We also predicted that e-commerce standouts Reawaken and Amazon Japan would continue to increase their market share and squeeze out those whom we termed “slow movers. ” drugs, food and beverage, beauty care, and consumer electronics, It features 95 million products and more than 35,000 associated merchants: merchandise sales (I. E. , excluding tickets and downloads) is about VI trillion (US$12. 5 billion). More than three-quarters (76%) of online shoppers say they visit Reawaken. Of online shoppers visit it. Amazon is the only non-Japanese online retailer of any significance (Yahoo!
Japan, a shopping portal, Is not a retailer) with an estimated 500 billion ($6. 2 billion) In sales. Founder and CEO Jeff Bozos Is along for 30% a year revenue growth. Amazon’s service, which competitors have begun to copy, has earned it profound consumer loyalty. The company is pushing into new categories, Amazon Japan, launched in 2000, remains an ambitious and shrewd number 2; 62% Exhibit 1: The e-commerce growth opportunity Japan retail e-commerce revenues, actual and projected JP trillions So how did we do?
Pretty well. By 2011, Japanese e-commerce retail spending ad already reached at least $46 billion. With growth running at 7%, that puts the market on course to exceed our headline figure of $56 billion by 2015 and hit $62 billion the following year. 5,000 As for the Reawaken/Amazon Juggernaut: The two giants continue to outgrow the market significantly, with a combined market share that grew from an estimated 32% to in Just two years and could hit 50% soon.
Exhibit 2: Japan’s top 10 online retailers Reawaken Largest e-commerce retailer (80 million users) 2 Amazon Biggest online book retailer; also offers general merchandise 3 Yahoo Online information portal that offers online shopping in addition to its 4 Japanned Dakota search engine and Internet directory But interestingly, of the top 10 Japanese e-commerce companies, only Joshing, an Osaka-based consumer electronics retail store operator with about $5 billion in total sales (online and of, is a bricks-and-mortar player. Two others are traditional catalog players (Nisei and Shakiness).
Compare this to the US, where, seven of the top 10 online retailers are traditional heavyweights like Sears, Staples, Office Max, Wall-Mart and Best Why the difference? Japanese brickyard-mortar players have been reluctant to invest too much online, largely because they generally enjoy privileged positions in their traditional space. Due to self-reinforcing mechanisms that favor the status quo, Japanese companies tend to be slower than American ones to accept change and to reinvent themselves (a case in point is the distinctly old-school department stores).
This is problematic because the keys to success for online stores and physical stores are entirely different. For more than a decade, Reawaken, Amazon and others have grown, and taken market share, at a fierce pace. Even so, many traditional players still have not built many of the capabilities required to succeed online. The president of the online unit for Seven&l Holdings the parent company for a number of groceries, 7-Elevens, department stores and other entities), recently told the Nikkei, Japan’s leading business newspaper, “We are behind devoted online retailers by at least 10 years in terms of services and technologies. For traditional retailers, what matters most are location, merchandise Direct sales company, based in Shush. Established in 1986, started online sales in 2000. 5 Kinshasa Catalog retailer 6 Start Today Operates Cotton website, established in 1998; specialty is apparel. Nisei Mail-order/catalog retailer targeting women 25 to 59; 8 Joshing Dense Leading large-scale discount consumer electronics chain operator. 9 Dell Dell’s Japanese subsidiary; sells PC’s and peripherals. Stream Online retailer of PC’s and home electronics.
SOURCES: Fuji Aziza, company websites, Textbook Data Bank, Toy Aziza assortment, and the in-store experience. Online retail, by contrast, is all about fulfillment and logistics, plus the online shopping experience and the customer lifestyle management (CALM) engine. It has taken a long-time for traditional retailers (in Japan and elsewhere) to realize Just how complicated and demanding online retail is. And when hey have tried, the going has often proved rougher than they expected. Yamaha Dense, a major consumer electronics chain, for example, launched the online Yamaha Mall in 2010, but sales are running well short of projections.
Even the bricks-and-mortar e-commerce leaders, including Unique, Japan’s top apparel retailer, get only a small Consumer electronics (CE) is a particular anomaly. Three firms dominate (Yamaha Dense, Hydrophobia Camera, Big Camera). Still, online revenues account for less than 10% of the total, compared to 24% and growing in the U. S. , according to the NYPD Group. Stores in Japan have little incentive to push customers online; for their part, consumers find in-person shopping simple enough because CE stores are ubiquitous, particularly near commuter train stations.
