Executive summary

Independent mobile phone store operator with a focus on SoftBank

Bell-Park operates mobile phone stores affiliated with telecom carriers. Its core business is the sale of mobile devices such as smartphones, tablets, and phone handsets and mobile device accessories, fiber optic services, and after-sales services. It directly runs stores and franchises in major urban centers (Tokyo, Osaka, and Nagoya). The number of stores has been rising as the company has made acquisitions (more than 80 deals to date). As of end-FY12/20, the company operated a total of 363 carrier stores (versus 343 at end-FY12/19), including 304 SoftBank stores (versus 297), eight NTT Docomo stores (unchanged), seven au stores (unchanged), and 44 Y!mobile stores (versus 30). Revenue is mainly from the sale of mobile devices such as smartphones and tablets to subscribers, accessory sales, commissions on the sale of subscription plans (incentives), agency commissions on applications for various services, stock commissions, and subsidies from mobile phone operators (see the Business section for further details).

Earnings results and outlook

In FY12/20, Bell-Park reported sales of JPY98.8bn (-4.3% YoY), operating profit of JPY5.1bn (+15.5% YoY), recurring profit of JPY5.3bn (+22.1% YoY), and net income attributable to owners of the parent of JPY3.6bn (+19.1% YoY). Despite voluntary restraint on sales activities due to the COVID-19 pandemic, unit sales of mobile phone handsets and other mobile devices grew 3.7% YoY to 846,000, due mainly to an increase in the store count. In addition, sales of products other than handsets such as high-margin fiber optic services and cashless payments services were robust. In addition, revision of the Telecommunications Business Act led to a lower average selling price for mobile phone handsets, and the cost of sales and sales promotion expenses both declined YoY. OPM improved 0.9pp YoY to 5.1%.

For FY12/21, Bell-Park forecasts sales of JPY89.0bn (-10.0% YoY), operating profit of JPY4.5bn (-10.9% YoY), recurring profit of JPY4.5bn (-15.9% YoY), and net income attributable to owners of the parent of JPY2.9bn (-19.9% YoY). In FY12/21, Bell-Park aims to sell some 850,000 (+0.4% YoY) mobile phone handsets and other mobile devices, taking into account the increase in store count achieved during 2020. The company will work to improve the consulting skills of its store staff, making them better able to understand how customers are using their handsets so that they can propose the most suitable fee plans and services offered by the various telecom carriers. It will also continue its efforts to improve profitability over the long term by increasing the efficiency of store operations through the promotion of a dominant store network, renovating or relocating stores to attract more customers, and further improving efficiency in back-office departments.

The company does not announce medium/long-term targets in part due to ongoing changes at its core mobile device sales operations, but it does have three medium-term goals for maintaining stable growth in the longer term: maintain steady growth in communication device sales; expand its business portfolio; and maintain a dividend payout ratio of at least 30%.

Revenue at the company’s carrier stores is not determined solely by sales volume such as the number of handsets sold and contracts signed, but evaluation from the carriers from time to time on the degree to which important benchmarks have been met by the stores. Commissions received from the carriers can vary dramatically depending on these evaluations. Bell-Park is taking a number of initiatives to improve the profitability of the stores in the medium and long terms, including improving the consulting abilities of its store staff, streamlining store operations, renovating stores to provide a comfortable, welcoming environment, and moving to prime locations with higher customer pulling power. Bell-Park also plans to build a dominant market position by continuing to take over operations of other subscription agencies and expand its store network.

Strengths and weaknesses

We think Bell-Park’s strengths lie in its skilled store staff, financial strength, focus on SoftBank products, and prime store locations. Weaknesses include reliance on mobile phone sales and over-reliance on SoftBank Mobile (details in the Strengths and weaknesses section).

Key financial data

Recent updates

Stock split

Bell-Park Co., Ltd. announced a stock split. 

With December 31, 2021 as the record date, the company will conduct a 3-for-1 stock split of its common shares owned by shareholders registered or recorded in the shareholder registry as of the end of the record date. The stock split is scheduled to take effect on January 1, 2022.

Increase in the number of shares as a result of stock split

• Total number of shares outstanding before stock split: 6,732,600 shares
• Total number of shares outstanding after stock split: 20,197,800 shares
• Total number of authorized shares after stock split: 79,110,000 shares

Trends and outlook

Quarterly trends and results

Q3 FY12/21 results (out November 5, 2021)

Summary

In cumulative Q3 FY12/21, Bell-Park reported sales of JPY80.8bn (+13.3% YoY), operating profit of JPY4.0bn (-10.1% YoY), recurring profit of JPY4.0bn (-11.3% YoY), and net income attributable to owners of the parent of JPY2.7bn (-13.1% YoY).

Progress rates: Versus the full-year forecast, sales reached 90.8% (cumulative Q3 progress rate in FY12/20 was 72.1% of the full-year results), operating profit 89.9% (89.1%), recurring profit 89.3% (84.7%), and net income 93.1% (85.8%). Bell-Park made no changes to its forecast for the full year.

Sales up 13.3% YoY, operating profit down 10.1% YoY: In cumulative Q3 FY12/21, sales were up 13.3% YoY and gross profit up 7.0% YoY, as store visits by customers contemplating service plan changes increased and led to a YoY growth in the number of mobile phones and other products sold. However, in Q3 FY12/21 (July–September 2021), sales rose 2.7% YoY, but gross profit fell 5.4% YoY due to a decline in commissions received from telecom carriers, despite a YoY increase in mobile phones and other products sold.

In cumulative Q3 FY12/21, GPM fell 1.5pp YoY to 24.3%. SG&A expenses—particularly personnel expenses and rent—rose YoY due to an increase in paid overtime associated with higher customer traffic, as well as the rise in store counts. Still, the SG&A expense ratio fell 0.1pp YoY to 19.3%, helped by the YoY sales growth. OPM came to 5.0%, down 1.3pp YoY, as a result.

External environment

In the mobile phone market, the company’s main business area, the major carriers reduced telecommunication fees and launched internet access-exclusive plans in response to requests from the Japanese government asking for reductions in mobile phone service fees. Accordingly, price competition between carriers has intensified, with mobile virtual network operators implementing or announcing telecommunication fee reductions.

Number of stores

The company operated a total of 363 carrier stores at end-September 2021 (363 at end-June 2021). Of these, 299 were SoftBank stores (299), eight were NTT Docomo stores (eight), seven were au stores (seven), and 49 were Y!mobile stores (49). Of the total 363 stores, 302 were directly operated stores and 61 were franchises.

The company had five fewer SoftBank stores and five more Y!mobile stores than at end-FY12/20. The number of NTT Docomo and au stores in operation did not change. It had four more directly operated stores and four fewer franchise stores than at end-FY12/20.

For details on previous quarterly and annual results, please refer to the Historical financial statements section.

Full-year company forecast

Overview

For FY12/21, Bell-Park forecasts sales of JPY89.0bn (-10.0% YoY), operating profit of JPY4.5bn (-10.9% YoY), recurring profit of JPY4.5bn (-15.9% YoY), and net income attributable to owners of the parent of JPY2.9bn (-19.9% YoY).

The company announced an upward revision* to its 1H FY12/21 forecast.

While the progress rates of sales and earnings through 1H have thus far outpaced the company's full-year projections, Bell-Park opted not to change its forecast for the full year. It based this decision on the flattening of customer traffic in Q3 following the increase in 1H, along with other uncertainties in 2H such as the persistent rise in the spread of highly transmissible COVID-19 variants (e.g., the delta variant). The company said it will make prompt disclosure when the need to revise its full-year forecast arises. 

Assumptions underlying the company’s forecast are as follows.

Uncertainty regarding the Japanese economy is expected to continue despite ongoing measures to prevent the spread of COVID-19 both inside and outside Japan, but there is hope of steady recovery once a vaccination program is rolled out.

Bell-Park anticipates significant change in the business environment for sales of mobile phone handsets and other mobile devices (refer to the Telecom carrier trends section hereinafter).

The company will work to improve the consulting skills of its store staff, making them better able to understand how customers are using their handsets so that they can propose the most suitable fee plans and services offered by the various telecom carriers.

It will also continue its efforts to improve profitability over the long term by increasing the efficiency of store operations through the promotion of a dominant store network, renovating or relocating stores to attract more customers, and further improving efficiency in back-office departments.

In FY12/21, Bell-Park aims to sell some 850,000 (+0.4% YoY) mobile phone handsets and other mobile devices, taking into account the increase in store count achieved during 2020.

The FY12/21 dividend forecast is JPY136 per share (interim dividend JPY68, year-end dividend JPY68), representing a dividend payout ratio of at least 30% (FY12/20 dividend was JPY170 per share (interim dividend JPY61, year-end dividend JPY109).

Forecast assumptions

In FY12/21, Bell-Park expects negative factors affecting sales and profits to outweigh positive factors. The forecast incorporates a possible decline in customer visits to existing stores.

