While such traditional mainstream retailers as department stores and chain stores flounder, online and mobile shopping are growing significantly. There are several attributes that are prominent in Japanese e-commerce. Firstly, online malls (e-commerce department stores) are growing rapidly; another is that mobile commerce has significant market share; and last but not the least is that e-commerce is still a small segment of the overall retail landscape compared to the U.S., and as such, there is much more room for growth.
It is only relatively recently in 2005 that Japanese fashion e-commerce was really launched in a major way. In the last few years, three such companies have gone public, and there is an increase in the number of overseas e-commerce models being introduced into the Japanese market. The e-commerce market will continue growing as it is in the other major industrialized economies, but on the other hand, the oligopoly that is unique to the Internet market may progress as well. by Tsutomu Kubota
An epoch-making, catalytic event took place in 2005 that proved that fashion can sell through online and mobile commerce. First was the launch of ZOZOTOWN, run by START TODAY CO., LTD., who still leads Japan’s fashion e-commerce today. The other was that mobile commerce was integrated into the TOKYO GIRLS COLLECTION that showcases real clothes in Japan to the rest of the world.
Until then, e-commerce was done through such comprehensive market places like Rakuten, Inc.’s Rakuten Ichiba and Yahoo Japan Corporation’s Yahoo! shopping, where fashion and other product categories shared the retail space and where the entrance barrier was low for anyone to open an e-commerce operation. At the same time, from the brands’ perspective, online shopping was merely a channel for inexpensive items and a wonderful opportunity to get rid of inventory. From the Internet perspective, the permeation of broad band and higher speed transmission for mobiles and larger screens as well as flat packet transmission rates were among the key business elements that began to take shape in around 2005.
Market leading examples of fashion e-commerce are MAGASeek Corporation and Stylife Corporation (both are listed companies) who run collaborative campaigns with fashion magazines and sell mainly to young working women and career women through this media mix. However, it can be said that these business models have limitations in terms of growth potential as the core customers and the brands one can sell become restricted by which magazine one ties up with.
ZOZOTOWN integrated several directly operated e-commerce sites in December 2004. It launched the new concept of creating a virtual fashion town where each site is a store. In autumn 2010, ZOZOTOWN established a partnership with Yahoo Japan to share their database information and to totally revamp their home page with peer recommendations, social media functionality and other features. The partnership with Yahoo Japan has increased their reach exponentially. Consumer purchasing behavior is now being greatly influenced by peer recommendations from close people whom they trust. The enhancement of social media features is a clear response to changes in consumer behavior.
Furthermore, in November, ZOZOTOWN created a CRM (customer relationship management) Division. It is a first stab at analyzing the purchasing behavior of their clientele and identifying potential demand to create a merchandising plan relevant to this demand. One of the company’s goals - to eliminate waste in the fashion industry and realize efficiency - is creating a unique business model seen nowhere else.
Meanwhile, the key player responsible for expanding the fashion market in mobile commerce is BRANDING, Inc. They established a specialized mobile portal site called girlswalker.com that offers horoscopes and celebrity gossip targeting the F1 (women aged 20 through 34) group.
To commemorate the fifth anniversary of girlswalker.com, they hosted the TOKYO GIRLS COLLECTION in August 2005, an event where merchandise showcased on the runway could be purchased online as the show was happening. This brought runway shows together with mobile and e-commerce. Their theme, “delivering Japanese real clothes to the world,” has driven them to hold events in Paris and Beijing as well, having much impact on the fashion industry.
Japan’s F1 category is heavily dependent on mobile phones. Even if the display is tiny, if it is a brand they like, they will supplement the limited information available based on their past purchases, trying things on in brick and mortar stores, and information gathering through magazines and blogs to make a purchase. The average order value is still lower than e-commerce over PCs, but that is gradually increasing.
The growth of the online market is significant, but from an overall market share perspective, it is still low (refer to diagram).
START TODAY, number one in fashion e-commerce today, has posted a 69.2% rise in transactions for the period ending March 2010, to 37.0 billion yen (≒US$451.2million), and projects a transaction value of 55.5 billion yen (≒US$676.8million) for the current period.
With many of the brands that sell on ZOZOTOWN, their e-commerce revenue share is 5% to 10%, but when seen overall across the industry, that figure is estimated to be closer to 3%. In the U.S., the estimate is over 10% and if Japan follows suit, there is a very high potential that it will grow to 3 to 5 times what it is today.
Another key issue is that major apparel businesses and large scale retailers are getting serious about e-commerce. Catalogue based mail order companies are scrambling to develop a new business model that combines their traditional catalogues with the Internet. In addition, such major western e-commerce players as Italy’s YOOX Group and the U.S.’s GILT GROUPE are focusing on building up their businesses in Japan. Such comprehensive market places as Amazon.co.jp (run by Amazon Japan K.K.) and Rakuten Ichiba are enhancing their fashion offering and are trying to attract influential select shops and brands. The e-commerce market is growing exponentially, but so is the competition to secure customers.
There is no need to quote western examples to see that in the world of the Internet, oligopolies are easily established. The Internet has a powerful search function as well as a compare and decide function that enables large companies with deep pockets to execute system updates and other such investments to get even bigger. At the same time, technological advancements happen quickly and there is the potential of an overnight paradigm shift thanks to new technologies, devices and/or services becoming available.
Each company must hone and understand their strengths to maintain their competitive advantage. Without a clear differentiation based on core strengths, consumers will search, compare, and eventually all flock to a major site, leaving the bland, faceless sites to disappear. Core strengths may be achieved through myriad of things, including products, merchandising of brands, the site’s design concept or such usability features as comparing and recommendations, as well as customer service and logistics. From a global perspective, it is obvious that what the overseas e-commerce executives see as Japan’s strength stands true in that when it comes to mobile commerce and logistics, Japanese businesses obviously have the upper hand. Going forward the challenge will be to not only focus on the domestic market, but to succeed internationally as well, especially with Asia on the radar, by using core strengths to establish a growth strategy for the future.