For decades Japanese consumers have been known for their keenness to pay for quality and convenience over price. From spending for status to buying into the most popular western trend, premium was the norm.
Recently, however, Japanese consumers are taking cues from western buying behaviors, becoming more open to discount shopping, bulk purchases and online retail. Private-label food sales have also significantly increased, and despite small living space and lack of alternative storage, buying in bulk has become a symbol of cache – ala the American “frugalista.” With these major changes in attitudes and behavior also come challenges and potential opportunities for retailers and manufactures in the world’s second-largest retail market.
What must brands now consider when retailing in Japan? The McKinsey Quarterly report attributes three factors: economic down turn, domestic regulatory action and a generational gap in mindsets.
It’s no surprise that the current economic downturn is mentioned here, and, just as it has with the rest of the globe, encouraged thrift in the form of bulk buying in Japan. And interestingly enough, in a country where space is at a premium, “big box” retailers have found a way to overcome this barrier and infuse bulk in the homes of Japanese consumers. And to further this growing behavior, the Japanese government recently reduced the maximum freeway toll on weekends to ¥1,000 (regardless of the distance traveled)—a major price cut that encouraged trips outside Tokyo to big-box, suburban discounters and large-format retailers such as Ikea and Costco.
While value-seeking and bulk spending habits both have implications for brands, I see the shift in the 20-something Japanese shopping mindset as having the potential to change the landscape of the country’s retail market on a much more permanent level. Considering this tidal change, marketers will be challenged to evolve with a new set of consumer needs, expectations and behaviors. This
younger generation has continued to rebel from the tradition of “salaryman” corporate life and questioned the importance previous generations placed on material possessions. Where brands once were able to rely solely on a name to drive demand and purchase, marketers for the first time are now struggling to find news ways to deliver relevance – to both attitudes and behaviors.
Knowing that this new generation typically spends more money on services versus goods means they are looking for an all around engaging experience with a brand and extending the value of a purchase. It’s not about consuming goods as it is experience consumption.
Entrepreneur, Hiroshi Mikitani, recognized this early on and has adopted this new change into an unconventional business model for his online retail company, Rakuten Ichiba. Rakuten doesn’t house any merchandise itself, but instead operates like a giant virtual notice board, or Craig’s List, where — for a relatively small flat fee — retailers may offer their products for sale. Once a shopper on Rakuten places an order, the order is then forwarded to the individual retailer, who is responsible to shipping the product. I think this is really smart for a few reasons. First—unlike sites like Amazon.com, which is primarily focused on the growth of their own business, Rakuten is a grouping of smaller, more regional Japanese retailers, which gives shoppers a sense of localism in their purchases. Second– Rakuten also takes a much smaller margin from their retail partners than companies like Amazon, only walking away with 2.6 percent. And finally-because the format of Rakuten drives competition among the retailers, much in the same way as the real world, retailers are working with consumers directly regarding
feedback and in turn product improvement as a direct result. An online platform that translates the benefits of service into what feels almost instantaneously the purchase decision is not only unique but effective. Rakuten’s net sales for the year were up 16.8 percent to ¥250 billion.
Contributed by Katiy Heath