How the pandemic increases the interests of Japanese retailers

This article is the third part of a series of articles in the Financial Times, which explores the future of the retail industry

The deal that Japanese billionaire Hiroshi Mikitani likes to make has improved his reputation as the largest e-commerce communicator in a country that has been slower than anyone to accept it.

Mikitani’s Rakuten company, founded in 1997, has grown into Japan’s largest online retailer. The company has acquired shares in the communications app Viber and the US coupon and cashback website Ebates.

This is a record explaining why his latest transaction aroused such interest. Miki Valley did not invest money in the new application, but agreed to sell 8% of Rakuten’s shares to Japan Post at the end of March. Japan Post is a former state-owned postal service and a powerful symbol of the role of an entity in the country’s $500 million economy.

The epidemic in more than a year has brought the biggest impact to the retail industry in decades. This transaction is used as evidence to prove that it is too early to cancel the role of the physical store network in attracting Japanese consumers.

In addition to this investment, Rakuten will greatly expand its delivery network and showcase its brand to older shoppers who use the post office. At the same time, Japan Post can use the payment and customer data usage skills of online retailers.

“The essence of this transaction is that Japan Post, which has the largest retail branch, is cooperating with Rakuten, which operates the largest digital business,” Managing Director Hiroshi Takasawa told the Financial Times.

If the agreement reminds people that the country’s physical retail industry is rooted in other major economies, no one would think that the epidemic has changed the way Japan’s shopping is done.

Akio Yoshida, president of AEON, Japan’s largest supermarket chain, was unambiguous when he addressed investors last month.

He said: “The expansion of Covid-19 has greatly changed the behavior, way of thinking and value of consumers.” “Digital technology has now penetrated into all aspects of our lives.”

Caught off guard

This signifies that the industry has 7 million employees, which is a serious challenge, and in the past ten years, the customer base has sharply divided: a large number of elderly people are shopping in the physical shopping market, and there is a group of younger, more digital-savvy shopping By.

Demographics is one of the main reasons why a country (synonymous with technological innovation) has been slow to adopt e-commerce.

According to eMarketer’s research, by the end of this year, the Internet will account for nearly 11% of Japan’s retail sales. In contrast, the consulting company predicts that by the end of this year, online sales will account for 52% of total sales in China, 15% in the United States, and 13% in Western Europe.

However, as Japan adopted another state of emergency to try to keep the Covid-19 infection rate low before the Olympics, retailers are not sure how far-reaching the impact of this pandemic will prove.

There are signs that as new habits persist for a long time, some fears will be caught off guard. In the case of Isetan Mitsukoshi, which has a history of 348 years, this is the clearest point. Isetan Mitsukoshi (Isetan Mitsukoshi) sells various products ranging from luxury handbags, bedroom decorations to traditional sweets.

When the government first declared a state of emergency a year ago, the company was forced to quickly develop new habits. Employees turned to the Zoom video calling and messaging app Line to meet the high demand of customers who want to buy online backpacks in time for the beginning of the school year in April.

Since then, the group has developed its own smartphone app. In theory, all 1 million products sold in the Shinjuku flagship store are available online. The application also allows customers to consult their sales staff virtually.

“We believe that if our hair stylist can provide advice to customers seeking such encouragement before deciding to buy goods, we can provide services that Amazon or Rakuten cannot provide [online], Said Sang Zhizhi, senior director of Isetan Mitsukoshi.

He added: “We are at a moment when we need to reconsider the meaning of our existence.”

Yoko Shimomura, who works for a Tokyo brokerage company, said the Covid-19 crisis has changed her way of shopping.

“I don’t mind going to the department store in person, but I found a better deal online,” said Shimomura, who is in his forties.

Almost over

It is not difficult to find skeptics who believe that the efforts of companies like Isetan will prove too little, too late, because the Internet has expanded its control over consumers.

Sho Kawano, Goldman Sachs’ Japan Equity Research Co-Head, said of Isetan: “Management underestimates the speed of digital transformation because they rely on physical stores.” “If Isetan strengthened digitalization 10 to 15 years ago. Work, the situation will be very different. It’s almost over.”

Even before the pandemic, the mix of complacency and tenaciousness of some traditional retailers has created an opportunity, and digital competitors such as fashion website Zozo and flea market app Mercari have seized the opportunity. Since the crisis, they have performed even better.

Mercari’s stock went public in 2018, and earlier this year, a younger generation of Japanese consumers used the app to sell second-hand clothing, handbags and other accessories, setting a new record. In the first three months of this year, revenue jumped 41% to a record 28.6 billion yen (US$261 million).

The popularity of Zozotown, an internet fashion empire owned by Yahoo! Japan’s operator Z Holdings, is also booming.

Unlike these online experts, physical stores are still the core of Ito Yokado, one of Japan’s largest supermarket chains. However, spurred by the crisis, the company is testing a new method aimed at bridging the gap between its 132 stores and e-commerce operations.

In September, when Hoshihide Suga took over as prime minister and promised to revitalize the economy, the company began to provide delivery services, directing 400 kinds of vegetables, fruits, meat and fresh fish to homes for senior citizens who ordered by order.

“We will see a more integrated world of online and offline, online supermarkets, delivery services, Ito Yokado physical stores and convenience stores will require various coordination,” senior executive Futoshi Shibata (Futoshi Shibata) Shibata) said in an interview.

As the crisis disrupted traditional retailers, one company offered encouragement.

Record profit

Fast Retailing, the owner of Uniqlo’s fashion chain, is hailed as a rare example of the company’s ability to use technology to manage its current stores all over the country without increasing online sales..

Uniqlo’s same-store domestic sales increased by 5.6% from September to February over the same period last year, while online sales increased by 41%. Fast Retailing, a $86 billion market value company, expects annual profits this year to hit a record high.

Analysts believe that this unlikely result depends on Uniqlo’s efforts in its online and physical operations. Nowadays, robots dominate their warehouses, which speeds up delivery selection. It launched its own cashless payment application, which is its latest work to collect more valuable data for customers.

“Whether online or offline, customers ultimately want to buy the products they want at their convenience,” said Wang Xiaozhou, an executive responsible for fast retail global e-commerce. People want to try on their clothes and we need to keep in touch with our consumers. But the online service also has its advantages, because it is open 24 hours a day and you can get more information about your customers. “

There is no doubt that in the long run, Japanese consumers will change the way they shop online. However, as the industry faces its worst losses in decades, the message that shoppers convey to retailers about future success is unquestionable: if you want our business to get better sales online and in stores.