The following positive factors are likely to affect sales and profits.

The company expects growth in unit sales at stores opened in FY12/20 and plans to continue opening stores in FY12/21.

It aims to increase unit sales in the corporate sales business by adding staff.

It expects unit sales will recover from the decline caused by voluntary restraint on sales activities during the government’s emergency declaration in April–May 2020 (actual monthly sales improved YoY in January 2021).

Cost control: The company will continue to keep costs under control through improved operational efficiency in back-office departments.

The following negative factors are likely to affect sales and profit.

Although Bell-Park projects a slight increase in unit sales (+0.4% YoY), a drop in the average selling price per unit and lower telecommunication fees will reduce average revenue per user (ARPU).

Starting in April 2021, it is possible there will be fewer customers visiting carrier stores due to the introduction of special fee plans* for online applications.

Cost increase: The company expects SG&A expenses to increase due to the higher store count and IT security measure enhancement.

Telecom carrier trends and company response

The following are the company’s views on mobile telecom carrier trends and its response to these trends.

Under the administration of Prime Minister Suga, the government has called strongly for lower mobile phone fees. As a result, mobile telecom carriers have been introducing attractive plans, and telecommunication fees have been falling.

With four major carriers now offering fee plans exclusively for online applications, Bell-Park understands that fewer customers may visit carrier stores and that a decline in stock commissions is inevitable.

The business environment has become more difficult for subscription agencies. Carrier stores must work harder to improve their skills and customer satisfaction.

The emergence of a variety of 5G services has created an environment more conducive to providing customers diverse and optimal services (in December 2020, 5G handsets accounted for nearly 60% of the company’s unit sales).

Growth initiatives

Steady growth in communication device sales

Carrier stores

The company has some 2,100 staff members working at stores as of February 2021. In FY12/20, the turnover rate stabilized at a relatively low level as the pandemic cooled the job market. Bell-Park has established an online training system and intends to strengthen its human resource development and hiring of talented people.

As it is difficult to control subscription agencies in remote areas, the company employed the method of switching stores between agencies in FY12/19 and FY12/20 and plans to continue using this method to improve the efficiency of store operations.

It will also steadily pursue investment in stores (for relocating and renovating stores and for expanding its store network through suitable investment).

Corporate sales

In FY12/20, Bell-Park recorded record profit in the corporate sales business. The company thinks there will be opportunities to expand corporate sales due to telework-related demand and 5G response. It will work to win new corporate customers and build new related services revolving around mobile phone handsets and PCs.

Building new earnings drivers

The company will work on developing matchmaking support services; planning, import, and wholesaling of IoT devices; and a job placement service for people in their 40s, 50s, and 60s.

It plans to create and expand businesses related to its existing businesses that can serve as new earnings drivers, taking advantage of M&A as appropriate.

Ongoing countermeasures against COVID-19

Bell-Park is ensuring that proper measures are conducted at carrier stores, including checking customers’ temperatures, having staff wear masks and goggles, and installing acrylic partitions to provide a virus barrier when staff are providing customer service. It is also conducting periodic PCR testing of staff.

At the head office and business offices, the company encourages telework (some departments excepted) and has moved most meetings, business negotiations, recruiting sessions, interviews, and training online.

It conducts weekly health status questionnaires for all employees using a smartphone app.

Social contribution through business activities

Children’s 110 Stores: To help ensure that local children can safely get to school and back home, six of the stores operated by the company in Aichi Prefecture are registered as “Children’s 110 Stores” (where children can shelter if something happens; 110 is the telephone number for the police in Japan so it is a symbol of safety).

Handset recycling: In support of the recycling activities of the telecom carriers and the Mobile phone Recycling Network (MRN), the company collects used handsets at the carrier stores it operates. Some stores present people who cooperate with recycling efforts with eco-friendly shopping bags printed with an original logo.

Management strategy

The future for carrier stores

Bell-Park thinks the positioning of carrier stores will change significantly over the medium to long term. Amid efforts by the Ministry of Internal Affairs and Communications to foster competition, MVNOs offering discount smartphones and sub-brands by the major telecom companies have risen in prominence and spread. The major carriers offer a variety of payment plans in their main brands, widening the choices available to customers. Meanwhile, the major carriers use their customer base to offer other services such as electricity and credit cards. There was also a great deal of debate and investigation surrounding the Ministry of Internal Affairs and Communications efforts to optimize mobile phone services, resulting in partial revision of the Telecommunications Business Act in October 2019. Given these trends and the impending diffusion of new technologies, such as 5G and IoT, Bell-Park expects carrier stores to move away from simply selling handsets to serving as the coordinator that brings these new technologies to customers. The company therefore believes in the importance of cultivating store staff who have high-level hospitality and consulting skills.

Ahead of the launch of 5G in 2020, 5G frequency bands were assigned in April 2019. Thereafter, 4G frequency bands were also approved for use under 5G. Following the field trials and events scheduled during 2019, the commercial 5G services started in 2020. Characteristics of 5G include: 1) Enhanced mobile broadband (eMBB) to provide ultra-high-resolution displays, 3-D video, and augmented reality (AR); 2) high-volume, communications with a large number of communication endpoints under massive machine-type communication (mMTC) aimed at smart cities and IoT; and 3) ultra-reliable and low latency communication (URLLC) for mission-critical applications such as remote surgery and autonomous driving that depend on real-time telecommunications.

Qualitative medium-term targets

Partly because Bell-Park’s business category, selling mobile phones, is undergoing major changes, the company does not publish medium- to long-term numerical targets. However, the company does define three qualitative medium-term objectives: maintain steady growth in the business of selling communication devices; work to expand the business portfolio; and secure a consolidated dividend payout ratio of at least 30%.

Steady growth in the communication device sales business

To continue receiving high evaluations from its customers and telecom carrier partners, Bell-Park will work to enhance in-store staff's consultation skills and improve store operating efficiency while also renovating its stores to make them more comfortable and convenient for customers and, when necessary, relocating to better locations.

The company will continue to use M&A and new store openings to expand its network with profitable stores by keeping related spending at levels that ensure a sound return on investment.

Business portfolio expansion

Bell-Park plans to expand its business portfolio by further developing the skills of employees trained in existing businesses, conducting M&A in other business areas that will be able to utilize the store management expertise accumulated through existing store operations, and forming a special new business development team tasked with developing new IoT products and services.

Consolidated dividend payout ratio of at least 30%

Bell-Park has positioned shareholder returns as one of management’s most important objectives. Management is targeting a payout ratio of at least 30% from FY12/21 onward.

Focus areas

Bell-Park understands that the following four areas need management’s attention.

Steady growth in the communication device sales business

The number of handsets sold at Bell-Park group carrier stores are in a downward trend owing to the changing business environment, including the new rules imposed by the Ministry of Internal Affairs and Communications (MIC). However, the company thinks these stores are gradually evolving toward revenue generation not just by selling handsets but by providing individuals and families with a range of products and services, including mobile phones, wearable devices, fiber-optic internet services, electric power services, and electronic payments.

As 5G, IoT and other new technologies come into greater use, Bell-Park expects its carrier shops will increasingly assume the role of a coordinator that connects customers with these cutting-edge technologies.

To achieve steady growth of the Bell-Park group, management is focused on responding quickly to changes in the market environment, earning high evaluations from customers, and expanding its store network in prime locations that will generate high profit margins.

To continue earning high evaluations from its customers, the Bell-Park group will constantly enhance in-store staff’s consultation skills, improve store operating efficiency, renovate its stores to make them more comfortable and convenient for customers, and, when necessary, relocate stores to locations that have stronger customer drawing power.

The company will continue to expand its network with profitable stores by using M&A and new store openings, while keeping related spending at levels that ensure a sound return on investment.

Building a broader business portfolio

The Bell-Park group intends to build a more diversified business portfolio. In addition to its recent entry into such new businesses as matchmaking support services and the planning, import, and wholesale IoT devices, the company now is considering moving into personnel-related services and other yet untapped business domains.

It is also considering entering areas where it can leverage the personnel development and store-operation knowhow accumulated through its current business activities.

Recruiting and developing human resources

The Bell-Park group vision is to “Become a corporate group that uses highly trained people and innovative services for long-term growth.” The company thinks the hiring, training and growth of its employees lead to the development of new services and are essential to sustaining the group’s growth over the long term.

Accordingly, the group intends to pay thorough attention to employees’ mental health, satisfaction with their working environment and other conditions, and implement work-style reforms that will promote the growth of its employees over the long term.

Bell-Park employees conduct their duties on the basis of a core value installed by management that each employee should believe in their own potential and keep challenging themselves, with the knowledge that successes and failures both will lead to individual and corporate growth. Management is dedicated to the further promotion of this Bell-Park corporate culture.

The company will engage in personnel development as a means to achieving the long-term growth of the Bell-Park group.

