail segment), and from FY02/23 to FY02/24, it aims to realize the growth strategy.

The company will continue to adopt a flexible approach to shareholder returns (dividends, etc.) through taking account of business performance and financial conditions.

By segment

The three businesses the company will focus on are the TV business, web business, and the Direct Mailing segment. Meanwhile, the company will keep a close eye on progress in the Retail and Overseas segments.

TV business: Improve the value provided to customers by strengthening data marketing. Promote digital transformation of sales channels.

Web business: Grow the customer base through AI marketing services. Develop cross-channel service “urutere” (details below).

Direct Mailing segment: Increase the sales mix of direct mailing products. Promote digital transformation of sales channels.

Retail segment: Expand private brand products. Expand e-commerce.

Overseas segment: Aim to maximize profits within the scope of existing resources. (The company decided to sell the shares of consolidated subsidiary Merdis on September 14, 2021. Following this, the Overseas segment will cease to exist.)

Basic strategies

Improve value provided to customers by strengthening data marketing: Further strengthen Tri-DDM, the data marketing platform, for enhanced process optimization and improved customer effectiveness.

Expand customer base using cross-channel and AI marketing services: Expand customer and industry base, including in the digital (web services, e-commerce) and financial industries.

Launch new businesses: Invest in new services and businesses by promoting digital transformation in areas in which Tri-Stage excels.

The company’s view of the external environment

The direct marketing market is expanding amid the COVID-19 pandemic.

Cross-channel marketing is increasing in importance.

Offline media such as TV and newspapers are lagging behind online media in the use of data.

Strengthening data marketing to increase the value provided to customers

Tri-Star’s business vision is to “bring digital transformation and innovation to direct marketing.” The company recognizes that its strengths lie in data marketing for offline media, digital marketing using AI, and its marketing tool infrastructure including media and direct mailing assets.

Tri-DDM

In December 2019, the company began providing Tri Direct Data Marketing (Tri-DDM), a new service that consolidates and analyzes direct marketing data and enables measures aimed at improving customer acquisition and customer relationship management (CRM). The goal of this service is to provide support aimed at maintaining or improving cost per order (CPO; cost incurred to acquire a single order for products or services)related to TV infomercials and raising lifetime value (LTV: the total value a single customer generates for a company during the time he or she performs transactions with it).

Tri-DDM includes the consolidation of a variety of data, linking this data with marketing initiatives, and a customer data platform (CDP).Tri-DDM uses business intelligence (BI) tools to perform immediate, precise analysis of marketing strategies using direct marketing data integrated on the Arm Treasure Data CDP (customer data platform provided by Treasure Data K.K.) This facilitates analysis of media selection and contact center operational status to maintain and improve CPO as well as CRM initiatives aimed at boosting LTV.

The company does not receive direct compensation separately from customers in exchange for providing platforms. Instead, the company obtains earnings as added value (generated by encouraging customers to place advertisements) in the Direct Marketing Support segment (SaaS usage fees). At the same time, the company indicated that customers using Tri-DDM shoulder actual costs associated with monthly CDP usage fees.

Status of Tri-DDM

Existing clients have been gradually implementing Tri-DDM: Tri Direct Data Marketing, a direct marketing platform provided by the company. As of November 2021, 35 companies have adopted this platform. The service helped achieve target key performance indicators at each client (quantitative targets worked out with individual clients, including order rates*¹ and upsell conversion rates*², that are primarily applied to call centers). According to the company, performance generally improves from previous levels by about 10%.

Tri-DDM was relaunched in August 2021. The menu structure has been updated, screen specifications have been changed, and new screens have been added to improve convenience. The renewal has enabled the company to more quickly and accurately comprehend necessary information and current states of progress toward target achievement, allowing for more precise and speedy proposals.

Core services include: 

Media reporting: Service providing analysis of results associated with specific TV broadcast timeslots (enables metrics such as cost per order [CPO; cost required to acquire each product or service order] to be shown in real time)

Contact center reporting: Quantitatively reports on metrics such as response rate, order rate, upsell conversion rate, and operator utilization rate

Purchaser profile analysis: Statistical data regarding purchasers (gender, age, area, etc.). Previously, order data obtained from purchasers was simply passed along to clients in unaltered form.

 Through Tri-DDM, the company has launched a service that imports attribute data into a system and allows users to analyze purchaser profiles on-screen.

• AI-based phone call forecasting: Reporting that uses AI to predict the volume of calls that will be received during TV broadcasts. Direct marketing through television programs aims to receive orders via telephone. Accordingly, companies conducting this type of marketing need to predict the volume of calls they will receive and allocate an appropriate number of personnel to their call centers.
• Offer database: This service creates a database of all client products and provides offers (order elements) that have been optimized according to product categories (for example, selling products at half price, offering free samples, etc.).
  

