MAIL ORDER AND INTERNET SHOPPING IN JAPAN

A U.S. Perspective

November 1999

Mariani Kornain

An Industry Analysis for MKT7002 Internet Marketing Research

Griffith University, Australia

Lecturer: Larry Neale

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Executive Summary

1.0 Introduction

2.0 Environmental Analysis

Political/ Legal

Economic

Demographic

Technological

Social/ Cultural

3.0 Industry Analysis

7.0 Recommendation for Marketing Mix

8.0 Monitors and Controls

SUMMARY

Many foreign retailers see the potential significant profit in the Japanese market. The risk and cost of entry into the market have fallen significantly over time because the Japanese Yen weakens, low inflation, high personal saving rate, and economic liberalization continues. Thus, they believe that a window of opportunity has opened for foreign retail operation.

Internet use as a shopping medium has risen and the online shops has increased sharply. However, sales have not increased as was predicted. The market is dominated by relatively small number of repeat shoppers, mostly males. Specialised shops started in 1995 and by 1997 many virtual malls opened, but only few companies enjoy good ROI. Most catalogers have not actively promote their product and shop on the Web, but just wait for customers to visit their site. More and more users of Internet started shopping online, however the computer hosts in Japan is still 1/10 of the US. Internet has not necome a marketing tool because of the limited presentation capabilitie, concerns about patment methods and security on both seller and buyer sides.

Opening a Web shop is a low-cost 24 hours operation. It offers opportunity for US retailers to enter Japanese market with minimum initial operating expense. Although the total internet users is still smaller than US, Japan has the second laregest Internet host computer in Japan, and the Yen is still strong enough to keep US prices competitive in the consumer market. Opportunity exists for companies by either openingf their own online shop, renting a space on existing mall, or using Japanese shops to sell the product online.

ENVIRONMENTAL SCAN

Economy

There are reasons why foreign retailers are interested in Japan:

Japan is the world’s second largest economy and consumer market, larger than that of Germany, UK and France combined. Japanese consumers have the highest average per capita disposable income in the world. The economy data is shown in Figure 1. Many US retailers have already built a large Japanese customer base as Japanese tourists and residents in the US have been patronizing their outlets, i.e., L.L. Bean and The Gap. International mail-orders are popular among catalog consumers to purchase popular foreign goods and they are expanding to Internet. The domestic Japanese retail industry is expensive compared to the US and Europe.

Political Climate

Japan has a strong democracy and parliamentary government. The head of government is a prime minister, while the emperor’s role is symbolic. Since 1990 there has been no major bilateral investment disputes, therefore expropriation are unlikely in the future (except for failed financial institutions). Japan has very limited number of Japanese bengoshi barristers due to the limitation on foreign legal practices. It is recommended to resolve disputes out of court because the inadequate number of bengoshi and time-consuming procedures waste retailers’ money.

Japan’s average applied tariff is one of the lowest in the world. Tariffs in major sectors, e.g., computers, are zero but import duties on processed foods and manufactured goods remain high. Domestic retailers have to pay 5% consumption tax that levies on all goods sold in Japan. No import duties or consumption tax will be levied on imports (except leather and knit products) of less than 10,000 Yen value (U$100).

On the other hand, Japan is famous for non-tariff barriers which often caused by private business practices rather than governmen regulations (Figure 2). Store-based retailers in Japan are affected by the Large-Scale Retail Law (LSRL) which causes difficulties in obtaining locations; Japan Fair Trade Commission guidelines; Antimonopoly Law; and regulations preventing the use of discounts as a market-entry strategy.

Legal Climate

Internet shopping and international mail-order fit under direct marketing category and personal import regulation. The electronic interface (the Web) simply replaces the traditional interface (catalog). The back end (fullfilment) operation remain exactly the same. Private importing via mail-order and internet shopping has become popular. This is enhanced by a unique Japanese regulation which gives tax free status to personal import valued under US$100. Currently, a Japanese may import merchandise for his/her personal use at own risk, no permit is needed, but it must be under a certain quantity.