Sustainability initiatives, such as environment, social and governance (ESG) measures

Another core group value is to achieve mutual prosperity with all the group’s stakeholders, including customers, employees, business partners, shareholders and local communities. Accordingly, the group has positioned initiatives to help realize a sustainable society as an important management priority.

To achieve a proper balance between sustainable growth of the group and contributions to realizing a sustainable society, the Bell-Park group is planning to implement appropriate measures in all areas related to ESG.

Shared Research’s perspective

Shared Research recognizes that mobile telecom carriers’ stance toward acquiring customers is significantly different from 10 years ago due to a rise in the penetration rate of subscribers, the maturing of the industry, and regulations. However, we believe the mobile telecom carriers will continue to depend on distributers for subscription and handset sales. In addition to communication services, mobile telecom carriers are bundling a variety of services and products, including electricity and gas, to avoid becoming providers of dumb pipe, and they need people and locations to explain their services and products to end-users. The company has been keeping its distance from mobile virtual network operators (MVNOs), which have a sales model that does not depend on physical stores.

The number of carrier stores is likely to shrink (but stores are expected to grow larger), although not to a point of disrupting user convenience. However, Shared Research believes that there is not necessarily a lot of room for broad cuts to the total amount of sales commissions that the mobile telecom carriers pay to subscription agencies. This is because when these carriers, which do not sell services and handsets directly to general customers, go too far in streamlining sales agency channels and sales commissions, it leaves them susceptible to a decline in the level of services and added value, and could place them at a competitive disadvantage.

Since the beginning of 2021, major mobile telecom carriers have launched their own special fee plans for use when subscribers apply online, and this is proving to be a headwind to subscription agencies. However, there are still plenty of mobile phone users, such as the elderly, who lack IT literacy or who simply do not want to deal with the trouble of applying online. As mobile telecom carriers work to expand their economic sphere by providing additional services, such as payment-related services, there are still many users who rely on subscription agencies. Against a backdrop of intensifying competition and business succession issues, Bell-Park expects to see consolidation among its peers, but if it can absorb staff leaving other companies to expand its own scale, it can enjoy the benefits of being a survivor in the medium to long term.

Business

Business description

Bell-Park mainly operates mobile phone stores affiliated with telecom carriers.

The company’s core business is the sale of mobile devices such as smartphones, tablets, and phone handsets and mobile device accessories, fiber optic services, and after-sales services through stores affiliated with telecom carriers.

Bell-Park directly runs stores and franchise outlets in major urban centers (Tokyo, Osaka, and Nagoya). Store count has been increasing as the company pursues acquisitions. As of end-FY12/20, the company operated a total of 363 carrier stores (versus 343 stores at end-FY12/19, 319 at end-FY12/18), including 304 SoftBank stores (versus 297 stores at end-FY12/19, 285 at end-FY12/18), eight NTT Docomo stores (unchanged, unchanged), seven au stores (unchanged, unchanged), and 44 Y!mobile stores (30, 18).

Business model

Bell-Park’s business model is centered on operations of stores affiliated with telecom carriers, where it mainly sells handsets and subscriptions as an agency.

Main revenue sources: sales of mobile devices such as smartphones and tablets to subscribers, sales of accessories, commissions on the sale of subscription plans (incentives), agency commissions on applications for various services, stock commissions, and subsidies from mobile phone operators.

Sales commission

Telecom carriers buy mobile phones from manufacturers, and subscription agencies buy these handsets from carriers to sell to consumers. Subscription agencies usually sell mobile handsets to consumers at lower prices than carriers.

Subscription agencies would accumulate losses if they kept selling handsets at prices lower than what they paid. Therefore, they receive subsidies from telecom carriers through sales commissions. A portion of the commissions is used to finance rebates for mobile handset purchases, and the remainder becomes profit for the subscription agencies. Sales commissions are booked as revenue, while gift certificates used for sales promotion are treated as sales promotion costs under SG&A expenses.

Telecom carriers usually pay different sales commissions depending on whether the purchase is by a new customer or by an existing subscriber replacing a handset. For carriers, increasing new subscribers is essential for growth. The difference in commissions paid for new subscribers and for existing customers is used mostly to finance handset rebates, so handset prices for new subscribers tend to be lower than those for existing customers.

Sales commission structure

Mobile telecom carriers pay subscription agencies sales commissions, which are determined based on various conditions. Shared Research understands the agency contract between SoftBank and Bell-Park is renewed once a year but commissions are reviewed as necessary.

Commissions are controlled by several factors and complex rules, including the type of handset being purchased; whether the sale is to new subscribers or to existing customers seeking replacement handsets; customer satisfaction; operating performance; and competition among telecom carriers.

1. Purchased handsets: Carriers pay higher commissions for handsets that may help attract new subscribers, or when they wish to reduce inventories of unpopular models.
2. New subscribers, handset replacement, and number portability: Commissions are the highest for subscribers switching from another provider with the number portability option, followed by those for new subscribers without the number portability option, and then for existing users replacing their old handsets. In Japan the number of mobile subscribers exceeds the entire population, and there are few new customers without mobile phones. Therefore, mobile carriers must entice customers away from rivals. Carriers accordingly pay high commissions to subscription agencies for customers who choose the number portability option.
   
3. Customer satisfaction: Since carriers recoup sales commissions in the form of telecommunication fees, they must ensure that subscribers continue to use the service. Thus, customer satisfaction at agencies that directly deal with customers is important to keep the churn rate low. Subscription agencies with high customer satisfaction receive higher sales commissions.
   
4. Operating performance: Carrier stores are ranked by operating performance, with better performing stores more likely to receive higher sales commissions.
   
5. Competition among telecommunications carriers: Carriers tend to pay high commissions when there is strong competition. Carrier stores use a large portion of the increased sales commissions to cover rebates to the customers.
   
6. Other intermediate commissions: The mobile phone operators each have implemented various measures to increase added value and prevent termination of service contracts. From 2015 onward, package deals have also been introduced to offer discounts when mobile phone service is purchased in tandem with fiber optic internet or electrical power services. Commissions for contracts on these peripherals services also serve as sources of revenue for subscription agencies.
   

Stock commissions

Subscription agencies receive another type of commission in addition to sales commissions from the carrier for 60 months after the addition of a new subscriber. The amount is the average monthly revenue per user multiplied by a specified factor. While the company does not disclose this multiplication rate or the exact revenue per user, Shared Research estimates the rate has fallen to around the mid-single digit level.

Needless to say, these stock commissions are terminated if the subscriber cancels the contract. If subscribers cancel their contract within six months, they must pay cancellation fees to the carrier. Subscription agencies must also pay back sales commissions to the carrier.

Stock commissions are also paid for a specific period of time for handset replacements, based on the idea that to a certain extent, promoting handset replacements helps lock in subscribers. Although accurate numbers and rates are not publicly available for replacements (as in the case of new sales), based on the same concept as for sales commissions Shared Research assumes that stock commissions are lower than for new subscribers.

Major determining factors for stock commissions are units sold, churn rate, and the average revenue per user (ARPU).

While Bell-Park does not disclose its churn rate, the average churn rate for SoftBank contracts was 0.89% in FY12/20 (versus 1.04% in FY12/19; source: Shared Research calculation based on SoftBank data). SoftBank operates three brands with different features: SoftBank, Y!mobile, and LINE Mobile. Each caters to different customer needs. Y!mobile has attracted a wide following among light users looking for an affordable plan, and has the No. 1 market share in the discount smartphone market. In October–December 2020 the smartphone churn rate was 0.64% (0.53% in October–December 2019). In our view, Bell-Park’s churn rate is slightly lower than that of SoftBank; Bell-Park typically operates stores featuring stronger consulting capabilities than competitors, and the company’s stores are operated by experienced full-time employees. The graphs below show the average revenue per user (ARPU) at SoftBank. Telecom ARPU had been declining since Q2 2014 (April–June) but in October–December 2018 it turned up slightly, rising 1.2% YoY. Thereafter, ARPU rose 2.1% in Q1 2019 (January–March), 3.0% in Q2 (April–June), 2.8% in Q3 (July–September), and 1.4% in Q4 (October–December). However, it then fell 1.4% in Q1 2020 (January–March), 3.4% in Q2 (April–June), 3.4% in Q3 (July–September), and 3.2% in Q4 (October–December). This downward trend is the result of plans that separate handset charges from telecommunication fees and changes in the way telecommunication fee discounts are recorded following revision of the Telecommunications Business Act.

KPI for mobile business of SoftBank

Regarding ARPU for data, which accounts for a large share of telecom ARPU, carriers would not benefit from the availability of a wide range of applications and extensions unless subscribers use them. Subscribers will not change mobile handset use unless they are taught to use new functions. Therefore, for subscription agencies such as Bell-Park, teaching users how to use handsets is key to increasing ARPU.

Factors that affect revenue

Gross profit is largely determined by handset sales volume; the more handsets are sold the greater commission volumes.