The company has launched three new services since December 2020.

• Video resonance analysis: This service provides a visualization of how well TV shopping programs resonate with viewers. The company conducts analyses and observations on the data obtained through call volume*³ waveform measurement, which is conduced while a program is on air, and online questionnaire surveys (approximately 300), then to propose specific improvements. The company says it can offer this service at roughly one-third of standard market prices since it is developed in-house.
  
• As of November 2021, the system has been rolled out to 76 videos from 37 companies.
  

• TV-linked listing ads: This is a system that automatically couples television broadcasting schedule data and listing ads bidding and management systems so that the information acquired through TV and online media can seamlessly be shared and managed. This service allows the operations of listing ads associated with places and times of broadcast as well as products on air. Specifically, it increases the conversion rate by raising bidding unit prices on general words for the products featured during given TV broadcast times.
• QR tracking service: This service was introduced in July 2021. It promotes the purchase of products through directing customers to e-commerce sites by placing QR codes in TV shopping videos. In the past, a certain number of viewers had searched the internet on their own to purchase products, but the exact total could not be ascertained. The QR tracking service gives the company accurate data on which TV broadcasts have led to purchases. In total, this service increases order numbers by 3–9% by enabling companies to capture orders that had previously gone to other companies' products through online searches while maintaining the volume of conventional telephone orders. In principle, the company plans to attach QR codes to all TV shopping programs it produces moving forward.

The company plans to develop the following service:

• AI-based order prediction: The company is currently developing a service that utilizes AI to predict the number of orders for each broadcasting slot using various data to predict the number of orders. This minimizes wasted effort in terms of selection of broadcast slots and call center staffing.

Through Tri-DDM, the company will utilize big data and AI technology to optimize marketing processes across multiple channels and maximize the effects these processes generate. In the future, the company wants to convert Tri-DDM into a foundation for marketing services provided through the TV, web, and Direct Marketing businesses. By making this conversion, the company aims to increase the value it provides to customers and raise its own corporate value.

Growing the customer base through cross-channel and AI marketing services

adflex launched the cross-channel service “urutere”*⁴ in April 2021. The service helps to visualize the effects of TV commercials on online orders, achieving a programmatic advertising framework similar to that of digital advertising that uses a PDCA (plan-do-check-act) cycle. adflex also provides marketing services that optimize digital advertising operations (SEM and SNS advertising) using AI, such as Optmyzr*⁵, Pattern89*⁶, Zalster*⁷, Lytics*⁸, and Dynamic yield*⁹. The subsidiary aims to develop customers in digital industries (finance and real estate) through cross-channel and AI marketing services.

The company aims to utilize the above-mentioned TV-linked listing ads and QR tracking services to expand its cross-channel customer base.

Launching new businesses

Tri-Stage aims to launch new services by pursuing digital transformation of existing businesses and leveraging their strengths. At present, the company is considering online sales/marketplaces for marketing tools. The company already sells TV commercial broadcasting slots online through its Sokures service and introduces Direct Mailing services over the internet. However, it is working toward further digital transformation of the sales channels of these services. The company produces about 1,000 videos a year for TV. It currently relies on its personnel for the production expertise needed to carry out these orders. However, the company plans to promote the digital transformation (DX) of its video production by using AI to analyze videos.

In December 2020, the company launched its video resonance analysis service. This is a service that visualizes and analyzes viewer engagement in TV shopping, and improves the company's hit video production capabilities. It utilizes call volume waveform measurement and questionnaire surveys when videos are aired, and analyzes the results from multiple perspectives and proposes specific points for improvement.

(Reference) Previous medium-term business plan: “Tri’s vision 2021” and “Rolling Plan 2019”

Overview

Tri-Stage announced its three-year medium-term business plan, Tri’s vision 2021 (ending in FY02/21), at the time of its FY02/18 earnings announcement. However, with conditions having changed significantly since the plan was put together as the company missed its initial forecast for FY02/19 due to write-downs of investments in overseas subsidiaries and affiliates, the company found itself straying from its original medium-term plan, so much so that it re-evaluated the group’s growth strategy and original plan and came up with a new two-year plan that it announced at the time of its FY02/19 results announcement. Dubbed Rolling Plan 2019, the new medium-term plan covers FY02/20 and FY02/21.

Under Tri’s vision 2021, the company set a FY02/21 target for consolidated sales of JPY60.0bn (+7.6% versus FY02/18) and operating profit margin of 4.5% (versus 1.9% in FY02/18). In contrast, Rolling Plan 2019 targeted FY02/21 sales of JPY63.0bn (+13.0% versus FY02/18) and an operating profit margin of only 2.7%. The new plan called for “creating a new foundation for value” in FY02/20, meaning the company will continue building up its business infrastructure as it did in FY02/19, then move on to a new stage in FY02/21.

