At the end of each year, there is always plenty of news about the Christmas shopping rush, and how and what people are buying. We just saw, that for Christmas 2009, the focus seemed to be firmly on online retail for Christmas shopping, a trend that seems to encroach more and more on the more traditional approach. The Wall Street Journal reported on December 15th 2009 that despite shop sales being flat compared to last year, online sales in the US had grown 4% in only the 6 weeks since the beginning of November. Also, online sales in the US totalled $913 million on December 15th alone, a record for a single day. So why is this happening, what does it mean, and what’s going on in Japan in online retail?

This increase in attention of online retail is happening for a number of reasons. Firstly, it (actually the internet in general) is a growth industry. People are moving online to shop at a rapid rate, and in the midst of the global recession, traditional concerns regarding security and privacy are taking a back-seat to convenience and price. In addition to this, the turmoil that has been brought about by the recession has brought strong attention to old and antiquated business models that are no longer going to work. Online retail offers cheaper overheads, cheaper marketing costs, and a growing global customer base, and therefore is emerging as one of the new beacons of hope in an otherwise fairly depressing global economy.

Online shopping has been firmly established in Japan thanks to the likes of early adopters such as Yahoo Japan and Rakuten, and also equally in part to the development of Japan’s lightning fast internet and amazingly reliable logistics industry (think Sagawa and Kuroneko Takkubin etc). It always amazes me how quickly these guys can get things to your door, even in the pouring rain! In fact, this infrastructure has allowed Amazon Japan to offer same-day delivery for some items ordered online over the Christmas season. Considering the actual time it takes to take an item from a shelf, throw it in a truck, and actually drive it to your door, there must be almost zero down-time, especially if you live in the sticks! Again, pretty amazing. Walmart in the US is offered a new drive-through service during Christmas, where shoppers could buy products online, and they were ready at the next drive-through window for shoppers to pick up. Close, but no cigar compared to Amazon Japan. Another area which has contributed to establishing online retail in Japan is Japanese companies’ focus on creating a reliable site and credibility with their customers, making the experience as safe and anshin (安心) as possible.

As global online retail sales increase, there are a growing number of small and innovative companies to carve out a piece for themselves and take on the likes of Amazon, Ebay, and Yahoo Japan. However, while the barriers of entry are low, the costs of running an online retail business relatively low, and marketing costs (email and viral etc) can also be very low, the profit margins can also be low and therefore require a high turnover to stay in the game. It’s a typical snowball pattern, where it’s very difficult at the beginning, but if you can start gathering some pace, then the company can grow fast and it can be difficult to take down. First-mover advantage is also vital, especially in Japan. Due to these factors, it is hard to imagine anyone replacing Yahoo Japan or Rakuten in Japan in the near future.

However, giving the potential prize for the biggest snowball, and the global nature of the business, there are some fascinating innovations in the industry at the moment, providing ways to market more items to more people.

Moshimo is a company within the NetPrice Group. NetPrice is a medium-sized Japanese e-commerce group, which has relations with over 2,000 Japanese goods suppliers. With access to these companies’ products at wholesale price, Moshimo has created a “drop-shipping” infrastructure business. Drop-shipping is where the website owner (in this case a Moshimo user) does not actually purchase or own any products, but runs a website and markets someone else’s products. In this case, Moshimo users sell the products on behalf of Moshimo. When an order comes, the drop-shipper (user) contacts the supplier (Moshimo), who then ships the goods. The benefits of this are that the drop-shipper has minimal costs to start the business as they have no inventory costs, and can just focus on marketing. In addition, sitting between the end suppliers and drop-shippers, Moshimo provides (only in Japanese at this stage) an easy-to-use website building tool. So in fact, Moshimo provides the products, the website builder, the payment system, and all the sales tracking tools, and the drop-shippers only need to work on tweaking the design of their site, and start marketing! In fact, it’s so easy, that you can register, select products, and have a site up and running and selling in 10 minutes! Moshimo already has over 300,000 users who have created online shops. (Nope, that’s not a typo, that’s 1 for every 400 people in Japan.) This is a great Japanese innovation, and something I suspect we will see overseas before long.

We also think that the market for supplying Japanese products to the rest of the world is increasing, and there are a bunch of new sites doing so in both English and Chinese.

Over 6 years old, Rinkya.com is possibly the oldest (and largest) company in this market, and has built a nice niche for itself. Rinkya is an English language online auction and shopping site based in Tokyo, which allows foreigners to bid for and buy items in English from Japan’s e-commerce sites such as Yahoo Japan and Rakuten. Rinkya layers a translation engine on top of the sites, so users can browse and buy in English. As this can be used on any online retail site in Japan, it gives users access to a huge selection of Japan’s products sold online. While those naysayers in the translation industry or those who have been in Japan for a while will say that machine translations are still too primitive and will never be perfect, Rinkya has proved that they are in fact sufficient for an effective level of interaction, and that form indeed follows function. Interestingly, Rakuten, Nissen (through jshoppers.com) and others are now trying to do the same thing with limited success. We put this down to their lack of understanding of how to market to and how to handle a foreign client base.

Following Rinkya’s lead, the number of companies trying to bridge the gap between Japan and overseas, is growing. Netprice (again), began last year providing a Japanese language service Tenso.com to post items from Japan overseas for Japanese who had bought things online from Yahoo or Rakuten, who didn’t post directly at that time. Based on this success, they then took the next step and early in 2009, launched into China, through cooperation with Alibaba, to sell their wealth of Japanese goods into China in Chinese through Alibaba’s online retail site Taobao.com.

In addition, sites such as HanbuyJapan.com, Flutterscape.com, and Japantrendshop.com care of trend consultants CScout, are trying various approaches to promote Japanese good overseas. Despite the state of the economy, the mind-set of Japanese is likely to remain the same in terms of a focus on making quality products. And with the growth rates of global online retail and the further expansion of the internet itself, we expect to see more innovative sites and ideas in the near future. Take a look at a few of the sites above, they offer an excellent range of quality Japanese goods, at competitive prices, and best of all – in English!