The company’s SG&A-to-sales ratio is about 18% (average from FY12/16 through FY12/20). Personnel expenses have been the largest component, at about 56% of SG&A expenses. Legal complications associated with terminating employees in Japan mean that personnel expenses are more similar to fixed costs than variable costs.

Major variable costs are rent (about 14% of SG&A expenses) and advertising and sales promotion expenses (about 11%). It is Shared Research’s understanding that part of the commissions paid to subscription agencies is used for sales promotion such as cashback deals.

New customers have been accounting for a smaller share of mobile handset sales since 2016 than they did in 2010–2014 (as shown in the above graph).

Since FY12/16, major changes have occurred in sales methods for mobile phones. The legacy business model involved generous cashback deals targeting new contracts through passing on a portion of sales commissions to the consumer. The Ministry of Internal Affairs and Communications—the ministry with primary oversight of the telecom industry—expressed concern that excessive cashback offers through passing on sales commissions was a factor that obstructed fair competition among carriers, and formulated guidelines limiting excessive discounting on mobile devices.

The October 2019 revision to the Telecommunications Business Act has banned discounts on new handset sales conditioned upon users fulfilling the full length of their service contract and capped discounts at the time of entering into a new contract to JPY20,000.

Profitability snapshot and financial ratios

Comparing Bell-Park with industry leader T-Gaia Corp. (TSE1: 3738), the company has a higher net margin (3.7% in FY12/20 versus 2.7% for T-Gaia in FY03/20). Through 2019, T-Gaia generally maintained higher ROE and ROA. However, in FY12/20, the company’s ROA surpassed T-Gaia’s (see the following table).

Strengths and weaknesses

Strengths

Skills of in-store staff. The ability to explain to customers the services provided by mobile carriers and how to use mobile phones is more important than ever before. According to the company, the staff at its carrier stores not only have strong consulting skills but also excel in hospitality. Staff with a combination of knowledge and soft service skills is a major competitive advantage for Bell-Park carrier stores. Bell-Park has also demonstrated its ability to transfer these hard and soft skills to staff at the carrier stores it has acquired, which would allow it to reap the fruit of business successions in the event of further market consolidation.

Financial strength. The company has ample cash reserves and is able to choose from a number of fundraising options for its acquisitions. Its reputation as a preferred acquirer is also a strength that can help shape its growth through acquisition strategy.

Focus on SoftBank brand and prime store locations. SoftBank has been growing its market share aggressively following entry into the market in 2006. Bell-Park’s focus on the SoftBank Mobile brand means that it stands to benefit from SoftBank’s growth through ARPU commissions and a growing supply of potential after-sales service customers. It can leverage the sales expertise gained through relations with SoftBank in future business expansion. 80% of Bell-Park’s store network is based in the Kanto, Tokai, and Kansai regions. We understand the company also is effectively using its management resources to build a highly profitable store network.

Weaknesses

Reliance on handset sales. Major competing distributors are growing in related businesses, such as corporate solutions and sales of fixed-line services. Bell-Park’s earnings rely on handset sales—meaning mobile phone market trends and handset sales commissions have a significant effect on its earnings. The diffusion rate of mobile phones in Japan exceeds 100%. Further, the mobile operators face pressure to reduce charges from the Ministry of Internal Affairs and Communications. The two main areas with scope for cost reduction while maintaining profit are commissions to subscription agencies (including handset costs) and depreciation related to capex. They may thus review their existing commission structures. Changes such as diversification of sales methods and sales channels, including the spread of online sales, will warrant attention.

Reliance on SoftBank. SoftBank branded handsets, accessories, and plans are the majority of Bell-Park’s sales. As a result, Bell-Park’s performance is closely tied to the popularity of SoftBank handsets, accessories, and plans. Distributors that carry multiple carriers have a broader product offering in terms of phone plans and handset models. Bell-Park is developing its stores with other carriers, but as of end-December 2019, around 90% of its carrier stores were under the SoftBank brand.

Supplementary information

The main focus on SoftBank is both a strength and a weakness, and the relationship could be considered symbiotic, although unequal in profits.

SoftBank receives market intelligence from Bell-Park. It trusts Bell-Park’s feedback as Bell-Park focuses on SoftBank. Information provided by Bell-Park is valued as much or more than other SoftBank distributors, a relative advantage given the company’s size.

The relationship seems comparable to major soft drink companies and regional bottlers. Soft drink companies are clearly more powerful in the relationship, but the arrangement benefits both parties.

The importance of Bell-Park to SoftBank can be seen in the percentage of SoftBank stores operated by Bell-Park, and in unit sales generated. As of, SoftBank stores were operated by Bell-Park (304 at end-December 2020, 297 at end-December 2019, 285 at end-December 2018, 258 at end-December 2017, and 256 at end-December 2016). While SoftBank does not disclose total store numbers, Shared Research estimates that about one in every 10 SoftBank stores is operated by Bell-Park. Bell-Park sold 846,000 devices (for all carriers) in FY12/20, equivalent to 9.2% of the 9,168,000 units shipped by SoftBank during the same period (calculated by Shared Research based on data from SoftBank). The sales ratio may appear to be lower than for the number of stores, but electronics retailers, general cell-phone retailers, and corporate sales also contribute to total unit sales for SoftBank. Considering these sales channels, the company’s unit sales contribution is significant, especially considering the size of its store network. Shared Research believes this is due to operating efficiency.

Group companies

Bell-Park liquidated its remaining subsidiaries and from FY12/09 consisted of only the main company. Bell-Park has a single business focus, mobile phone retailing, following the divestiture of Japan Pro Staff in 2008. In February 2014, Bell-Park acquired all shares in Bell-Park Next (formerly OC mobile), and began to release consolidated earnings in FY12/14. The company’s primary emphasis remains on mobile phone sales. Also, although currently unconsolidated, Bell-Park established Bellbride, Inc. and B-Lab, Inc. as wholly owned subsidiaries. Bellbride operates wedding consulting centers and provides wedding support services—areas where Bell-Park sees growth potential—and B-Lab plans, imports, and wholesales IoT devices.

Market and value chain

Market overview

Market scale

According to industry trend research company Gyokai Doko Search, the market size of the Japanese mobile phone retailing industry in 2019–2020 (total sales of 11 majors) was JPY831bn (-3.9% YoY). The top subscription agency (distributor) was T-Gaia Corp. (TSE1: 3738) with total sales of JPY474.2bn (mobile business and solution business combined; FY03/20). Second was Conexio Corp. (TSE1: 9422) with sales of JPY209.0bn (FY03/20), followed by Bell-Park in third place with sales of JPY103.3bn (FY12/19). Hikari Tsushin came in fourth with sales of JPY87.3bn (shop business: FY03/19; no figure was available for FY03/20 due to a change in reporting segments). These four majors accounted for about 90% of total industry sales (12 companies), indicating the oligopolistic market conditions continue.

According to Baseconnect, an online knowledge engine that enables searches of data from hundreds of thousands of Japanese companies and businesses, Japan had 2,293 mobile phone subscription agencies (based on searchable result) as of end-February 2020. According to the Ministry of Internal Affairs and Communications (MIC), the number of stores operated by subscription agencies exceeded 16,000 (source: interviews with members of MIC’s working group for reviewing and strengthening rules for protection of consumers). There are thought to be about 8,000 primary distributors and about 7,000 secondary distributors, with many of them being small and medium-sized businesses. We understand these companies create acquisition opportunities for larger players as aging business owners seek a successor for their business.

Mobile phone shipments in Japan

According to MM Research Institute data, shipments of mobile phones in Japan in FY2019 (From April 2019 to March 2020) totaled 31.3mn units (-9.6% YoY). Smartphones accounted for 28.0mn of this total (-8.5% YoY), for an 89.7% of all mobile phones (+1.1pp YoY). SIM-free smartphone shipments rose 0.5% YoY to 3.0mn units and accounted for 10.5% of all smartphone shipments (+0.7pp YoY), a new record. MM Research attributes the low FY2019 shipment volumes mainly to the impact of new fee plans following the partial revision of the Telecommunications Business Act. The hike in the consumption tax rate to 10% also weighed on unit sales in FY2019. There was a significant drop in the number of customers changing carriers due to a new cap on handset discounts and other corrective measures to limit sales methods that treated new acquisitions too preferentially. In addition, even at end-FY2019 before the Japanese government declared a state of emergency, the COVID-19 outbreak had begun to affect both supply and demand.

From January to December 2020, domestic shipments of mobile phones totaled 26.9mn units (-13.9% YoY). Smartphones accounted for 24.1mn of that total (-14.0% YoY), for an 89.6% of all mobile phone shipments.

Mobile phone subscribers

The mobile phone market in Japan is saturated. Comparing mobile phone subscriptions to the total Japanese population, the market penetration rate is about 148% as of end-December 2020 (source: Shared Research based on data from the Ministry of Internal Affairs and Communication and the Telecommunications Carriers Association).

