Rakuten’s Global Ambitions

BY Barbara Thau

Most U.S. consumers, and many retailers for that matter, have probably never heard of Rakuten. But if Japan’s largest e-commerce marketplace has its way, that will soon change: The company has set its sights on becoming a household name in the United States. An even loftier goal: outpacing e-commerce giant

Founded in 1997, the Tokyo-based retailer is banking on a new strategy that employs a business-to-business-to-consumer model (B2B2C) — rather than the direct-to-consumer model it initially employed — to conquer the American market.

Rakuten boasts $4.9 billion in global revenue, and bills itself as the third largest e-commerce marketplace worldwide, behind Amazon and eBay. It sells everything from computers and consumer electronics to fashion, health and beauty items, home furnishings, toys and sporting goods.

Strategic acquisitions of leading online marketplaces around the globe have fueled its growth. Currently, it offers e-commerce services in some 20 countries, including Taiwan, France, Germany and the United Kingdom.

In 2010, the retailer scooped up the U.S. site (now billed as Shopping) to gain a foothold in the American market. It is betting on its B2B2C model to shake up U.S. online retailing.

“The business models used by many major online marketplaces can be counterproductive to their merchants’ businesses,” said Bernard Luthi, chief marketing and operating officer, Rakuten. “The ubiquitous B2C model, for example, allows a merchant to set up a presence on the marketplace and sell to customers. If their products start to sell rapidly, however, the marketplace owner will often use their own stock to undercut the merchant they are supposedly partnering with.”

Rakuten sees things a bit differently. It believes that for online marketplaces to evolve and prosper, the merchants should be empowered to make the very most of the channel to build their brands and customer relationships. It’s for this reason, according to Luthi, the company shifted to its current model.

“With this model, Rakuten, as the online marketplace provider, has certain duties to its merchants,” he said. “Therefore, we’re striving to provide a more thorough and detailed marketplace service than has been seen before — one which elevates our merchants to the status of true partners and removes the fear that the marketplace will evolve into a competing retailer.”

Rakuten’s “omotenashi,” or “empowerment,” philosophy of supporting its merchant partners is integral to its strategy. The company offers training to its merchants via “Rakuten University” on how best to optimize the online channel for sales.

“This, combined with regular expos and insights provided by e-commerce consultants, gives merchants all the information and tools they need to stay at the forefront of e-commerce,” Luthi explained.

Unlike Amazon, Rakuten does not maintain its own inventory. As a result, third-party merchants selling on Rakuten need not worry that they will end up in a losing competitive battle with the marketplace, he added.

While Rakuten’s marketplace model is key to its goal of surpassing Amazon, the company also believes it has other advantages, including its loyalty program, called Rakuten Super Points, whereby shoppers earn at least 1% back on every purchase and can apply earned points as discounts on future purchases.

The company also strives to offer a reprieve from the dry, transactional experience that still defines many e-commerce sites by tapping into digital social shopping trends.

“The vending machine style of e-commerce is becoming antiquated,” Luthi said.

On the social front, the company has made a number of key investments, including in Pinterest. Recently, it signed an agreement to acquire global video streaming platform Viki.

“Rakuten’s focus is on entertaining ‘discovery’ shopping. The concept is based on making connections between people based on areas of interest, which means that individuals as well as merchants can become curators, influential to other interested parties,” Luthi explained.

Logistics expertise is critical to its success — and to competing with Amazon. In 2013, the company acquired Webgistix, a U.S.-based logistics and services company specializing in fulfillment technology for e-commerce retailers. It owns a strategic network of company-operated fulfillment centers that enable merchants to reach 98% of e-commerce customers in the United States within one to two business days via ground delivery.

In taking on the U.S. market, the Japanese online giant is all too aware that as a relative unknown to American shoppers, it has got its work cut out for it.

“Amazon, eBay and Wal-Mart are major competitors whose predominance and brand recognition in the market present a challenge for a newly re-branded company such as Rakuten. com Shopping,” Luthi said.

“But we are confident that by uniting and empowering independent retailers into one strong force, we can compete.”


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The Competitive Advantage of In-Store Experiences


By Steven Skinner and Karl Swensen

Major retailers have successfully faced down emerging e-tailers and their aggressive pricing tactics by upgrading their e-commerce platforms and readjusting their pricing to strengthen their hold on shoppers. To fully complete their turnaround, however, they must judiciously apply bricks and mortar to their competitive advantage.

According to Cognizant’s fourth annual survey, “2013 Shopper Experience Study: Rise of the Individual Shopper,” consumers still value the in-store experience, but have exceedingly higher expectations.