Starting this year MITI required Internet vendors, who do business through webiste on a server in Japan, to display business telephone numbers and contact name information on their online shops. The move is necessary due to the increasing problems with fraud and doubtful busness practices of ISP and Internet-based retailers. Since 1998, MITI does annual checks to examine Web sites. On May 1999, it examined 1541 sites and 1036 sites failed the requirements. Warning letters are issued to the vendors and MITI will re-check the site later. However, this requirement only applies to those online vendors who have website with servers in Japan. Japan Marketing Association is also experimenting with the issuance of an "online seal" for qualified vendors.

Technology

A crucial ingredient for Web commerce growth within a given country is a business- and Web-friendly government. Japan is the world’s second largest market for information technologies equipment and services. Fueling the current strong demand for telecommunication is the Government of Japan’s (GOJ) goal to connect all Japanese businesses, government offices, schools and homes by 2010 through a "Fiber to Home" project. Ministry of Information and Technology’s investment in infrastructure is US$33 billion annually. Japan plans to continue developing technical infrastucture needed to support e-commerce growth and to provide access to information. It focused on its five-year plan for the "next-generation" Internet and will test the experimental secure gigabit network next year. Japan’s sharp growth in the maket demand for networking, Pcs, Internet applications, and satelite communocation is expected to continue to the next century.

Culture

Japanese culture influence the slow, but steady consumers’ innovation adoption rate. Hofstede’s influential work on cross-cultural value systems identifies three aspects of culture that can be related to consumer needs and brand image: power distance, uncertainty aviodance, and individualism. Although his work was conducted in organizational settings, the values he identified have been associated with consumer behavior.

Power distance is high as Japanese culture fosters social inequalities. This tends to emphasize the importance of prestige and wealth in shaping veryical relationships between social and economic classes, e.g., rich and poor, and superior and subordinate. People constantly seek to maintain and increase their power as a source of satisfaction. Social consciousness is high and they are motivated by the need to conform with those in the class or in classes which they aspire. Once limited to technically-oriented enthusiasts, Internet use is sperading rapidly to the general population, e.g., 18% of the Internet population are full-time housewives. JMR research shows that compared with the average consumer, Internet users are generally more interested in self-improvement and investing in their own education.

Uncertainty avoidance captures Japanese cultural pattern of seeking stability, predictability, and low stress rather than changes and new experiences. Kedairen, the Federation of Economic Organization in Japan, highlights the wait-and-see attitude prevalent in Japan. Due to the collapse of Japan’s economic buble, many companies are still in the experimental stage and domestic phone is still heavily regulated. Consumers also do a lot of research before doing something to reduce risks and cost online. This means that the press in Japan is large and powerful institution, wielding a great deal of influence. Japan Newspaper Association found that 95% of Japanese adults read newspaper, 75% read it daily (Appendix--). Consumers rely heavily on computer-related news or other publication to find the best Internet site.

Traditionally, Japan’s low individualism reinforces social brand images that reinforce group membership and affliation. However, the shinjinrui youth generation is moving toward individualism as they represents the first generation of Japanese who never lived in a wartime society or in post-reconstruction society. The values of this group is very lifestyle oriented and influenced strongly by specialized media (Figure 3.1). Consumption has become more conspicous, more expressive of individuality, and impressing their immediate peer group. Shinjurui (youth generation) tends to use Internet for entertainment, personal gratification and hedonistic experiences instead of for works.

INDUSTRY ANALYSIS

MARKET SIZE

Japan’s boom in direct marketing began over ten years ago, driven by improved delivery sytems, gwoth in credit cardholders, and more list computeration. Japanese simply wanted to buy America-by-mail. With the recent downturn in the Japanese economy, a significant decrease in Yen, and the small English-speaking market saturated, weak marketing strategies, and half-hearted effort can no longer support a business in Japan. Despite Japan’s recession, direct marketing has blossomed into a US$20-billion industry, and 10% of the market belongs to foreign companies like Land’s End.