The market is also relatively young–it got its first real boost after the 1995 Kansai Earthquake when fixed-line communications were temporarily unavailable and the value of mobile phones was made clear. The market quickly gained momentum in the late 1990s; total mobile phone subscribers grew from 2mn users in 1995 to 27mn in 1997. To capture this explosive growth, early store networks were designed to maximize exposure to consumers with the goal of quickly growing subscribers (e.g., a kiosk-type location that offers few services other than handling new sign-ups).

Data collected by the Ministry of Internal Affairs and Communications shows that the median YoY growth since 2000 is about 6%. Although growth has begun to flatten as adoption rates increased, the introduction of smartphones from 2010 onward provided additional fuel for growth. The increase flattened once again in 2013, but returned to nearly 6% in 2014. The growth rate is trending downward again, however, due to a rising smartphone penetration rate and changing regulatory climate.

Market development

The first service provider of mobile phone service was Nippon Telegraph & Telephone Corp. (TSE1: 9432) better known as NTT. It later spun out its mobile operations as NTT Docomo Inc. (TSE1: 9437), which began service in 1979 in Tokyo and Osaka. Competitors DDI Cellular and IDO entered the market in the late 1980s, planting the seeds for the modern landscape.

Deregulation in the mid-1990s brought the creation of New Common Carriers (NCCs) and increased competition. Carriers could now subsidize handset sales as opposed to the legacy rental model. NCCs entering the market in 1994 included Digital Phone, Digital Tsuka, and Tsuka Cellular. A wave of M&A activity reshaped the industry in the late 1990s: Digital Phone and Digital Tsuka combined to create J-Phone in 1999; DDI Cellular acquired Tsuka Cellular in 1999, which then merged with IDO to become KDDI Corp. in 2000. J-Phone became part of the Vodafone group in 2001, and officially changed its name to Vodafone in 2003. SoftBank would acquire Vodafone in 2006 and subsequently change the name.

Market share between the top three carriers has shifted significantly; NTT Docomo’s 55% share in December 2006 declined to 45% as of December 2014, while SoftBank increased from 16% to 26% over the same period; KDDI’s share has essentially been flat, fluctuating between 28% and 29%. SoftBank’s market share increased sharply after acquiring a business from Vodafone in 2006. However, from 2015, services provided by the various carriers have reached a point of extreme similarity, and market share fluctuations have decreased.

Market growth

Mobile phone subscriber data suggests that mobile phone diffusion in Japan has expanding rapidly, with the number of handsets now greater than the Japanese population. Legacy business models revolved around methods to capture as many MNP customers as possible, as the commissions provided for these clients were the most attractive. However, under the guidance of the Ministry of Internal Affairs and Communications, carriers and began revising sales methods from the spring of 2016, eventually completely separating handset costs from telecommunication fees in October 2019. Due to these factors, customer liquidity among the various mobile phone operators may decrease in the future, and it is possible that the purchasing cycle for new handsets may become longer.

On the other hand, the launch of 5G networks capable of faster transmission of large data volumes and advanced handset functions will likely lead to demand growth for mobile phones. The spread of smartphones has required carrier store staff to know about the devices, creating a more stressful working condition. Shared Research believes this has caused staff turnover rates to rise above those typical in other industries. The ability to secure talented staff is therefore a key to providing high-quality service to store customers.

Reorganization and integration of major subscription agencies

Over the years, changes in the market environment have led to reorganizations and integration of major subscription agencies, as shown below.

April 2008: ITC (TSE1: 9422; now Conexio Corporation) acquired Hitachi Mobile’s retail arm and merged with Panasonic Telecom Co.

October 2008: T-Gaia was created between the merger of Telepark and MS Communications.

April 2009: Bell-Park acquired the SoftBank operations of Panasonic Telecom.

August 2009: ITX Corporation expanded presence through the acquisition of mobile phone sales businesses of Panasonic Corporation (TSE1: 6752) and Sony Corporation (TSE1: 6758).

June 2013: Marubeni Corporation (TSE1: 8002) consolidated NEC Mobiling Co., Ltd.

February 2014: Bell-Park acquired OC mobile from Orico Business and Communications (a subsidiary of Orient Corporation [TSE1: 8585]).

March 2014: Nojima Corporation (JASDAQ: 7419) acquired Kenwood Geobit Corporation from JVCKENWOOD Corporation (TSE1: 6632).

November 2014: Nojima acquired ITX Corporation.

December 2014: RANET Co., Ltd., a unit of Big Camera Inc. (TSE1: 3048), acquired Nepro Mobile Kanto, Nepro Mobile Tokai, and Nepro Mobile Kansai. These units have been renamed RANET Communications.

April 2016: Kanematsu Telecom Investment (unlisted, 100% subsidiary of Kanematsu Corp. [TSE1: 8020]), acquires Diamond Telecom, Inc. (unlisted, 100% subsidiary of Mitsubishi Electric Corp [TSE1: 6503]).

April 2017: Kanematsu Communications Ltd. and Diamond Telecom, Inc., merged.

December 2017: T-Gaia Corp. acquired all shares in Quo Card Co., Ltd. (subsidiary of SCSK) and made it a wholly owned subsidiary

March 2019: T-Gaia made call center operator PC Technology Co., Ltd., a wholly owned subsidiary.

July 2019: T-Gaia made software developer Popular-Soft Co., Ltd., a subsidiary.

March 2020: T-Gaia made network system consultancy Infinity Communication Co., Ltd., a wholly owned subsidiary.

November 2020: T-Gaia took over Fujitsu Personal System Limited, a primary distributor for NTT Docomo, from its parent Fujitsu Limited.

Regulations

Subscription agency work for telecom carriers is subject to various laws and regulations, such as the Telecommunications Business Act, as well as ordinances and guidelines that govern their corporate activities. These laws and regulations cover a wide range of subjects, including the environment, fair competition, consumer protection, the protection of personal information, labor issues, and taxes. We limit our discussion to the main changes shown below.

Telecommunications Business Act: A partial revision to the Telecommunications Business Act (Act No. 86 of 1984) went into effect in October 2019 (after being approved by the National Diet in May 2019). The revision includes provisions requiring the complete separation of handset pricing from telecommunication fees, banning excessive lock-in periods, and introducing a notification system for subscription agencies.

Complete separation of handset pricing and telecommunication fees: This provision prohibits offering more attractive telecommunication fees contingent upon the purchase of a new handset. It also prohibits the provision of certain economic benefits upon sale of handsets to users of telecom services (defined by an ordinance of the Ministry of Internal Affairs and Communications). Specifically, the provision of economic benefits on the condition of continuous use of telecommunication services or the purchase of new handsets has been prohibited. Economic benefit in excess of JPY20,000 (pre-tax) provided to customers contracting for telecommunications services and the purchase of a new handset have also been prohibited. The regulation allows for exceptions in some cases, including the sale of low-cost devices, switch to a new handset due to the termination of service plans based on an old communication standard, and clearance sales of old handset inventories.

Banning the excessive lock-in periods: Contract lengths are limited to two years (excluding contracts with no penalties for early cancellation). The maximum penalty for early cancellation is limited to JPY1,000 (pre-tax). Maximum monthly fee difference between contracts with and without length restrictions is limited to JPY170.

Notification system for subscription agencies: The notification system is intended notify subscription agencies of inappropriate business practices and demand remedial measures be taken.

Telecommunications Business Act’s guidelines for rules to ensure consumer protection: The revision of the Telecommunications Business Act enacted in October 2019 also expanded the list of prohibited acts related to the solicitation of contracts for telecommunications services and implemented a system requiring business operators, including intermediary sales agents, submit notifications. The related guidelines were revised in September 2019.

Guidelines for ensuring smooth distribution and use of mobile handsets: Revisions made in November 2019 require telecom carriers to release the SIM lock on devices sold via installment sales immediately starting April 2020.

Sales channels

Bell-Park basically has two sales channels.

Carrier stores

Carrier stores have been the main sales channel for Bell-Park. Of the 363 stores (directly operated and franchises) as of end-FY12/20, directly run stores accounted for 82% of the total at 298 outlets, up 17 YoY. The number of franchise stores grew by three YoY.

Of the 363 total stores (+20 YoY), 304 (+seven) were SoftBank stores, eight (unchanged) were NTT Docomo stores, seven were au stores (unchanged), and 44 (+14) were Y!mobile stores.

The mainstay SoftBank carrier stores directly operated by Bell-Park totaled 246 (+seven YoY), and about 70% of these were dual brand stores that also handled Y!mobile products and services.

Corporate sales

Bell-Park’s customers are primarily SMEs and clients with a small number of lines. The company plans to use its sales network to promote cooperation between its corporate sales team and its directly run stores.

It increased staffing in FY12/19 and again in FY12/20 in preparation for future growth of this channel.

Suppliers

Japan’s three major carriers—NTT Docomo, KDDI (under the “au” brand), and SoftBank—collectively control over 90% of the mobile communications market. The relative share controlled by each of the big three has changed over the past decade, with NTT Docomo’s share generally trending downward, although its share has been rebounding recently on an increase in lease lines to MVNO operators. Since 2015, share fluctuations have diminished, reflecting the increasingly similar quality of service offered by the three companies (discussed in the Market Development section).

