Supply Chain Management

Supply Chain Management

ZOZO Group aims to conduct its business with full consideration for the impact on the environment and society through co-creation and collaboration with brands that have stores on ZOZOTOWN and suppliers that form the supply chain. To achieve this, procurement policies are established for suppliers, and regular surveys and dialogues are conducted with them. Through these efforts, we strive to realize our sustainability statement, "Fashion Connects and Leads us to a Sustainable Future."
Basic Environmental Policy
Basic Human Rights Policy

ZOZO Sustainability Procurement Policy

ZOZO Group has formulated ZOZO Sustainability Procurement Policy for all of its business partners in order to realize its Sustainability Statement, "Fashion Connects and Leads us to a Sustainable Future." This policy is based on the OECD Guidelines for Multinational Enterprises, the United Nations Global Compact (UNGC), and UN Guiding Principles on Business and Human Rights, while also considering our materialities and formulating it based on the Japanese laws and regulations where our head office is located.

Compliance with Laws and Ordinances
We comply with all laws and ordinances applicable to the jurisdictions in which the company operates. We also ensure conduct in accordance with international and industry norms.

Human Rights
We respect internationally recognized human rights throughout the supply chain.  In particular, based on the ILO Declaration on Fundamental Principles and Rights at Work, we respect the freedom of association, prohibit child labor and forced labor, and aim to eliminate all discrimination and harassment in employment and the workplace. In addition, when we identify that it has caused or contributed to an adverse impact on human rights, we will remedy the adversely affected person through appropriate and proper procedures.

Labor practices
We protect the rights of workers by paying appropriate wages and benefits, providing welfare benefits, and entering into labor contracts in accordance with international norms and the laws and regulations of the jurisdictions in which we conduct business. In accordance with international norms and laws and regulations in the jurisdictions in which we conduct business, we give consideration to the work environment, health, and safety of all employees involved in our business, including the elimination of excessive labor. We respect diverse individuality and values, and realize a fair and inclusive work environment and business partner relationships.

Human Capital and Human Resource Development
We actively support the formation and improvement of human capital in order to enhance the employability of our employees into the future.

Environment
Wel give consideration to climate change, ecosystems and natural capital, and environmental sustainability, including hazardous chemical substances, throughout our business, based on international norms and laws and regulations in the jurisdictions in which we conduct business.

Anti-Corruption
We do not offer, promise, give or demand bribes or other unjust benefits, directly or indirectly, for the purpose of acquiring or maintaining commercial transactions or other unjust benefits.

Information Security
We strictly manage and protect personal information of our company, customers and third parties. We establish a system for strictly managing and protecting information acquired in business, and do not leak it to third parties without permission. We develop and implement measures to prevent computer viruses, other network risks, threats and to prevent their impact from expanding.

Safety and Security
We take all reasonable actions to ensure the quality and reliability of the products and services we provide. We will act in accordance with fair business, sales and advertising practices in our relationships with consumers.

Business Continuity Plan
We build a system that prevents major social impacts by continuing our business operations even in the event of natural disasters or other emergencies or major changes in the social environment.

Fair trade
We comply with fair trade laws, such as the competition law and the subcontracting law, in accordance with international norms and the laws of the jurisdictions in which we conduct business. We do not engage in any transaction that infringes the intellectual property rights or other rights of any third party. We have no relationship with antisocial forces, and we reject any unreasonable demands.

• ZOZO Sustainability Procurement Policy is approved by the Board of Directors on April 21, 2023
• Revisions and eliminations of this policy will be made by our Board of Directors
• The following are covered
  Environment: greenhouse gas emissions, energy consumption, water resource conservation, biodiversity conservation, land conservation, prevention of deforestation, prevention of pollution, waste reduction, resource recycling
  Anti-Corruption: conflict of interest

Supply Chain Due Diligence

Aligned with the United Nations Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises, our group has established a comprehensive supply chain due diligence process. We have conducted risk assessment across our supply chain to identify, prevent, and reduce ESG risks.