There are two reasons for the relative weakness of pure online retail plays in Japan. First, the strength of mega-portals such as Reawaken (and too much lesser extent Yahoo! Shopping) and online fashion malls such as the Zoo network of shopping sites, make it more difficult to compete without significant investment in infrastructure and marketing to attract enough eyeballs. Second, in some categories, such as CE, convincing Japanese manufacturers to source supply at their best prices is a challenge.
There are some high-flyers: sales at Start Today, which operates the passionflowers Zoroaster site, and MOA, which runs a popular CE site called A-price. Com (in addition to stores on Amazon and Reawaken), are growing fast (54% and 57%, respectively, from 2008 to 2010). In 2011, Stetson’s revenues were JP 80 billion ($1 billion). Success has come from exploiting a gap in the market (online fashion) and also from an innovative business model. While Cotton holds most of its inventory on consignment, it provides turnkey services o its “tenants,” including ordering, shipping, warehousing and even models and photographic services.
Interestingly, Cotton recently launched a printed catalog, indicating that even this retail e-commerce in Japan will continue to grow in importance. One statistic that supports that assertion: the number of Japanese consumers shopping online from their PC ten or more times per year has increased markedly (from 37% of total consumers to 49%), with mobile shopping also increasing. Successful online firm sees multiplicand as the winning model in Japan. Two other companies are worth a mention-?if for no other reason than hat they could be considered takeover bait for a hungry attacker.
Six, established in 2000, specializes in online sales of organic vegetables, and has also established alliances with some 400 physical stores. Sales are an estimated $100 million. Then there is Japanned, which began as a home shopping CE player. Its online division, which started in 2000, has estimated sales of $577 million. Coming soon: The shape of the market to come So that is where the online market is now. Where is it going? Total retail sales in Japan have dropped every year since 2006; over the same period, online sales have grown strongly.
Though the rate of growth is slowing (down from 9% in 2006-11), given the dismal overall market, the performance Still, there are certain areas where Japanese consumers appear loathe to do their buying remotely. One is luxury. In recent research on Japan’s luxury market, we asked consumers what elements they valued most about two answers were: 1) The staff was kind, and 2) The staff was knowledgeable. In effect, consumers were telling us that they value the experience of buying luxury as well as the actual ownership of the product.
But while we expect luxury buyers to continue to favor tortes or e-commerce, even here, we see room for growth, particularly for more moderately-priced items, helped along by the likes of Gilt. Com and other event/ time sales sites. Catching up with Reawaken and Amazon Japan is a stretch; there is little reason to believe they are about to falter. Still, there are some areas of particular promise, such as online groceries and skincare/cosmetics. These online categories are smaller than the top three (CE, apparel, and books and software), but are growing faster.
For online grocery, look at it this way: the I-J, like Japan, is a densely populated salad nation. In Britain, online grocery is massively popular. Not so in Japan. The difference may be that Japanese shoppers are pickier; there is evidence that they like to do their own quality checks and value the in-store shopping experience. Indeed, a recent survey found that 70% of Japanese housewives had never bought groceries online. The opportunity is implied in the response to a follow-up question: only 37% said that they never would. So there are an awful lot of people who are at least theoretically willing to buy food online.
And, in fact, they are beginning to do so: F&B is the fastest growing online category (22. 6% via personal computers, 37% via mobile) and among the most fragmented. (Reawaken has a dominant share, but this is an too small to go at it alone) . Demographics are also in the category favor: A growing number of homebound elderly people could learn to value the convenience of shopping by click. At the same time, younger consumers who grew up with online retailing can be expected to rely on it more than their parents. Neon, Seven&l and Seize have all been pursuing the online F&B market, which is beginning to reach critical mass.
According to the Fuji Aziza Group, online DOD sales are 78 billion ($9. 7 billion). Tit Yoked (flagship GSM in the Seven&l group) has the largest market share (43%), followed by Neon, 23%; and Seize, 17%. All the major food retailers say they are committed to increasing online sales. It is too early to declare a winner here, but given the fact of continued retail consolidation, we see a time when a small number of firms will build nationwide businesses with superior customer experience and ordering and same-day or next-day fulfillment. Gaining market share won’t be easy, with the likes of Six and Amazon Joining the food fight.