The foreign mail-order frenzy has subdued, but some American firms have gained a foothold and expanded to the Web while others are reviewing their strategy from the sidelines. Japan’s e-commerce industry generates US$680 million per annum, a 120-fold increase over 3 years ago. There are 1.7 million host computers in Japan, 40 times more than 5 years ago. Sales on Internet still accounts for very small part of Y2000 billion direct marketing sales. General public’s awareness of Internet as a shopping medium is still low. JADMA found only 1% of those direct marketing buyers had seen the ad on Internet. However, public interest in online shopping is high.

GROWTH PROSPECT

Compared to the US and Germany, Japan’s is still in PLC’s market growth stage. It is expected that mail order will expand 2-3% of Japan’s retail market, obtaining over Y3 trillion in sales. There is also a huge untapped market for catering to the needs of senior citizens in Japan. In 2005, one in four Japanese will be over 65 years old. As Japanese saving rate is among the world’s highest, these seniors will respond well to convenience products or services. However, retailers are still unprepared to enter this market.

MARKET ACCESS

Japan is an open market with closed society. According to Japan Marketing Association, the average per-household disposable income is 5.4 million Yen in 1995 (about U$45,500). The Internet only begin to cacth on in Japan in 1994 when certain government restrictions were lifted. Other barriers to growth include the fact that majority of Web sites are in English, which many Japanese do not read, and the local phone charges are costly. Until 1997, the government did not allow Yen-based credit card transactions on the Web, so purchases drom a Japanese site need foreign credit cards. These barriers are evidents in the number of computer owners. 17% of Japanese household had a personal computer in 1996. In 1999, Access Media International suggested that nearly 13% of Japanese households have access to the Internet, whether it be via PC, cell phone, PDA, or home video game system (Dreamcast).

Although the number of Web malls is increasing steadily, most mall operators are not so successful (Appendix 1). 60% of them think that they cannot recoup the cost. The situation is no different for the online shops of leading mail-order houses. The catalogees’ customer database gives little assistance as the demography of Internet shoppers differ from regular catalog shoppers. However, about 80% of 100 direct marketing companies in Japan are either already adopting or considering to use Internet for customers to place orders. Many malls, which owned by Japanese leading kireitsu-affiliated companies, not expecting immediate returns but believing in the long-term Internet shopping development, and trying to accumulate know-how for the future.

COMPETITION

Satellite television is much more popular in Japan than in the US, making the Internet a less important marketing avenue. According to Dentsu Institute, 10.4 billion Japanese households had a broadcast satellite hook-up for their televisions. It is unlikely that Intenet shopping will replace the suburban shopping malls, which become places for family outings. But, where a product is specific and factors such as conveniences and price are relevant, the shopping may done more readily on-line,e.g., books and airline tickets.

Despite the competition, US companies have an edge over their Japanese counterparts: expertise in an untapped niche. Japanese retailers are offering ordinary household goods in a direct, no-nonsense presentation. Western mail orders offer snob appeal at a bargain. They are skilled at pitch, hawking dreams through attractive location shots and layouts. US firms also have a competitive advantage on mailing costs. At US$0.67 to mail a domestic letter in Japan, Japan’s postage rates are among the highest in the world. Due to the complex distribution system, Japan’s consumer prices are higher than average prices abroad.

CONSUMER ANALYSIS

Geography and Demography

Japan is an archipelago consists of 4 main islands and 600 small islands (Appendix 1). 80% of the population live on urban and suburban centres and over 90% of Japanese feel they are part of the middle class. These factors show that the main consumer markets are concentrated in 4 main islands (Kanto, Chubu, and Kansai), because these areas dominate the social and economic of Japan. Kanto area (Tokyo) has the highest Internet use. Population growth is very low and Japan’s population structure is changing as follows: the aging population, second baby boomers, and the shinjurui youth generation. Income distibution is relatively spread evenly in Japan (Table 2), but men often earn more than women for similar occupation categories. The Japanese are affluent, quality conscious, love famous brands and demand high service level.