Bell-Park’s key supplier is SoftBank. The agency agreement between Bell-Park and SoftBank is automatically renewed each year. Shared Research considers the relationship between SoftBank and Bell-Park to be symbiotic. Bell-Park’s position as a sales agent for SoftBank is important for the network operator given Bell-Park’s strong sales performance and its large store network. Indeed, for SoftBank getting feedback from Bell-Park in order to gauge the effectiveness of their marketing campaigns is critical.

Barriers to entry

The barriers to entry into mobile phone retailing are few. However, a practical limitation is the store opening policy of mobile telecom carriers. Each company’s target store counts could limit new entrants.

Existing mobile phone distributors, like Bell-Park, have already established nationwide networks and competition between the different retail channels is high; a potential entrant would need to rapidly traverse the experience curve to be able to earn margins similar to those earned by current market participants. For this reason, arrival of new large entrants is unlikely.

Competition

Bell-Park’s direct competition include other companies that operate SoftBank-branded stores, other distribution channels where consumers can purchase SoftBank phones and service (e.g., electronics mass retailers etc.), as well as other companies that distribute mobile phones other than SoftBank.

Operators of SoftBank branded stores:

Telecom Service Co., Ltd.: A joint venture between SoftBank Corp. and Infoservice, Inc. (subsidiary of Hikari-Tsushin Inc. [TSE1: 9435])

T-Gaia Corp. (TSE1: 3738): Operates carrier stores for a number of carriers and has the largest sales agent network. Its main shareholders are Mitsubishi Corp. and Sumitomo Corp.

Upbeat Corp.: Main business is carrier store operation. Its major shareholder is Nojima Corp. (TSE1: 7419)

Cosmonet Co., Ltd. (unlisted): Independent ICT services provider. Focus on store operations and corporate sales

Other retail sales channels for SoftBank mobile phones

Electronics retailers: Stores like Yamada Denki Co., Ltd. (TSE1: 9831), Bic Camera Inc. (TSE1: 3048), and Yodobashi Camera (unlisted) usually have lower service levels than dedicated stores, with limited after-sale service options

Key companies that distribute phones other than SoftBank

T-Gaia Corp.: Distributor that operates stores that sell mobile phones other than SoftBank. No.1 handset seller in industry

Conexio Corp. (TSE1: 9422): No. 1 in number of NTT Docomo stores. No. 2 in industry in number of handset sales. Affiliated with Itochu Corporation

Kanematsu Communications Ltd.: Consolidated subsidiary of Kanematsu Corp. (TSE1: 8020). Multi-carrier distributor. Expanded in April 2016 with purchase of Diamond Telecom, Inc. (multicarrier distributor, affiliated with of Mitsubishi Electric Corp.)

ITX Corp.: Operates carrier stores for au and NTT Docomo and primary distributors for Rakuten Mobile and UQ Mobile. Parent company is Nojima Corp. (TSE1: 7419). Originally part of Nissho Iwai (currently Sojitz) group

MX Mobiling Co., Ltd.: Delisted in September 2013 after being acquired by a subsidiary of NEC [TSE1: 6701], and becoming a second-tier subsidiary of Marubeni Corp. Merged with Marubeni Telecom in April 2015. Is an example of a manufacturer’s subsidiary that supplied handsets to carriers becoming a distributor and operating carrier stores

Other competitors (MVNO)

Another source of competition are the MVNOs, companies that provide mobile services under their own brand by leasing the communication networks of major carriers such as NTT Docomo. The Ministry of Internal Affairs and Communications’ policy of promoting competition in the telecommunications industry has led a range of companies to enter the market as MVNOs. These operators are acquiring subscribers through atypical sales channels, including online sales and collaboration with major supermarkets. MVNOs’ market share is only about 8% (as of the end-September 2019). However, the November 2019 revision of the “Guidelines for Ensuring Smooth Distribution and Use of Mobile Devices” will require mobile telecom carriers to immediately unlock the SIM cards on mobile handsets sold on installment sales plans from April 2020. If this stimulates the market for used devices, greater competition from MVNOs could emerge over the longer term.

Alternatives

There are few alternatives to retail stores, but from March 2021 onward, the major mobile telecom carriers are introducing special plans for cases where customers use online applications. However, these plans differ from other services in that they mainly target users in their 20s who grew up using smartphones and who want middle-range data plans (20GB per month). The company will need to keep a close eye on changes in sales methods and channels, such as the spread of online sales.

Historical financial statements

1H FY12/21 results (out August 5, 2021)

Summary

In 1H FY12/21, Bell-Park reported sales of JPY56.3bn (+18.7% YoY), operating profit of JPY3.5bn (+2.3% YoY), recurring profit of JPY3.5bn (+0.6% YoY), and net income attributable to owners of the parent of JPY2.3bn (-0.9% YoY).

Progress rates: The company revised up its 1H forecast on July 26, 2021 (see the Full-year company forecast section). 1H results finished in line with the revised forecast, with sales achieving 100.4% of the updated estimate, operating profit 100.0%, recurring profit 100.0%, and net income 100.4%. Versus the initial 1H forecast, results were ahead on all levels. 1H sales reached 125.0%, while operating profit reached 152.2%, recurring profit 150.0%, and net income attributable to owners of the parent 156.5%.

The progress rate against the full-year FY12/21 forecast is 63.2% for sales (48.0% of full-year FY12/20 result in 1H FY12/20), 77.8% for operating profit (67.7%), 76.7% for recurring profit (64.1%), and 81.0% for net income attributable to owners of the parent (65.4%).

The company's full-year forecast for FY12/21 remains unchanged. As mentioned above, 1H results were ahead of the full-year target, but Bell-Park has maintained its full-year forecast to take account of the uncertain outlook in 2H. The number of customers visiting the company's stores has stabilized in Q3 compared to 1H, and risks related to COVID-19 variants (such as the highly contagious delta variant) remain. The impact of the new iPhone, which is scheduled to be launched in 2H, on the company's earnings remains uncertain as of end-1H. The company says it will make an announcement promptly if revisions to its full-year forecast are necessary.

Sales grew 18.7% YoY. Store visits by customers contemplating service plan changes increased, and the number of mobile phones and other products sold grew 49.3% YoY to 572,000 (units sold to new subscribers rose 42.3% YoY to 175,000, and replacement units sold to existing customers increased 53.3% YoY to 397,000). The growth was driven by an uptick in sales activities, which was impacted by the company's voluntary restraint in April and May 2020, an increase in the number of customers visiting existing stores, and the addition of new stores. The company also focused on after-sales services, including the smartphone setting support service that was launched in full swing in April 2021. This service entails transferring contact info and other data from one device to another and fitting protective film on the display for a fee. In sales to corporate customers, sales of mobile phones and PCs increased due to the contribution of personnel who joined the company during FY12/20 or earlier.

Operating profit was up 2.3% YoY. While profit from the corporate sales business rose YoY thanks to an increase in the number of products sold, carrier stores saw a slight decline in profit YoY due to higher SG&A expenses, mainly personnel expenses to support store operations in busy seasons. GPM fell 1.2pp YoY to 24.9%. SG&A expenses—particularly personnel expenses and rent—rose YoY due to an increase in paid overtime associated with higher customer traffic, as well as the rise in store counts. Still, the SG&A expense ratio fell 0.3pp YoY to 18.6%, helped by the YoY sales growth. OPM came to 6.2%, down 1.0pp YoY, as a result.

External environment

In the mobile phone market, the company’s main business area, the major carriers reduced telecommunication fees and launched internet access-exclusive plans in response to requests issued by the Japanese government asking for reductions in mobile phone service fees. Accordingly, price competition between carriers has intensified, with mobile virtual network operators implementing or announcing telecommunication fee reductions.

Company initiatives

Improving efficiency of store operations through market share gains

Bell-Park continued to improve the efficiency of its store operations in 1H by swapping stores with other owners to boost its market presence in certain areas, and by improving the location of certain stores through merging stores in neighboring areas.

The company opened or took over 12 new stores and closed or sold nine stores between end-FY12/20 (end-December 2020) and end-1H FY12/21 (end-June 2021), increasing the number of directly managed carrier stores by three. In 2H FY12/20 (end-June to end-December 2020), the company opened or took over 17 new stores and closed or sold nine stores.

Strengthening customer support 

The number of after-sales services rose roughly 30–40% in Q2 (April–June 2021) versus Q1 (January–March 2021). About 80% of this increase was due to the smartphone setting support service, which was launched in full scale in April 2021 to provide paid services such as transferring contact info and other data, and applying protective film to the display. Prior to launching the paid support services, the company was uncertain if customers would be prepared to pay for these services. However, after the full-scale launch, demand for paid services from customers remains strong, and customer satisfaction levels are high. The company believes that these services will contribute to store profits, as well as playing an important role in differentiating the company's services from those of online-only plans offered by other companies.