Process

Step 1: Establishment of Policy
・Establishment of a Basic Human Rights Policy
・Establishment of a  Basic Environmental Policy
・Establishment of a ZOZO Basic Policy on Anti-Corruption
・Establishment of a ZOZO Sustainability Procurement Policy

Step 2: Assessment
・Develop assessment items with advice from ESG experts.
・Conduct assessments to identify potential and actual ESG risks in the supply chain
・Perform ESG impact assessments to analyze and evaluate the impact of identified ESG risks.
・Mapping of ESG risks

Step 3: Action
・Implementation of corrective actions
・Implementation of measures to prevent and mitigate ESG risks
・Monitoring of implementation status and effectiveness of measures to prevent and mitigate ESG risks

Step 4: Communication
・Disclosure in reports and on the corporate website
・Implementation of ESG-related education and training

ESG Risk Identification and Assessment

Key themes in assessment

Targeted Segments

Category						Number of Companies Covered / Coverage		Number of companies surveyed / Coverage
Apparel brand companies with ZOZOTOWN stores *Companies whose main sales are apparel						20	33.0% （*1）	14	18.11% （*1）
Non-apparel brand companies with ZOZOTOWN stores *Companies whose main sales are shoes, cosmetics, small leather goods, etc.						10		5
Non-brand companies *Shipping companies, real estate agents, settlement agents, etc.						10	60.0% （*2）	10	60.0% （*2）

*1 Percentage of Gross Merchandise Value on ZOZOTOWN
*2 Percentage of transactions by companies other than those handling ZOZOTOWN brands

Main assessment results

As part of our supply chain due diligence, we conduct risk assessments to identify ESG risks associated with our business partners. As a result, no incidents of human rights violations or compliance violations were identified. Additionally, we identified high risk suppliers and are actively engaging in risk prevention and improvement efforts.

Themes addressed by our business partners

Major Themes	Middle Themes	Initiatives
Social	Human Rights	Recognizing the "UN Guiding Principles on Business and Human Rights," the management team, including top executives, assumes responsibility for human rights.
		Understanding of their own factories and factories in their own supply network in developing countries (Vietnam, Cambodia, etc.), the Xinjiang Uyghur Autonomous Region of China, and Myanmar.
		Providing education and reminders to employees related to harassment and discrimination, and taking strict action when incidents occur.
		Implementing education and reminders to employees related to working hours and occupational safety and health.
		Ensuring the employee salaries meet or exceed the minimum wage, and the company regulations clearly state the details of wages and allowances in accordance with the law.
		Safeguarding the right to freedom of association and collective bargaining for all employees.
Environment	Environment	Recognizing environmental laws and regulations and social norms, the management team, including top executives, is responsible for the environment.
Governance	Corporate Ethics	The management team, including top executives, assumes responsibility for the company's initiatives to prevent corruption and bribery.
		Establishing a system to prevent compliance violations (e.g. setting up internal and external whistleblower desks).
	Information Security	Clarifying measures, persons in charge, and departments in charge of information security.
		Implementing education and reminders to employees related to information security.

Themes for future consideration

Major Themes	Middle Themes	Initiatives
Social	Human Rights	Formulating policies based on international principles of human rights and promoting initiatives related to human rights.
		Promoting initiatives related to human rights and disclosing on the company website.
		Monitoring the adoption of the Technical Intern Training Program and the Specified Skilled Worker System at the suppliers and subcontractors of the company.
Environment	Environment	Establishing a system to assess, identify and correct environmental risks that may arise from the company business activities.
	Climate Change	Monitoring greenhouse gas emissions and formulating reduction targets.
		Disclosing management strategies in response to climate change (TCFD) and setting decarbonization targets (SBT).
	Water	Monitoring the amount of water consumed throughout the product lifecycle.
	Resources	Monitoring the total amount of waste produced by the company and the amount of waste recycled.
	Third-Party Verification	Undergoing an environmental audit by a third-party.
	Products, Services and Packages	Formulating programs for collecting used products and packaging.
		Conducting life cycle assessments for products and services.
Governance	Supply Chain Management	Formulating policies and guidelines for procurement for suppliers.
		Implementing supplier audits related to environmental or social issues.
	Information Security	Undergoing an information security audit by a third-party.

Implementation of Measures to Prevent and Mitigate ESG Risks

Since May 2021, we have been holding human rights study sessions by inviting experts to provide education to employees and business partners. Through these efforts, we aim to deepen understanding of human rights issues together with our business partners and promote corporate activities that respect human rights.

Fiscal Year	Number of Sessions	Themes
2021	10	・Basic knowledge of human rights issues, human rights issues in the international community, and human rights due diligence ・Factory audits, supply chain audits ・Realities of the apparel retail industry and other industries ・Japanese government initiatives and efforts in the apparel retail industry ・Raw material procurement for textiles and perfumes ・Foreign technical intern training program ・CSDDD (Corporate Sustainability Due Diligence Directive) etc.
2022	10
2023	9
2024	11

Utilizing EcoVadis to strengthen collaboration with business partners

We utilize EcoVadis, which evaluates the sustainability of companies in more than 180 countries using its own evaluation criteria, and share the results of our evaluation with our business partners as appropriate. Through these initiatives, we intend to contribute to increasing the transparency and responsibility of the entire supply chain.