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Generally, mail-order shoppers in Japan are mostly middle-income people who aim to raise their standard of living to another level. Women are the main target for mail-order because Japanese women have an increased financial power as their average monthly income had 40% growth in ten years up to 1996. They want the kind of goods that are products of high quality and craftmanship, foodstuffs delivered directly from production center, hard-to-get and specialty items that satify consumers’ craving for luxury. Japanese catalog industry is worth US$30 billion and is growing by 20% each year.

Behavioral Segmentation

Although 17% of Japanese households own PC in 1996, Access Media 1999 survey shows only 13% of households has online access via PC, cell phone, PDA, or home game system (Dreamcast). Japan’s Internet users can be segmented according to: purpose of use (work/study versus entertainment/personal interest) and active/passive orientation (those who simply browse Web pages versus build personal pages/participate in forums). There are four key user types: Information Elite, Model Japanese Businessman, Internet Enthusiast, and Future Mass Market (Figure 6). There are differences between four user types. IE are characterized by early and frequent Internet use (38%) while FMM are primarily new users (61.7%). Access behavior differs greatly, e.g. IE are interested in business and computer sites with 53% Internet shopping experience, while FMM are interested in entertainment sites with less shopping experience.

Retailers start to move online, but they are trapped in Catch-22 situation. The demographic of online consumers is different from mail-order’s and the average value per order is lower than the conventional mail-order. Internet users are predominantly male. They shop less frequent but the purchase value is higher as they tend to buy computer-related goods. DSAA noted that women outshop and outbuy men online in Japan, but their purchase value is low. It is because they frequently buy clothings, books, Cds and food. Figure 3 shows various products bought online.

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Internet use, once limited to technically-oriented enthusiasts, is sperading rapidly to the general population. Internet use by women is increasing and 18% of them are full-time housewives (Figure--). The results show that the women and housewife segments are a growing in Internet market that innitially was dominated by men. Table 4 shows that Internet users are mainly between 20-34 age group. Although only 55% of respondents had online shopping experience, the rest would like to try it in the future. The attitude toward Internet shopping is mainly positive. Nikkei reserach also indicated a trend toward Internet use as an entertainment medium (Figure 5).

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MARKET ENTRY STRATEGIES

The popular alternatives to penetrate the Japanese market are: direct marketing from overseas via catalog or Internet, licensing, and joint venture. Direct marketing is the most popular alternative as it is cheaper to operate. Despite Japan’s recession, direct marketing has blossomed into a US$20-billion industry, and 10% of the market belongs to foreign companies like Land’s End. Foreign direct-marketing companies sidestep Japan’s notoriously complex regulations, multilevel distribution networks and import duties. However, good mailing-lists (address or e-mail) are hard to obtained. US direct marketers can expand their sales to Japan at little risk or cost by: (1) communicating directly with their directly with their Japanese customers using credit card data gathered in overseas (2) making it easier for the Japanese to order by designing Japanese language order forms (3) cooperating with government agencies, i.e. JETRO, to promote themselves.

Licensing is quite common as it needs minimal efforts and costs. L.L. Bean has decided to reduce its direct involvement in its Japanese operation by signing a license agreement with L.L. Bean Japan, a joint venture between Seiyu and Matshushita Electronic. L.L. Bean catalog will sell merchandise and charge the shipping cost in Yen. Customer service will be improved by introducing toll-free numbers and arranging exchange or refund in Japan instead of sent back to the US.

Joint venture between US marketers and Japanese companies is increasing to break the barriers of Internet shopping. Softbank recently teams up with 711 Japan (focused on Kanto, Toyo metropolitan area) and wholesaler giant Tohan to sell books, Cds, and Videos online. Digital Garage (bought by Disney) and Lawson (711 rival, focused on Kansai, Osaka area) are also teaming to sell music online.

