#e-commerce #japan

Consumer e-commerce hits a brick wall in Japan

  • Aug 8, 2022
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Japan’s e-commerce market has lost momentum after growing more than 20% since 2019. Demand for online shopping surged as consumers hunkered down at home to avoid Covid-19, but the quick end to the spending spree has dashed hopes that online retail will become a new engine of economic growth.

E-commerce grew about 20% between 2019 and 2021, according to an index compiled by Japanese analytics company Nowcast and JCB based on credit card spending. A survey conducted by the Ministry of Internal Affairs and Communications for the same period found an increase of nearly 30% in e-commerce.

Tabe Choku, a farm-to-table delivery app with 650,000 users, saw its gross merchandise value jump roughly 130 times between 2019 and 2021. Aeon, an operator of supermarket chains, logged ¥75 billion (US$551 million) in online sales in the year through this February, up 80% from two years earlier.

The trend in online shopping is also changing. Nikkei analysed data collected by Tokyo-based research company Nint on online platforms Amazon, Rakuten and Yahoo, finding that the average unit purchase price on the sites rose 17% from January 2020 to ¥3,756 in April 2022. Prices climbed in nearly 70% of categories, including clothing, home appliances and furniture.

But online shopping is showing signs of slowing. The e-commerce consumption index compiled by Nowcast has levelled off after rising sharply through early 2021. In fact, the index declined for two consecutive months through June this year. “The Covid-induced demand has taken a breather,” said an executive at an e-commerce company.

Japan is a laggard in terms of e-commerce. According to a 2022 survey of 39 countries by German research company Statista, Japanese go online for daily essentials about 40% less than the average. Only 22% of Japanese surveyed have reserved restaurant tables online, while 24% bought shoes and 32% ordered food. All three categories were up five to nine percentage points from the previous survey in 2021, but ranked the lowest among the 39 countries.

In Japan, online shopping is still only a small part of personal consumption. A survey by the Ministry of Economy, Trade and Industry found that e-commerce accounted for 8% of goods sold in 2020.

The key to reigniting e-commerce is to combine it with brick-and-mortar stores, which have seen higher sales after an easing of Covid restrictions.

“The role of physical stores will expand,” said Tomoyuki Mochizuki, vice president of e-commerce consultancy Itsumo. Suit maker Fabric Tokyo is adding more stores that specialize in product display to meet customer demand to see merchandise before ordering. Fabric Tokyo found that if it combines e-commerce and brick-and-mortar services, shoppers tend to spend twice as much than when ordering online.

Many consumers are apparently growing tired of shopping on smartphones. Onward Holdings’ new service lets customers try on its garments found online at physical shops before placing an order. The stop that introduced the service has seen sales recover to pre-pandemic levels, said a company official.

The main bottleneck throttling e-commerce is a shortage of delivery workers. Parcel delivery companies handled a record 4.8 billion units in fiscal 2020, and the number is expected to hit 10 billion in the 2040s. The e-commerce sector will be unable to sustain growth if the shortage of delivery personnel becomes acute.

Amazon Japan and Askul have established their own delivery networks in cooperation with small and midsize logistics companies, while Seiyu and Rakuten Group have begun operating self-driving robots to deliver fresh food and boxed meals on a trial basis.

Innovation and better infrastructure are the keys to making e-commerce a growth engine in the post-coronavirus era.