Staff development

Bell-Park has set up a digitalization qualification (in-house certification) to develop staff who can market products using digital technology and added-value services to customers. All staff members are required to study and take a test to certify their qualifications, mainly in connection with smartphones or related digital devices. The company helps customers link their devices to their home appliances as well as helps them to be more digitally connected via useful apps and the IoT. It is focused on developing staff as a way of differentiating its service offering from online-only plans offered by other companies.

The company's stores won seven of the 15 prizes in the 2020 Anshin Shop Awards. These awards are given out by the Anshin Shop Certification Council of the National Association of Mobile--phone Distributors (out of a total of 809 candidate carrier stores nationwide). Of these, the highest award, the Minister of Internal Affairs and Communications Award, went to the Softbank Yokkaichi Ikuwacho store operated by the company. The store has a small monitor and smart speakers installed at the customer service counter, and uses video to communicate important information and details of its services to customers in an easy-to-understand and accurate manner. The Anshin Shop Certification System is a certification system for carrier stores that aims to enhance consumer protection in accordance with consumer protection regulations set by the Japanese government.

Number of stores

The company operated a total of 363 carrier stores at end-June 2021 (360 at end-March 2021). Of these, 299 were SoftBank stores (300 at end-March 2021), 8 were NTT Docomo stores (8), 7 were au stores (7), and 49 were Y!mobile stores (45). 301 were directly operated and 62 were franchises.

The company had five fewer SoftBank stores and five more Y!mobile stores than at end-FY12/20. The number of NTT Docomo and au stores in operation did not change. It had three more directly operated stores and three fewer franchise stores than at end-FY12/20.

Q1 FY12/21 results (out May 11, 2021)

Summary

In Q1 FY12/21, Bell-Park reported sales of JPY30.1bn (+2.2% YoY), operating profit of JPY2.4bn (-14.3% YoY), recurring profit of JPY2.4bn (-13.6% YoY), and net income attributable to owners of the parent of JPY1.6bn (-15.0% YoY).

Progress versus full-year forecast: As of end-Q1 FY12/21, sales had achieved 66.9% of the corresponding target in the company’s 1H forecast (versus 62.1% of eventual 1H results as of end-Q1 FY12/20), while operating profit had achieved 103.3% (81.0%), recurring profit 104.4% (81.0%), and net income 109.8% (81.8%). At the same point in time, sales had achieved 33.8% of the corresponding target in the company’s full-year forecast (versus 29.8% of eventual full-year results as of end-Q1 FY12/20), while operating profit had reached 52.8% (54.8%), recurring profit 53.4% (52.0%), and net income 56.8% (53.5%).

The company made no changes to either its 1H FY12/21 forecast or full-year forecast: Although all profit lines exceeded corresponding targets in the Bell-Park’s 1H forecast, the company did not revise its 1H forecast or full-year forecast. If deemed necessary, it will promptly release any revisions made to its earnings forecasts.

Sales up 2.2% YoY: Sales increased YoY thanks to an increase in sales of mobile phones and other products, which came along with a rise in customer traffic associated primarily with service plan inquiries and an expanded store count. Customer traffic increased at Y!mobile stores, and SoftBank stores that also handle Y!mobile, contributing to a double-digit YoY growth in sales of mobile phones and other products. Two-brand deployment was successful. However, the company recorded only 2.2% YoY sales growth due partly to customers’ switching from SoftBank to Y!mobile and higher sales of devices with lower selling price. The online-only plans (which do not provide in-store assistance) were launched after mid-March 2021, and the impact was almost nonexistent in Q1 FY12/21 results.

Operating profit down 14.3% YoY: GPM fell 0.8pp YoY to 24.7% as the monetary values of some support payments received from telecom carriers declined. A number of contracts increased while margins decreased. Meanwhile, the SG&A expense ratio rose 0.8pp YoY to 16.8% due primarily to increases in personnel and rent expenses associated with store count expansion. At the same time, the company implemented a teleworking policy for administrative personnel in response to the COVID-19 pandemic and reduced a variety of costs, including those associated with transportation and overtime work, through rapid improvements in operational efficiency achieved by moving meetings, training, and recruiting activities online. Store-related costs and costs related to IT security measures have been used as scheduled without delay. As a result of these factors, OPM came to 7.9%, down 1.5pp YoY.

Outlook from Q2: The company projects substantial changes in its business environment associated with factors such as internet access-exclusive service plans launched by major telecom carriers in mid-March 2021 and price competition between carriers in general. However, the impact these factors will have on the company’s business results remains unclear. In response to an additional spike in COVID-19 infections consisting predominantly of mutated variants and occurring in some prefectures including Tokyo and Osaka, the Japanese government issued a third state of emergency declaration and implemented priority preventative measures in April 2021. As a result, some of the company’s carrier shops continue to face unpredictable situations under which they are forced to implement measures such as temporarily closings made in response to commercial facility shutdowns or business hour curtailments.

External environment

In the mobile phone market, the company’s main business area, carriers reduced mobile phone rates and launched internet access-exclusive plans in response to requests issued by the Japanese government asking for reductions in mobile phone service fees. Accordingly, price competition between carriers is intensifying, with Rakuten Mobile and other mobile virtual network operators implementing or announcing mobile phone rate reductions.

Initiatives

In accordance with carrier policies, the company’s carrier shops strived to conduct store operation that would enable customers and sales staff to feel at ease, adopting controls such as thorough storefront COVID-19 prevention measures and regular saliva-based PCR tests for sales staff. Additionally, staff introduced customers visiting stores to inquire about new fee plans and services to alternative fee plans associated with primary and subordinate carrier brands that would better fit their individual device usage. At the same time, the company focused on urging customers to shift from 3G services to 4G and 5G services, selling 5G-compatible smartphones, and providing a variety of services including optical network services, electricity-related services, and cashless payment services.

Number of stores

The company operated a total of 360 carrier stores at end-December 2021 (363 at end-December 2020). Of these, 300 were SofBbank stores (304 at end-December 2020), 8 were NTT Docomo stores (8), 7 were au stores (7), and 45 were Y!mobile stores (44). 299 were directly operated and 61 were franchises.

The company had four fewer SoftBank stores and one more Y!mobile store than at end-FY12/20. The number of NTT Docomo and au stores in operation did not change. It had one more directly operated store and four fewer franchise stores than at end-FY12/20.

FY12/20 results (out February 10, 2021)

Summary

In FY12/20, Bell-Park reported sales of JPY98.8bn (-4.3% YoY), operating profit of JPY5.1bn (+15.5% YoY), recurring profit of JPY5.3bn (+22.1% YoY), and net income attributable to owners of the parent of JPY3.6bn (+19.1% YoY). All business units posted higher profits YoY, and the company says more than half of the YoY profit growth came from sources other than SoftBank stores (accumulated contribution from other business units). Each profit line was at record high for the second fiscal year in a row.

Progress versus forecast: Sales and each profit line were in line with the revised full-year FY12/20 forecast (profit lines revised upward on November 6, 2020)*.

The initial forecast factored in the negative impact of the revised Telecommunications Business Act, but the positive impact of reductions in sales promotion costs more than offset the negative impact and even the impact of the COVID-19 pandemic, so results exceeded the initial forecasts.

Sales of mobile devices (see following) were sluggish during April 2020 when the government declared a state of emergency, but were robust thereafter, ultimately exceeding the company’s projection.

Sales down 4.3% YoY: Despite voluntary restraint on sales activities due to the COVID-19 pandemic, unit sales of mobile phone handsets and other mobile devices grew 3.7% YoY to 846,000 (units sold to new subscribers fell 6.8％ YoY to 261,000, and replacement units sold to existing subscribers rose 4.9％ YoY to 584,000), due mainly to an increase in the store count (+20 YoY). In addition, sales of products other than handsets such as high-margin fiber optic services and cashless payments services were robust. In corporate sales, telework-related demand caused an increase in sales of mobile routers and PCs. However, the revised Telecommunications Business Act introduced restrictions on mobile phone handset discounts, so the average selling price of mobile devices declined, leading to a 4.3％ YoY drop in sales.

Operating profit up 15.5% YoY: GPM improved 1.2pp YoY to 24.6% on robust sales of services with a relatively high GPM, such as fiber optic services and cashless payment services. As a result of a lower average selling price for mobile phone handsets, the cost of sales and sales promotion expenses both declined YoY. However, sales declined by a greater percentage than SG&A expenses did, so the SG&A ratio rose 0.3pp YoY to 19.5%. In back-office departments, the company promoted working from home to help limit the spread of COVID-19. In addition, it worked quickly to boost efficiency by moving tasks, including meetings, employee training, and hiring-related tasks, online. This led to declines in transportation expenses, overtime pay, and other back-office expenses. As a result, OPM improved 0.9pp YoY to 5.1%.