Communication with Stakeholders

We aim to increase our corporate value through promoting four key actions, by closely communicating with our stakeholders to address issues and reflect them in our business operation.

Stakeholders	Our Relations	Means of communication
Customers	Our Customer Support Center has a central philosophy of "becoming a friend with our customers." We strive daily to support and make our customers smile as if we help out friends.	Social Networking Service Pages Contact Points for Inquiries Website
Shareholders and Investors	Aiming to be a company trusted by the shareholders and investors, we strive to practice corporate management that meets their expectations and to disclose corporate information in a timely and appropriate manner.	General Meeting of Shareholders Financial results briefing Individual interviews in IR activities Website Integrated Report  Sustainability Report
Business partners	Encouraging mutual development by building good and healthy relationships with our business partners through fair and equitable transactions.	Website Communication through Transactions Receipt and shipment of product Sustainability Report
Employees	Creating and offering a workplace where motivates each employee to demonstrate his or her individuality, and demonstrate his or her power of creativitity and imagination.	Training programs Seminar Pulse Survey Internal and external consultation desks Company intranet, the company newsletter
Local communities	Contributing to the vitalization of local communities and the realization of sustainable communities by working to resolve environmental and social issues, mainly in regions where we have bases.	Dialogue and cooperation with local governments Educational collaboration with school organizations and educational boards Cooperation with local facilities Website Sponsored to sporting organizations

Relationship with the brands

We evaluate the various conditions such as brand image, product lineup, revenue size etc. fairly to select business partners. At the time of starting business transaction, we require brands to make the representations and warranty for products to be supplied are appropriately manufactured in accordance with the relevant laws, no risk of unfairly harming the rights of the third party, and brands have no relation with any antisocial forces.
In addition, we prohibit any products that may violate human rights, disrupt social order, or use other people's nominations, photographs, portraits, trademarks, works, etc., without permission.

Production

Made by ZOZO
Made by ZOZO proposes product planning to brands based on the data and know-how we own. In addition, by digitizing work at the factory, which had previously been done by hand, and developing our own system that enables the production of products with multiple different designs at the same time, we produce from at least one unit and ship the product in at least 10 days after the order is received.

*Offered to 8 brands, covering a total of 461 production types. This service is available to approximately 0.1% of the brands we handle.

Multi-size (MS)
Our exclusive service ”Multi-size“ offers a variety of sizes of clothings based on measurement data supported by brands, and helps customers to find an ideal size for you. We incorporate an eco-friendly business model to suppress an excess inventory, and many products are produced by made-to-order production.

Logistics

YAMATO TRANSPORT Co., Ltd.
We completely outsource the last mile delivery operations, which are essential to our e-commerce business. In recent years, the transportation industry has faced issues such as labor shortages and an increase in a number of requests for re-delivery of parcels. We have been working with delivery companies to improve customer service and reduce a number of re-delivery. In August 2017, we launched the first service in the e-commerce industry to select an option of "locker pick-up," which allows customers to pick up their order from ZOZOTOWN from express delivery lockers. In June 2020, we launched "package drop service" that allows customers to select preferred locations and dates for each delivery, for carriers to drop a package which enables customers to receive products on a non-face-to-face basis. However this non-face-to-face "package drop service" used to be concerned by some customers from a security point of view since packages with an attached slip of personal information written to be left outside. In June 2021, we introduced a method to reduce the risk of personal information leaks by issuing two-dimensional coding of the slip so that it makes it more convenient and safe for customers to use "package drop service."

• Introduced EAZY, which allows customers to choose a non-face-to-face merchandise receiving method, with the aim of reducing redelivery (frequency)
• Utilizing Yamato transport’s relation center to improve delivery efficiency (reduce the number of transportations)

Prologis, Inc.
We lease the majority of our logistics centers "ZOZOBASE" (total floor space of approximately 320,000 square meters) with a logistics facility from Prologis. We currently have several centers located in Narashino City, Chiba Prefecture, and Tsukuba City, Ibaraki Prefecture. Sites contracted after 2017 are equipped with LED lighting and human sensors, which are also environmentally conscious. In addition, the air conditioners are fully equipped in each floor to make a comfortable working environment for the employees. We will continue to maintain even better relationships and ensure to keep the logistics centers secure and safe.

• Introduced 100% renewable energy-derived electricity to each logistics centers
• Introduced LED lights at all logistics centers
• Introduced human sensors that detect people and automatically turn lights on and off at some centers

Packaging

ZOZO Group uses a variety of packaging materials for a wide variety of products. Therefore, we view "Packaging Waste & Recycling" as one of the materialities. In order to create a recycling-oriented society, we will continue to promote environmentally-friendly initiatives, such as changing the plastic materials, adopting sustainable resources such as the use of corrugated cardboard that has obtained FSC certification ^(※1), and introducing a system that enables easy selection of appropriate-sized materials to prevent excessive packaging.

