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Taking aim at Amazon, Japan's Rakuten launches brand in US

Jay Alabaster | Feb. 4, 2013
Rakuten, the dominant Japanese e-commerce firm, converts Buy.com to its new American online shopping mall.

"Rakuten's strength is its large number of merchants, so they have products that are hard to find in other places," said Hiroshi Naya, an analyst at Ichiyoshi Research Institute in Tokyo.

Naya says the model should also help it quickly add online inventory in foreign countries as it strikes deals with such retailers. But he warns that Rakuten had very fortunate timing in Japan, where its growth largely coincided with the spread of the Internet to homes.

"Rakuten was one of the first to launch this kind of business in Japan, and it rode the wave of Internet expansion from around 2001," he said.

The company is due to announce its earnings for the fourth quarter of 2012 and full fiscal year on Feb. 14. Through September, it booked ¥29 billion ($310 million) in profit, on revenues of more than $3 billion.

Rakuten has used its strong earnings at home to fund its global shopping spree, which has also included Canadian e-book reader firm Kobo, a major investment in the Pinterest photo-sharing site, and French logistics firm Alpha Direct Service, or ADS. The company hopes to export the technology it acquired from ADS to its other markets, to offer retailers the use of its logistics and help it compete with Amazon's powerful infrastructure.

The firm has shown a willingness to sacrifice profits in the near term to enter new markets and businesses, and make sacrifices like mandatory English even at home, to fuel growth. It is pouring investments into its Kobo e-reader business and its online book catalog in Japan, for instance, as competition ramps up with Amazon, which introduced a Japanese Kindle and e-book store late last year.

"This business will make a large contribution to Rakuten over the mid-term, but it is inevitable that there will be expenses in the near future," Taro Ishihara, an analyst at Daiwa Securities, wrote in a report on the company.

One concern for Rakuten is whether the younger generation of shoppers, who are used to zooming in on results using search engines and pinpoint online shopping, will take to its online mall concept. An online poll of 1,000 Japanese users by mobile portal operator Ceres found that while Rakuten is the most popular shopping site, Amazon is dominant among users under 20.

"I just find Rakuten's site too crowded for my taste," said Keisuke Sorita, a 22-year-old student who often buys CDs and games online. "It's easier for me to search and find what I want on Amazon."

 

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