Annual dividend forecast of JPY170 per share (up JPY51 YoY): Based on a consolidated dividend payout ratio of 30%, the company forecasts an annual dividend of JPY170 per share (interim dividend of JPY61, year-end dividend of JPY109).

External environment (regulatory)

In regard to the mobile phone market, the key area of business for the company, a law to revise a portion of the Telecommunications Business Law took effect in October 2019, establishing rules to completely separate handset charges from telecommunication fees and imposing restrictions on handset discounts in order to protect the interests of mobile phone users. The three major telecom carriers launched next-generation 5G commercial services, which offer faster speeds and greater capacity, in late March 2020, primarily in some urban areas. In addition, in response to the government’s call to lower mobile phone rates, the telecom carriers have reduced their telecommunication fees and announced dedicated online rate plans, resulting in fiercer competition among the carriers.

Impact of the COVID-19 pandemic and regulatory changes on mobile device sales

Despite the impact of voluntary restraint on sales activities at existing stores due to the pandemic (mainly in Q2), unit sales of mobile phone handsets and other mobile devices grew 3.7% YoY to 846,000, due mainly to an increase in the store count (+20 YoY; detail follows).

Units sold to new subscribers fell 6.8％ YoY to 261,000, and replacement units sold to existing subscribers rose 4.9％ YoY to 584,000.

The October 2019 partial revision of the Telecommunications Business Act resulted in a lower average selling price for mobile phone handsets and reduced cashback reward expenses.

Average selling price per unit in FY12/20 down about 15% YoY: The average price was down 15% YoY in Q1, 18% YoY in Q2, 23% YoY in Q3, and 6% YoY in Q4 (the YoY drop was smaller in Q4 because Q4 FY12/19 was already affected by the change).

Average cashback reward expense per unit in FY12/20 down nearly 90% YoY: The average expense was down 83% YoY in Q1, 81% YoY in Q2, 70% YoY in Q3, and 6% YoY in Q4 (the YoY drop was smaller in Q4 because Q4 FY12/19 was already affected by the change).

Initiatives

Implementing measures to prevent COVID-19 infection in accordance with the policies of the telecom carriers, the carrier stores operated by Bell-Park have remained open, since they serve as indispensable infrastructure bases. The company has focused its attention on promoting a shift to 4G services as 3G services come to an end, selling 5G compatible smartphones, and providing a variety of services, including student discounts, fiber-optic internet services, electric power services, and cashless payments. At the same time, it has sought to improve its operational efficiency by concentrating its stores within certain areas to improve its dominant position.

With greater telework-related demand, the company increased SoftBank Air high-speed communication device sales and contracts by more than 20% YoY.

Areas with access to SoftBank’s retail electric power service increased in Hokuriku and Kyushu, and the number of contracts the company handled grew YoY.

With the government’s cashless payment promotion and consumer reward program creating a tailwind, the number of PayPay contracts also grew YoY.

Store count

The company operated a total of 363 carrier stores at end-December 2020 (343 at end-December 2019; 364 at end-September 2020). Stores that the company manages were as follows:

SoftBank: 304 stores (297 at end-December 2019; 305 at end-September 2020)
NTT Docomo: 8 stores (unchanged)
au: 7 stores (unchanged)
Y!mobile: 44 stores (30 at end-December 2019; 44 at end-September 2020) 

Of the 363 stores, 298 were directly operated and 65 were franchises.

The company had seven more SoftBank stores and 14 more Y!mobile stores, but one fewer UQ Spot store than at end-FY12/19. The number of NTT Docomo and au stores in operation did not change. It had 17 more directly operated stores and three more franchise stores than at end-FY12/19.

The company had one less SoftBank store than at end-September 2020. The number of NTT Docomo, au, and Y!mobile stores in operation did not change.

Cumulative Q3 FY12/20 results (out November 6, 2020)

In cumulative Q3 FY12/20, Bell-Park reported sales of JPY71.3bn (-7.3% YoY), operating profit of JPY4.5bn (+36.9% YoY), recurring profit of JPY4.5bn (+36.6% YoY), and net income attributable to owners of the parent of JPY3.1bn (+39.7% YoY).

Full-year FY12/20 forecast: Cumulative results in Q3 were strong, and all profit lines exceeded projections in the company’s FY12/20 forecast. Accordingly, the company revised profit projections in its FY12/20 forecast upward when it released Q3 financial results*.

Progress versus forecast: Against revised full-year FY12/20 forecast (out November 6, 2020), sales reached 74.3% of the target (cumulative Q3 FY12/19 sales were at 74.5% of FY12/19 results), operating profit 90.1% (75.2%), recurring profit 85.5% (75.8%), and net income attributable to owners of the parent 88.7% (73.1%).

Sales down 7.3% YoY: Cumulative Q3 unit sales of mobile phone handsets and other mobile devices grew YoY. Despite the impact of voluntary restraint in marketing due to the COVID-19 pandemic, unit sales grew on an increase in number of stores. Sales of products other than handsets such as high-margin fiber optic services and cashless payment services were solid. However, amid restrictions on discounting handsets under the revised Telecommunications Business Act, promotion expenses declined YoY and the share in sales of affordably priced handsets increased, so sales declined YoY.

Operating profit up 36.9% YoY: GPM improved 2.2pp YoY to 25.8% on the steady growth of services with a high GPM, such as fiber optic services and cashless payment services. Restrictions on discounting handsets under the revised Telecommunications Business Act contributed to lower cost of sales. The SG&A ratio rose 0.1pp YoY to 19.4% due to higher personnel and rent expenses on an increased number of stores. In back-office departments, the company promoted working from home to help limit the spread of COVID-19. In addition, it worked quickly to boost efficiency by moving tasks, including meetings, employee training, and hiring-related tasks, online. This led to transportation expenses, overtime pay, and other back-office expenses declining more than initially planned. As a result, OPM improved 2.0pp YoY to 6.3%.

Annual dividend forecast of JPY164.0 per share (up JPY45.0 YoY): Based on a consolidated dividend payout ratio of 30%, the company revised up annual dividend forecast to JPY164 per share (interim dividend of JPY61, year-end dividend of JPY103) from JPY122 per share (interim dividend of JPY61, year-end dividend of JPY61).

External environment

In regard to the mobile phone market, the key area of business for the company, a law to revise a portion of the Telecommunications Business Law took effect in October 2019, establishing rules to completely separate handset charges from telecommunication fees and imposing restrictions on handset discounts in order to protect the interests of mobile phone users. The three major telecom carriers launched next-generation 5G commercial services, which offer faster speeds and greater capacity, in late March 2020, primarily in some urban areas.

Initiatives

The COVID-19 pandemic started weighing heavily on sales in the closing weeks of March as mitigation measures triggered the closure of many commercial buildings, forcing the company to temporarily close its carrier stores located in those buildings, and shorten the operating hours of its carrier stores located outside of commercial buildings. Following the Japanese government’s state of emergency declaration in early April, the company responded to the new guidelines issued by the various mobile phone carriers by steering customers coming into carrier stores toward its online application process in order to help relieve the congestion inside of stores and limit front-office operations. While this left unit sales of mobile phone handsets and other mobile devices well below the initial plan in both April and May 2020, unit sales quickly recovered in June 2020 following the lifting of the government’s state of emergency declaration, and finished well above the company’s forecast in that month. According to the company, the device sale trends the company encountered in June continued in July and August. However, this performance weakened in September due to delayed releases of new models. As noted earlier, cumulative Q3 unit sales of mobile phone handsets and other mobile devices grew YoY.

Amid this business environment, the company focused its attention on promoting a shift to 4G services as 3G services come to an end, sales of 5G compatible smartphones, and student discounts. It also focused on providing a variety of services, including fiber optic, electric power, and cashless payment services. At the same time, it worked to increase its dominance and strengthen collaboration with its nearby stores, with the aim of improving efficiency in store operations.

Store count

The company operated a total of 364 carrier stores at end-September 2020 (356 at end-June 2020). Stores that the company manages were as follows:

SoftBank: 305 stores (300 at end-June)
NTT Docomo: 8 stores (unchanged)
au: 7 stores (unchanged)
Y!mobile: 44 stores (41)

The company had five more SoftBank stores and three more Y!mobile stores than at end-June 2020; the number of NTT Docomo and au stores in operation did not change.

Store count is trending just slightly higher than the company’s initial forecast.

Shareholder benefits commemorating the 20th anniversary of the company’s listing

The company has decided to celebrate the 20th anniversary of its listing, which it welcomed on May 25, 2020, by issuing prepaid QUO cards worth JPY2,000 to each shareholder owning 100 shares (one trading unit) or more. These QUO cards with a face value of JPY2,000, which will be issued with a record date of December 31, 2020, will be offered in addition to QUO cards worth JPY1,000 that are normally issued as a standard shareholder benefit. Accordingly, the total value of the QUO cards presented to shareholders in this instance will be JPY3,000.

Cash flow statement

Income statement