Distribution System

Japan’s distribution channel is complex, expensive, and accounts for the high price differences in Japan and overseas (Appendix 3). Difficulties with Japanese distribution are mostly socio-cultural in nature. The Japanese consumers are hesitant to distrup long-standing relationship with existing retailers. They are afraid that foreign-based retailers lack after-sales service and cannot make on-time shipments because they are heavily dependent on frequent, ‘just-in-time’ delivery. These doubts are socio-cultural in nature and arise from a traditional reluctance to do business with upredictable strangers. To overcome this, foreign retailers start to form strategic alliances with Japanese kireitsu who have strong distribution channels and geographical reach, e.g., Ito-Yokado has 711.

For the retailers, the new Japanese style e-commerce changes the traditional mail-order model: distribution and payment method. Traditionally, Japanese conbini are located and designed to accept frequent just-in-time deliveries. This will solve the retailers’ distribution cost because Japan’s lack of street names and gridded platting make individual addresses difficult to find. The joint venture with conbini will solve the addressing and delivery problems, and offer enormous benefits to consumer. First, most consumers who order online work during the day and often have none to receive packages at home. Japanese parcel deliveries service will not leave packages unattended at a residence. The consumers prefer to have no personal parcel delivered to them at work. Second, 80% of Japan population live in urban areas. They live within a 2-minute walk of convenience store (conbini), or pass one on the way to or from work. As most Japanese uses public transportation, it is very convenient to stop and pick-up a package.

Method of merchandise deliveries

USCS survey indicated that Japanese prefer to use postal service by air/surface (86.2%) for overseas delivery. The U.S. Postal Service cooperates with Japan Post to establish a cost-efficient delivery to the Japanese household. Large companies like Neiman Marcus and Eddie Bauer prefer an arrangement with couriers for speedy international deliveries (10%).

Payment

Credit cards are not popular method for business settlement in Japan due to security concerns and the most popular card is JCB which most US retailers do not accept. Those who buy online have international credit card like Mastercard and Visa. Postal transfer is troublesome for overseas deliveries because customers have to fill in the forms at post office and use international money order to settle the payment. C.O.D. is very popular in Japan, and recently endorsed by US Commercial Service, Tokyo. Global Collect Service Corporation, an affiliate of leading delivery company, starts C.O.D. service for international shipment in Japan. For 5% commission, it will issue an invoices to Japanese customers on request from US mail-order company, collect the Yen and make weekly payment to US in dollar.

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MARKETING MIX

Product

Foreign marketers often use Self-Reference Criterion instead of being flexible to accept different pattern of thinking, local tempo, and political structure. Adaptation is the key concept in entering the Japanese market, and the willingness to change is essential. To be successful, US marketers must offer unique selling proposition. Consumers want quality products that unavailable in Japan and offer value for money and convenience. DSAA found that Japanese tend shop online to buy from online merchants never encountered outside the Internet. They want foreign products.

Another problem stems from the US marketers to go completely into the local language instead of using translated matrix of product description. A description reads "black velvet dress" but the copy does not indicate that the dress is lined, has a side zipper and an exposed back. Many US marketers assume they can explain the products comprehensively when the customer calls to order. However, most orders come by fax, mail and Internet. Japanese telephone rates are expensive, which why most catalogs do not offer toll-free numbers. Paul Frederick Menswear understands Japanese market, i.e., smaller clothes size, color preference, packaging, and adapt its products into the specification. It translated the catalag into Japanese and sales is increased significantly more than the translation costs. The biggest problem with US mail-order is not having enough inventory. Japanese catalogs give manufacturers an inventory forecast and usually have an agreement that maufacturer will make more product within two weeks if the stock runs out. Thus, They fulfill over 99% of their orders.

Product quality issues

Japanese are known for their high and consistent product quality. A Japanese women’s magazine ordered similar apparel anonymously from several foreign catalogs and compared them. L.L. Bean was given top ratings, whuile others faced embarassing reviews.-----The Japanese have high regard for quality and design from Sweden. By placing a Swedish flag next to items designed or manufactured in Sweden, the demand for the product increased. Even when consumer have no complain, marketers must not assume their customer are satisfied. Japanese customers often keep the merchandise rather than return it, even if they are unhappy with the purchase. This is caused by the high Japanese postage costs which makes it expensive to ship the merchandise back to the US. They are not accustomed to returning merchandise. In the domestic market, the return rate is very low because Japanese catalogs take extremely accurate photographs of their merchandise from different angles, and customers often blame themselves for making unwise selection. Thus, companies must follow the WYSIWYG principal where product description should always have a product number allocated for each color, size, and country-of-origin.

