How Rakuten's Strategy Differs From Amazon

Rakuten has been referenced as the "Alibaba of Japan," and though it didn't gain the same attention as the Chinese e-Commerce giant in the third-quarter earnings season, the Tokyo-based e-commerce and Internet company had its own set of solid figures in the global marketplace as it reported a stronger growth globally than domestically in e-Commerce sales.

Rakuten's mindset of what it takes to be a "truly global company" has shifted in recent years, said CEO Hiroshi Mikitani, which has contributed to its overall growth. During the company's third-quarter earnings presentation Wednesday (Nov. 5), Mikitani said the company's switch in recent years to adopt English instead of Japanese as the company's official reporting language has played a large part in its global progress. The language shift has helped the company have a presence in more countries  —most recently the U.K. — and has contributed to continually strong global sales.

"Today's good result is coming from our organizational strengths," he said, and explained the power "Englishization" has had on its sales in both on its sales internationally. "But mainly (strong growth) is coming from the fact that we changed company language. That was a very dynamic move."

While international sales are growing strong, Rakuten isn't overlooking its domestic front. According to a report from Nikkei Asian Review, the main driver for domestic E-commerce operations growth was from the Rakuten Ichiba virtual mall. Gross merchandise sales rose 17 percent to $1.26 million.

"More people are realizing that things are cheaper on the Net," Mikitani said in the article.

The article also pointed to Amazon as Rakuten's major rival and explained the different investment strategies and what the future of global e-commerce infrastructure will be. The article attributed Amazon's net loss of $455 million to spending logistics and "excessive inventories of smartphones developed in-house."

"Amazon's strategy is to aggressively invest in logistics facilities and develop mobile devices to build its own online shopping infrastructure, even if that hurts profits now. Rakuten, on the other hand, is pursuing growth by curbing investment through use of existing infrastructure," the article said.

"Many overseas markets that the two companies will fight over in the future do not yet have sufficient e-commerce infrastructure, and there are uncertainties over whether Rakuten's asset-light business model will be effective. Rakuten is pressing ahead with integrating online shopping with services that do not require heavy investment, such as Internet finance, video and advertisements."

Among the company's third-quarter earnings included merchandise sales of $5.1 billion ($585.3 billion JPY), or a 27.2 percent, year-over-year. Domestically in Japan, the Tokyo-based company grew its E-commerce business $4.1 billion, a 11.3 percent increase, year over year. Rakuten announced in September it was buying the U.S. rebates site Ebates for $1 billion — Japan's biggest E-commerce acquisition. This move seems to have paid off. Looking at third-quarter results alone, Ebates growth was a 58.3 percent, year over year. That investment aligns with Rakuten's attention toward its own loyalty products, like R-Point Card Service, that extended the reach of its loyalty points program that connected its online and offline sales.

Looking at domestic gross transaction value, domestic GTV grew 21.7 percent, year over year, and the amount settled by Rakuten's e-money (Edy transactions) hit a 30.2 percent growth, year over year. Domestic e-commerce GMS great 11.3 percent, year over year. In other earnings figures, Rakuten produces a revenue of $1.23 billion (147.6 JPY) which was a 14.6 percent increase over last year's third-quarter of $1.12 billion (128.8 JPY). Operating income came in at $24.7 million (28.3 JPY), which was a 20.9 percent increase from last year's $20.4 million. Ebita's earnings rose 20 percent for the quarter, posting $3.2 million for the quarter.



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