The omnichannel experience

How e-commerce is affecting the bricks-and-mortar sales model in Japan

Text by Justin McCurry

No doubt to the disappointment of many British children, Toys “R” Us announced at the end of 2017 the closure of a third of its stores in the UK, putting hundreds of jobs at risk. Earlier, the American retailer had filed for bankruptcy in the US and Canada, with industry observers citing its losing battle with online rivals such as Amazon.com.

In contrast, in early December, Japan’s largest online shopping site, Rakuten, said it was branching out again, this time into telecommunications — with plans to build its own mobile phone network — and become the country’s fourth mobile phone carrier in 2019.

While Toys “R” Us has recently launched a web store, its plight is a cautionary tale for any business that has been slow to embrace e-commerce, the name for the online marketing, sale and purchase of goods and services.

Those lessons appear to have been heeded in Japan, where business-to-consumer e-commerce transactions exceeded ¥13 trillion in 2015, according to the Ministry of Economy, Trade and Industry, a rise of 7.6% over the previous year. E-commerce, the ministry said, “and the computerisation of commercial transactions continues to advance”.

There is more good news. In its 2016 business-to-consumer report on Japan, the Ecommerce Foundation, a non-profit organisation, said the number of e-shoppers in Japan had risen from 71 million in 2012 to 76.9 million in 2015. In terms of tangible items, clothing is the most popular online purchase, and consumer electronics and home interiors also rank highly, according to the report. Travel is by far the most popular service, with 91% of leisure flights and 86% of hotel stays booked online in 2015.

“Japan’s developed economy, highly urban population, and single language make the market attractive to online retailers,” the report said. “Highly developed distribution infrastructure and small country size make delivery easy and convenient. Market growth is expected to be steady for the foreseeable future.”

Rakuten and Amazon Japan lead the pack, with their huge portfolio of products, prices lower than those offered on the high street and speedy delivery options. In their wake come myriad sites specialising in particular product lines and services.

JapanConsuming, an online publication devoted to the Japanese retail industry, predicts that 20% of all retail sales will happen online by 2023, thanks to a combination of widespread smartphone use and the easy compare-and-contrast options digital marketing offers to Japan’s famously discerning consumers.

But does the growth of online shopping really spell the decline of Japan’s bricks-and-mortar stores? Will the day arrive when the streets of Ginza stand empty on a weekend afternoon, as consumers click their way to ownership of a brand-name bag or designer coat?

That’s unlikely, given that many Japanese view shopping expeditions as a pilgrimage. Instead, the future could be one in which firms in e-commerce denial struggle, while those that marry traditional and modern shopping habits thrive.

However, for those businesses that choose this marriage, more needs to be done and the bar needs to be raised for them to see long-term success.

“They have to deliver a seamless customer experience at every touch-point, maximise sales across every channel and device, and live up to their promises regarding product availability and delivery,” wrote Gert-Jan Morsink, a member of the executive board at the Paris-based business process outsourcer Webhelp Group, in the Ecommerce Foundation’s report on Japan. “In order to create a strong retail brand to which consumers will return, they must turn shopping into retail therapy — effortless, relaxing and ultimately enjoyable.”

That means embracing the omnichannel approach — a marketing and sales strategy that integrates consumer habits, whether shopping online with a laptop or mobile device, ordering over the phone or visiting a physical store.

“We learned that online, we need to tell a story to attract consumers,” said Neta Hahne, online and omnichannel director at Estée Lauder Group Companies Japan. “It is not only promotions that consumers are interested in, but the actual experience and high-touch service. Also, omnichannel plays a big role in attracting consumers as you make the experience between offline and online more and more seamless.”

Companies considering a journey into the omnichannel world should consider following the example of the Japanese apparel retailer Marui, according to Roy Larke of JapanConsuming. Marui has placed its entire store inventory online so that customers can browse products before buying them at its stores — although they also have the option of home delivery.

Larke, who is also a senior lecturer at Waikato University in New Zealand and an expert on retailing, consumer behaviour and marketing, believes that Japanese retailers, generally speaking, seem to understand that the future will be one of online–offline integration, in which smartphones are built into the in-store shopping experience.

But what of businesses that have buried their heads in the sand?

“I think the only sector currently threatened by online is consumer electronics, and I do expect chains to be cut back,” Larke said. “We’ll see a split between the omnichannel operators and the rest. Where omnichannel becomes standard — as I think it will in fashion, stationery, furniture, and eventually food — the split between the winners and losers will be their ability to innovate an omnichannel solution with all the integration and direct marketing that will require. Those that don’t do this will lose; and, yes, stores will close.”

What the travails of Toys “R” Us can teach us is that failing to adapt to fast-changing consumer habits is anything but child’s play. That goes for Japan as much as for Europe and the US.

But with challenges also come opportunities. After all, e-commerce means that a foreign retailer wishing to test the waters of the Japanese market no longer has to contend with the expense and logistical obstacles that come with searching for real estate and opening an office.

“Setting up in Japan has got much cheaper and easier, but it is still a risk,” cautions a report compiled for UK Trade and Investment “Today, however, e-commerce means you can now sell direct to Japanese consumers from the UK, or with a quickly set-up Japanese operation.”

In its upbeat assessment, the report goes on to describe e-commerce as a “low-risk way” to gauge the Japanese market: “whether you only want to sell online or have bigger plans, looking at the opportunities for e-commerce in Japan is worth the effort.”  •