Packaging

Part of the service is how the order is delivered. Japan emphazises on packages, e.g., a dented box is returned without being opened because customers assume that if it is damaged, the merchandise is as well. In one survey, over 70% of Japanese who ordered from foreign catalogs experienced some problem with their order. Some American catalogs have had 20% of all orders back-ordered.

Price

Japan Development Bank found that Internet shop leads to more overseas purchases when there is a large differential between foreign and domestic prices. The product has to be competitive and offer value-for-money. US direct merchants should consider the addition of shipping costs, whether the price is more expensive than buying the product directly in Japan. American mailing costs are cheap that it is more economical to send a package from New York to Tokyo than from Tokyo to Osaka, which reduces overhead costs for direct-mail products. Some companies channel mail through low-postage countries such as Singapore and Hong Kong.

Place

Opening a Web shop is a low-cost 24 hours operation. It offers opportunity for US retailers to enter Japanese market with minimum initial operating expense. Online pportunity exists for companies by either opening their own online shop, renting a space on existing mall, or using Japanese retailer to sell the product online. Large merchants like Neiman Marcus and L.L. Bean have large market share in Japan, thus they own their own Web-site. Lands End join the hot-links of Bargain America, an American-based mall that targets Japanese consumers with its Japanese-language site. Foreign merchants ask Japanese mall to sell their products for a commission, however they have less control over their brand image.

These new Web-retail outlets must create value for the consumer by shifting the complete offerings of the world and locating the right product at the right time for him or her (Figure ---). Sites like Bargain America learn the consumers’ preferences by recording each interaction and analysing the data to create an individual profile. Using this profile, it shifts all available information and offerings relating to the consumers’ specification in a context that they prefer. As telephone cost is expensive, download time is crucial. Consumers prefer Web site with fast transmission speed and simple graphics. KISS principle must be used here. The Gap is less popular than Eddie Bauer because its site is much slower to preview.

Delivery promise is another problem. Japanese catalog often under promise and over deliver, e.g. delivery is guarantee within 5-7 days, they delivers in four. Shipping orders to Japan is a challange for many catalogs whom have no major experience in fulfilling overseas orders. Some of the orders are returned due to addressing errors made by the data entry staff confused the Japanese post office. Determining if "Mishima" is a city or perfecture, and fitting names like "Minamisenzoku" on a standard American data entry field are examples of challenges faced by the data entry staff.

Promotion

Direct merchants often advertise on printed media, such as newspaper and magazine, to encourage consumers’ request for catalogs. In this way, they can obtain their own mailing list and build consumer database. However, promotion for Internet shopping is different from mail-order. The J.D. Power 1997 survey found that many consumers obtain information about computer and Internet from TV. Those who own or use computers are relying heavily on computer magazine (60%) and books (47%). As Internet market is growing in Japan, consumers are getting more proactive in seeking information. Web sites of interest are located primarily via search engines (Yahoo, Goo, and Infoseek), e-mail newsletter services (Bargain America e-news), and site links.

KEY STRATEGIC INNITIATIVES

Suggestion for companies considering business uses of the Internet.

As the segmentation analysis shows, Internet users comprise many demographic segments. Companies need to develop segment-specific marketing strategies and response/fulfillment mechanisms that understand the different behaviors demonstrated by the four user types. The Internet because it is trendy, but they do not belive in the necessity of using the Web. Therefore, companies must provide recognisable value in terms of interesting contents, convenience and tangible benefits to convert the FMM into future "consumers".

Surely, the foreign mail-order fad is over in Japan. Business will no longer come unsolicited, it will have to be earned. The formula for success is: study the market, adapt the product, and fulfill the customer needs.

Japan is the most demanding country in the world as Japanese have high customer service espectations. Many US direct marketers think their current service level is satisfactory, but actually many don’t measure up to the Japanese expectation.

