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Shoppers embrace the online model

By Geoff Hiscock
For CNN

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TOKYO, Japan (CNN) -- Online shopping mall Rakuten is the giant in its chosen field of Japanese Internet commerce, handling millions of customers looking for everything from auction bargains and share broking services, to music downloads and cheap travel tickets.

With revenue this year of about 210 billion yen ($1.78 billion), Rakuten already has a sizeable chunk of Japan's estimated $30 billion e-commerce sector.

But founder Hiroshi Mikitani wants much more. With expansion firmly on his horizon, he told a Nikkei global management forum in Tokyo recently that his vision was for revenue of 1 trillion yen next year or 2008 -- a jump of massive proportions.

The way to get there, he believes, is through a multiplicity of "destination" stores in the Rakuten mall, through greater integration of e-commerce and media, and through the skilful use of data to cross-sell an array of goods and services to existing customers.

Mikitani, who set up Rakuten in 1997, is one of Japan's most high-profile e-commerce entrepreneurs. With his wife, Mikitani owns 46 percent of the company, a stake worth about $2.35 billion at current share prices. His simple mission statement is "to become the No. 1 Internet service company in the world."

Mikitani says his two role models are Masayoshi Son -- Japan's richest man and founder of heavyweight Internet investor Softbank -- and the man who joined Mikitani on the stage at the Nikkei forum in late October, Muneaki Masuda, creator of the Culture Convenience Club (CCC) group that pitches itself as a "lifestyle navigator" to retail customers via its key Tsutaya brand.

At 228 billion yen a year, CCC's revenue is remarkably similar to that of Rakuten. And if Rakuten is the ultimate e-mall for a broad range of shoppers, Masuda's CCC is the sophisticated navigator to all that is hip in cinema, fashion, music, cars, games, entertainment, books and whatever else turns a consumer on.

Not that Masuda is averse to the mass sell. He told the forum that 14 percent of the Japanese population -- equal to 17 million people -- are CCC members. And 60 percent of 19-year-olds in Japan are "active members," allowing CCC to dominate CD and DVD rentals.

Transforming business

Mikitani and Masuda are two of the stars of a sector that promises to transform the way many people do business in Japan, particularly for younger consumers who have grown up with electronic devices such as mobile phones, PDAs, music players, laptops and game consoles.

Masuda noted that in 2003, television far outstripped the Internet in advertising spending. But the gap is closing. Online is catching up fast, and Masuda expects that it will not be long before Internet ad spending overhauls television.

The Internet is, after all, the classic environment of the "long tail" phenomenon -- the ability to sell small numbers of a vast array of specialist items to individuals from among a massive group of consumers.

"You can advertise a lot of other products online," Masuda said. "And people can shop whenever they like."

One example comes from the specialist food products and regional delicacies that are beloved in Japan. It is common for people to bring back "omiyage" (souvenirs) of food and drink to family and co-workers after a trip to another part of Japan, or overseas.

Mariko Fujiwara, research director of the Tokyo-based Hakuhodo Institute of Life and Living, explained to CNN recently how e-commerce is changing the logistics of this tradition.

A devotee of organically grown limes from the Oita area of Kyushu in southern Japan, Fujiwara recently ordered 20 kilograms of the citrus product online from a farmer. The cost -- 6,000 yen plus a delivery free of just 630 yen -- made for much better economics than buying the same product from a Tokyo retailer.

And Fujiwara says specialist producers are starting to see the value of forming online cooperatives where they can offer their goods to consumers who hold certain values, such as wanting goods that are pesticide free, authentic and seasonal.

Driving much of this specialist trade is Japan's electronic infrastructure -- notably the spread of high-speed broadband access. Whether they use fixed or mobile means, consumers increasingly are prepared to log-on and buy from the smallest regional supplier to the biggest mega-malls like Rakuten.

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