Group strategy

Establish areas of focus

Having established the Direct Marketing Support business run by Tri-Stage Inc., the web business run by subsidiary adflex communications, Inc., and the Direct Mailing business run by subsidiary Mail Customer Center Co., Ltd. as the group’s main areas of focus, the company concentrated management resources in these three companies.

“Select and focus” early on

Through upfront spending and concentrating resources, the group’s base operating profit* expanded from JPY884mn in FY02/19 to JPY1.2bn in FY02/21. However, the company recorded consolidated results of JPY47.8bn in sales and JPY1.3bn in operating profit in FY02/21, falling short of its sales target of JPY63.0bn (+13.0% versus FY02/18) and OPM target of 2.7% (target of JPY1.7bn in operating profit).

Expansion of growth businesses

Establishing a DDM platform

The company shifted its core strategy from direct marketing to direct data marketing (DDM), emphasizing Tri-DDM as a growth driver. The company constructed a DDM platform capable of integrating and analyzing assorted data, including purchase history, behavior history, and advertising information, and promoted to support customer companies comprehensively by securing new customers and improving customer lifetime value. With the Tri-DDM platform completed, the company has begun digital transformation of media and call center service operations. As better data is needed before further digital transformation will lead to gains in efficacy, the company plans to work on cross-channel (online) services toward this end.

Expansion of the web business

As a result of its effort to enhance the web business (mainly adflex), the company completed upfront spending and preparations to address changes in business format stemming from the active use of AI tools. The company worked to provide AI-based advertising solutions. Although it made steady progress in acquiring customers, expansion of the business was slower than expected due to the impact of the COVID-19 pandemic. As a result, the company was unable to achieve its goal of bringing the business into the black in FY02/21.

Others

The company implemented groupwide measures such as providing TV-linked ad listings. It launched Sokures as a new means of selling TV broadcasting slots. It also established Tri-Stage Media with the aim of strengthening its purchasing functions. In addition, the company completed restructuring of internal controls, and plans to further enhance them moving forward.

Business

Overview

Comprehensive support for direct marketing

Tri-Stage provides services that support direct marketing companies, mainly those engaged in TV shopping. The company has two main businesses, the Direct Marketing Support segment and the Direct Mailing segment. In FY02/21 sales were JPY47.8bn and operating profit was JPY1.3bn. The Direct Marketing Support segment accounted for 58.0% of sales and 83.9% of operating profit, and the Direct Mailing segment for 38.0% of sales and 24.9% of operating profit.

The mainstay Direct Marketing Support segment comprises the TV and web businesses. In the TV business, Tri-Stage specializes in TV shopping programs (more than 90% of segment sales). The company buys broadcasting slots in bulk from TV stations, and boasts strengths in the selection and provision of broadcasting slots suitable for products (“media selection”), the taking of product orders at partner contact centers around Japan (“order receiving support”), and the production of programs based on its unique expertise (“program production”). Further, according to Tri-Stage, it holds more than 20,000 broadcasting slots per month, boasting the largest market share in Japan. The web business provides AI tools to improve ad performance to companies engaging in direct marketing.

In the Direct Mailing segment, it carries out direct mailing preparation services which encourage repeat purchases by consumers. The company’s subsidiary Mail Customer Center Co., Ltd., acquired in 2012, is one of the top in the industry by number of direct mail pieces sent (over 300mn per year).

In the Overseas segment (accounting for 1.8% of sales and 1.9% of operating profit in FY02/21), in addition to TV shopping support, the company aimed to provide sales support for retail, e-commerce, and catalog mail orders, and expanded local sales channels. Tri-Stage made JML Singapore Pte. Ltd., a major TV shopping company in Singapore, and PT. Merdis International, a wholesaler to TV shopping programs in Indonesia, subsidiaries in September 2016 and December 2016, respectively. However, Tri-Stage was unable to recover its initial investment in JML Singapore and transferred its stock in FY02/20 in line with its strategy of focusing on selected businesses.

The Retail segment (2.2% of sales and -10.6% of operating profit in FY02/21) includes Nippon Department Store Inc., which the company took over in March 2016. Nippon Department Store retails local specialties from various regions of Japan under the Nippon Department Store brand name.

Until December 2020, the company sold Japanese-made Kampo medicines and supplements* through Nippon Healthcare Advisors (consolidated subsidiary established in March 2016),starting in March 2017 and did sales through television shopping programs starting in October 2017. Nippon Healthcare Advisors sold distinctive Japanese-made Kampo medicines and supplements while providing consultation by pharmacists. The Mail Order business was borne out of the company’s efforts to increase its understanding of mail order customers and expand its customer relationship management practices in the future. However, the company sold the business in FY02/20, because it did not turn an operating profit and produced no customer synergies with the Direct Marketing Support segment.