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Our mission is to unmask Japan to reveal the real consumer truths

Distribution channels changing as consumers seek more convenience

By: Debbie Howard

I was walking through Takashimaya in Nihombashi last week, and was impressed by its grandeur, efficient staff and presentation of luxury brands. However, I also noted its “emptiness” in terms of number of customers.

Department stores, once the bastion of retail distribution in Japan, have suffered a long slide downward beginning just after the bubble burst, with annual sales decreasing from 10 trillion yen in 1991 to 6.5 trillion yen in 2009.

In the 90s, we saw the advent of outlet malls and 100-yen shops, as well as the proliferation of convenience stores and even flagship luxury brand shops. While all have contributed to the changing landscape of distribution channels in Japan, none has been as dramatic as that of “online shopping,” which grew to 6.6 trillion yen in fiscal 2009.

About half the annual online sales of the U.S., Japan’s growth is much faster, with estimates of up to 20% annually. This is despite the fact that Japanese consumers still tend to use the Internet more “for information-gathering” than “for making purchases.”

It is interesting to compare the motivations of U.S. and Japanese consumers in gravitating to online sales as a distribution channel. In the U.S., for example, the growth of online sales has very much been driven by price-consciousness, with sellers vying to outdo each other by providing customers with the opportunity to “shop price.”

In Japan, product pricing tends to be maintained more consistently, so whereas “comparison shopping” is certainly a factor, it is not the primary factor. In Japan, “convenience” appears to be the main driver for consumers. This might not come as a surprise considering Japan’s cost-efficient and timely delivery services, developed over many years and in part enabled by sheer geographic population concentration.

One important phenomenon in Japan is the rapid convergence of online sales and traditional channels for “everyday shopping,” such as supermarkets. Rakuten Ichiba (Japan’s largest online shopping site, reporting operating profit of 20% over the previous year), has already teamed up with Maruetsu, Kinokuniya and Tokyu — all of whom will open up “virtual shops” on Rakuten’s site as a way of accessing its 58 million members.

Aeon has also embarked into the online space, with its 59 Jusco outlets offering over 6,000 items (primarily food) online, and Seven & I Holdings will build a new distribution location, with its new site reportedly listing some 5 million products. And supermarket chain Summit is also venturing into the online space, having opened a merchandise-processing and shipping center for its online store in late 2009. The firm has a goal to sell 100 billion yen in 2019. Many of these emerging online services offer “same day” or “next day” delivery services, thereby providing great convenience to their customers.

Today, we see a more individualistic consumer who is well-equipped to decide where he or she will shop according to their specific needs. At the same time, we see that online shopping channels have become much more widely-accepted, with fears of shopping online that were expressed in the early 2000s almost non-existent now. This is dramatically illustrated by the fact that online sales in Japan have thrived while others have stalled over the past several years — despite the fact that overall consumer spending in Japan is down.

Debbie Howard is Chairman of CarterJMRN and President Emeritus of the American Chamber of Commerce in Japan.

Originally Published in Nikkei Weekly, 1st March 2010

CarterJMRN is a strategic market research agency that has been helping clients with consumers and businesses in Japan and beyond since 1989.

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