• Changed cushioning material used for product packaging from plastic materials to 100% recycled paper materials
• Use of corrugated containers with FSC certification(*1)
• Changed packaging materials from plastic to materials containing 25% biomass plastic
• Introduction of a system that enables easy selection of appropriate-size materials to prevent excessive packaging
• Use of 10 types of materials are always available and appropriate sizes are used to prevent excessive packaging.
• Use of reusable ZOZOTOWN original-made non-woven textile bags(*2)
• Digitizing delivery paper slips and receipts that was included in the product
• Announcement to brands to refrain as much as possible from plastic hangers that are not needed when products are transite

*1 FSC certification is an internationally recognized system for "appropriate forest management," which was created with the aim of sustainable forest use and conservation.
*2 When collecting trade-in products from customers through the "replacement discount" service, we recommend the use of ZOZOTOWN original non-woven fabric reused bags that can be used repeatedly. Currently, about 94% of reused bags used once have been cleaned, and the bags have been reused on average five to six times since then.Changed Packaging for Delivery to Environmentally Conscious Materials

Usage of Packaging Materials

	Fiscal 2022	Fiscal 2023	Fiscal 2024
Corrugated Containers (kg)	10,840,114	9,190,662	8,795,579
Shipping Bag (kg)	774,084	1,121,927	1,231,499

Declaration of Partnership Building

We formulated and announced the Declaration of Partnership Building that was established by the Cabinet Office and others. This is declared by representatives of companies to build new partnerships by promoting collaboration and co-existence and co-prosperity among business partners in the supply chain and businesses that seek to create value.
Announced "Declaration of Partnership Building "

Multi Stakeholder Policy

We will strive to appropriately work with multi-stakeholders, in the context in collaborative value creation not only with our shareholders, but also with our employees, business partners, customers, creditors, local communities and other various stakeholders have become important in our business management.

On that basis, we will proceed with the following efforts considering the importance of return to our employees, and respect and consideration for our business partners, from the perspective that appropriate distribution of the revenue and the outcome resulting from the collaborative value creation and productivity improvement to multi stakeholders will lead to the maintenance of the momentum for wage increases and the sustainable development of the economy.

1.Return to our Employees
We will focus on maximizing the added value while achieving sustainable growth and productivity improvement through priority allocation of management resources to growth sectors, and enhancement of our employees’ potentials and improvement of their skills.

Furthermore, based on the profits and achievements generated, we will raise wages in accordance with the "Major Principles for Determining Wages" and through appropriate methods that take into account the company's situation.

We will aim to provide sustainable returns to employees through proactive investment in human resources such as education and training, which will contribute to enhancing employee engagement and further improving productivity, even in other comprehensive improvements in compensation.

Specifically, with regard to wage increases, the Company takes into account social conditions and the business environment, including inflationary trends when determining the amount of year-end bonuses.

We have reformed our personnel system and decided to abolish the limitation on the scope of payment of housing allowances, which had previously been limited to a certain range of the neighborhood of the workplace, and pay all employees.

We are also working to raise wages by expanding the range of allowances, such as the introduction of the "Make a difference every day (additional monthly allowance)." Furthermore, we will strive to appropriately distribute and return profits by raising wages through personnel evaluations conducted under the new personnel system.

With regard to education and training, we are actively working to develop human resources that can respond to changes in the internal and external environment.

As part of investment in human capital, We provide opportunities for employees to learn on their own as well as training and education tailored to each employee’s career stage.

Specifically, we have introduced a subsidy system for cloud training expenses, a doctoral program for working people, etc.

We will respect the diversity of each employee and aim to improve employee engagement by building a rewarding and pleasant work environment where everyone working at us can demonstrate their abilities to the fullest and play an active role.

2.Consideration for Our Business Partners
We will continue to comply with the Declaration of Partnership Building. In the event that the Declaration of Partnership Building is withdrawn from the official portal site, we will voluntarily remove the disclosure of our Multi Stakeholder Policy.

Declaration of Partnership Building
https://corp.zozo.com/en/sustainability/declarationofpartnership_en.pdf

In addition, with regard to business relationships with tax-exempt businesses, we will refer to the government's published approach to the invoice system for tax-exempt businesses and their business partners, and work to build appropriate relationships. With regard to these items, we will proceed steadily while checking the status of initiatives.

April 1, 2024
SAWADA Kotaro
Representative Director, President and CEO
ZOZO, Inc.