MONITORS AND CONTROLS

Besides using annual-plan control to monitor whether the planned results are being achieved, strategic control is also needed. It is used periodically to reassess a company’s strategic approach to marketplace. The useful tool for evaluating the Japanese market is marketing audits. It assesses Japan’s macroenvironment, the market factors, and the company’s marketing mix.

STRENGTHS

• Positive country-of-origin perception: Japanese consumers associated U.S. goods with quality and comfort.
• Strong brand image: In 1996, the top 20 brands in Japan included 13 imports with the top six position held by Gucci, Agnes B, Calvin Klein, DKNY, Raplh Lauren and Prada.
• US firms often offer distinctive quality and value for money
• Delivery : DHL, FedEx, and UPS have established presences in Japan. These couriers offer 24-hours express delivery. The US post office sends an increasing number of priority parcel post (EMS). If there is no customs delay, the parcel should be delivered in one week. US postal rate is also cheaper than Japanese rate.
• US mailing costs are much lower than Japan. Although Japanese companies are banned from mailing goods from foreign post office for sale at home, foreign companies face no such restrictions.

WEAKNESSES

• Complex written and spoken language makes translation difficult

• Browsing-only customers

• Online costs to customers

• Receptive only promotion

• Technology problem

• Unmatching demography of Internet users

Currently online shopping depends on repeat users who are dominantly males

OPPORTUNITIES

• Although the total internet users is still smaller than US, Japan has the second largest Internet host computer in Japan, and the Yen is still strong enough to keep US prices competitive in the consumer market.
• The attitude toward Internet shopping is positive. Although only 42.2% of respondents had online shopping experience, the rest would like to try it in the future.
• Japan’s post offices are unequiped to impose taxes on thousands of mail-order goods that flood the postal system, making direct marketing products virtually duty-free. Local competitors who import products in bulk have to pay hefty duties, forcing up their prices.
• Many products, such as vitamins and cosmetics, are subject to strict testing regulations in Japan, but those rules don’t apply if the products are sold through mail-order for personal consumption. That gives direct-mail customers in Japan access to a wide array of otherwise unavailable products.

THREATS

• Government legislations

• Security

• Addresses

• Luxury and prestige are associated with European products

Europe exerts a greater influence over the Japanese apparel market. The use of color is superior, and tends to use more subtle combination of primary colors than US products.

• Asia

Asian countries such as China have low-cost advantage and closer proximity to Japan

E-RETAIL COMPETITION

(PORTER’S FIVE FORCES)

1. Rivalry amongst existing firm

Retailers have to compete to maintain profits level on sales by experimenting with new marketing techniques instead of price wars. The success and failure of these techniques have caused large disparities in profitability.

2. Threat of new entrants

The rising influence of low-cost retailers causes the fight to regain market share. In the future, the retailers who can best respond to the rapidly changing distribution sustem will experience the most growth.

3. Bargaining power of buyers

Buyers’ power is increasing rapidly due ti the trade liberation and increased domestic competition. Due to the slow population growth, retailers are competiting on the same consumer base. Consumers are more critical about value and price-quality relationship. It is recommended to source the merchandise from Asian manufacturers to keep the labor and raw material costs down.

4. Supplier power

The power of manufacturer and supplier is still prominent in Japan. The industry consists of 51% small retailers that are dependent on long-term credit from suppliers and frequent small deliveries. This trend is starting to change as more foreign retailers enter the market.

5. Threat of substitudes

Retailers who have the first-mover advantage, e.g., L.L. bean can build long-lasting brand image and gain consumers’ trust. Constantly upgrading in line with more sophisticated demand and more agressive competitors is essential. Product life-cyle in Japan is often quite short because many ‘clone’ products from other Asian countries are easily available soon after an original product is released. For example: Tamagochi (Japanese virtual pet) was cloned by Taiwanese companies after just 2 weeks. Therefore, retailers must have enough supply of good for all consumers when the fad starts to be able to maximize profitability before it ends.

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