After China and the US, Japan is the world’s third-largest e-commerce (EC) market. Year on year, usership and revenue continue to grow, driven by profound cultural, social, and economic change. The country is in the midst of an unprecedented demographic shift, while attitudes to foreigners and consumer behavior are rapidly evolving. Furthermore, the numerous logistical barriers to Japanese market entry (for instance, infamously crippling tariffs on EU luxury goods), which have long discouraged American retailers and wholesalers from setting their sights on Tokyo’s world-famous spenders, are finally being eliminated.
For American e-tailers in an overcrowded digital marketplace where brands struggle for visibility and revenue conversion, these developments should come as welcome news. As one analyst explains, “The market of developed countries is in its maturity phase, and the competition among eCommerce players is extremely high and cost-intensive.” The Japanese market, therefore, offers an untapped and often overlooked opportunity for American businesses to increase their digital marketing ROI and EC sales while also creating valuable visibility in the broader Asian market.
How big is Japan’s EC market?
Outpacing the UK and Germany, Japanese e-commerce revenue for 2020 is projected to reach $104.5B. From there, annual growth is forecast at a rate of 6.7% (CAGR 2020-2024). By 2024, the market volume is projected to reach $135.5B.
Who is the Japanese EC consumer?
The ratio of EC purchases in Japan is still low compared to other leading national economies. In 2020, the user penetration rate was estimated to be 76.7% and is expected to reach 86.7% by 2024. The userbase is projected to swell to 108M with $1,254.86 in average revenue per user (ARPU) by 2024.
Japanese demography is also highly unusual. Currently, Japan has the highest proportion of senior citizens of any country in the world. In 2019, nearly half of Japanese online shoppers were 45-64 years old. Given the increased spending power and leisure time of retirement aged shoppers, e-commerce’s growing popularity among the older Japanese population creates a distinctive opportunity for consumer education and engagement.
Who are the major EC players?
The country’s top online retailer is Rakuten. With one billion members around the world and operations in 29 countries and regions, Rakuten has rightfully earned its nickname as the “Amazon of Japan.” The company was founded in 1997 by Hiroshi Mikitani. Its B2B2C e-commerce platform, Rakuten Ichiba, is the largest e-commerce site in Japan and the world’s largest by sales. The company also operates Japan’s most prominent internet bank and top-ranked credit card company (according to transaction value). In 2019, Rakuten’s revenue doubled Amazon Japan’s.
The number two spot is held by Yahoo! Japan, formed initially as a joint venture between the US-based Yahoo! and Japan’s SoftBank. Then, in 2019, Yahoo! Japan, a subsidiary of the Softbank Group, acquired the hugely popular Zozo Inc., Japan’s largest online fashion retailer and digital marketplace for local brands. The company changed its name to Z Holdings Corp and shifted its focus to online retailing with the launch of a major online shopping center, PayPay Mall. This expanding e-commerce platform continues to innovate and holds its vendors to high standards, creating trust and prestige among Japan’s traditionally cautious consumers. Additionally, Zozo’s premium positioning within the multi-brand ecosystem is expected to recruit more young customers.
What about cross-border EC?
Cross-border EC is on the rise in Japan, and sales opportunities undreamed-of during the heyday of brick-and-mortar retail now abound. The total cross-border B2C-EC market size in Japan via the United States amounts to approximately $2.4B (¥250.4B).
Furthermore, the 2019 US-Japan Free Trade Agreement has done much to alleviate or remove prohibitive regulations and tariffs, which have traditionally deterred overseas retailers and consumer brands from targeting the Japanese market. During the “bubble” years of the 80s and 90s, Japanese consumers had to travel to the West to obtain these goods or pay a hefty import premium at local department stores. Now, they can bargain hunt and make purchases online without ever leaving home. The future of cross-border e-commerce in Japan can thus be said to have an overwhelmingly positive outlook for American D2C brands.
What is the impact of COVID-19 on Japan’s EC market?
During the COVID-19 pandemic, consumers all over the world are transferring a significant amount of their spending from offline to online purchases, mainly for food and cleaning supplies. Japan is no exception. Food and personal care, which were already the country’s largest market segments, have spiked dramatically and are reporting a projected 2020 market volume of $26M. Secondary categories like electronics & media, furniture & appliances, and toys, hobbies, & DIY also forecast continuous, healthy gains. Meanwhile, as in the US and Europe, the fashion industry saw revenues decline.
Globally, the future remains uncertain. However, Japan’s cultural and government response to the crisis has differed from that of the US and Europe. Japan’s economy is unique, nor will the nation’s road to a post-pandemic recovery look identical to those of its western economic peers. For American B2C companies looking at the bigger picture, there is no shortfall of opportunity in Japan’s steadily growing e-commerce market. However, entering it or increasing market share during this turbulent time requires extra cultural sensitivity and a profound understanding of the uniqueness of Japan’s market situation, purchase style, and consumer behavior.
How can my business break in?
Whether you are considering direct market entry or selling cross-border, there has never been a better time for online retailers to look to Japan for growth. Irep inc. is proud to serve as a one-stop-shop for global D2C retailers entering or selling into the Japanese market. From developing an e-commerce website to demystifying customs clearance procedures and international fulfillment, we offer comprehensive data-driven solutions, including EC website localization, behavioral analysis, and CRM strategy to facilitate seamless entry into Japan’s EC market—and succeed long-term.
- Go-to-market and growth strategy
- Strategic target setting utilizing behavioral analytics
- Customer behavior data visualization using Google Analytics and Google Data Portal
- Performance monitoring and metrics for EC websites and apps in real-time
- EC site construction using Application Services Provider (ASP)
- Localized EC website development and customer acquisition
- Consulting for customs clearance procedures and international fulfillment
- Localization of creative and marketing materials
- SEO services
- Integrated marketing campaign strategy and implementation
- Performance-based marketing strategy and implementation
- Social media and influencer marketing
- Content and email marketing
- CRM strategy and implementation
- Customer service support (phone/webchat)
Want to learn more about Japan’s e-commerce landscape? Please contact us to discuss how we can work together.
Irep Inc. is an award-winning global digital marketing agency based in the San Francisco Bay Area. Our headquarters are in Tokyo and our network spans more than 20 countries. In Japan, we are ranked No. 1 for performance-based marketing. We also offer highly specialized market entry, as well as integrated marketing and localization services. Since 1997, our data-driven solutions have effectively led our diverse international clientele to continuous success in Japan, Asia, and beyond.