In addition, 83% of retail sales still originate from in-store purchases versus those made online. As a result, immense opportunities exist for brick-and-mortar retailers to use their physical world strengths by focusing on retailing fundamentals, providing informational consistency across all touchpoints throughout the shopper’s journey, and empowering associates to make the physical world experience as good as or better than the online one.

Focus on the Fundamentals

A brick-and-mortar store allows shoppers to interact with products in ways that can’t be matched by the capabilities of online retailers. The tangible, physical aspects bring value to the in-store experience but also means fundamental store operations must be highly functional and efficient to overcome any pricing advantage found online.

Shoppers rate price and product selection among the top influencers on purchases; their top dislike is out-of-stocks and unavailability to purchase. The stakes are incredibly high, given the myriad of alternatives shoppers have to purchase elsewhere.

When dissatisfied with the price or product availability, many either leave the store or purchase online. To mitigate this risk of the shopper leaving empty-handed, retailers should get the price right in the first place, offer a meaningful assortment that is almost curated to the shopper’s needs and desires, and keep adequate inventory in stock by using predictive modeling. These tactics can help reduce the odds of lost purchases.

Provide All Touchpoints Throughout Shopper’s Journey

Not all shoppers are created equal, nor are their respective journeys. Retailers need to realize that a shopper’s journey does not necessarily start when he or she walks into the store.

With the advent of smartphones and tablets, “showrooming” has reached epidemic proportions. We all know many shoppers browse at a brick-and-mortar store before purchasing online. Retailers can combat this by seeing the shopper’s journey as non-linear, and making themselves accessible and available at all touchpoints.

Most retail executives believe their omnichannel implementations lag the competition. This could not come at a worse time since most fully expect mobile shopping to double over the next year. Consequently, it’s important that retailers provide consistency across all channels. Shoppers want a seamless shopping experience — both in and out of store. Doing so can greatly influence their final purchase.

Empower Associates to Complete the Experience

Shoppers increasingly expect personalized in-store experiences. In fact, it was a top-rated feature/service among surveyed shoppers in Cognizant’s recent survey. Not surprisingly, 32% called for an improvement in in-store customer service skills.

Brick-and-mortar stores can turn this negative into an advantage by arming their store-level associates with greater product and service knowledge than can be gleaned online. Research has shown that retail sales increase by 25% to 50% when shoppers are helped by a knowledgeable associate.

Retailers should train and provide associates with the proper resources needed to fulfill shoppers’ immediate needs. This can be done, for example, with new tablets for associates, which provide them with access to information and insight to help convert browsers to buyers. When an associate has enough knowledge to either price match against a competitor, find a product in-stock without asking a manager, or leverage direct fulfillment capabilities to ship customer orders, the selling process becomes more efficient. In turn, it also provides a better in-store shopping experience, which increases loyalty.

In Summary

Providing the ideal customer experience in your stores is really an ongoing effort. Retailers must first take stock of how to delight the customer and then gradually build key omnichannel capabilities. This will allow them to carefully work through the retailing fundamentals needed to deliver a seamless omnichannel shopping experience that compares favorably with competitive retailers — whether online or not.

Steven Skinner is senior VP, retail and consumer goods consulting, Cognizant; Karl Swensen is assistant VP, retail consulting, Cognizant.


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Social Shopping Fuels ModCloth Growth


Unusually high community engagement, user-driven initiatives, mobile growth and a love of all things vintage — that’s the formula behind the growth of, which hit $100 million in sales just a decade after it launched out of co-founder Susan Gregg Koger’s dorm room back in 2002.

The online retailer, which markets vintage-inspired clothing, accessories and decor from more than 700 independent designers, has been on a crusade to “democratize fashion and home decor around the world” by letting shoppers help decide what goods it should sell via crowdsourcing.

Sarah Rose, senior VP product and growth, spoke with Chain Store Age contributing writer Barbara Thau about how ModCloth’s social-shopping model has tapped into changing consumer buying trends and outlined the company’s major growth opportunities, from mobile commerce to international expansion.

How has ModCloth’s crowdsourcing/social shopping model contributed to its 40% annual growth rate?

ModCloth is more than just a fashion retailer — we are a community. Our mission is to inspire personal style and help our customers feel like the best version of themselves. Community participation is fundamental to everything we do, and we enable our customers to participate in all aspects of our brand, including our Be the Buyer program, Make the Cut designer program and our shoppable image platform Style Gallery.

The engagement programs and features we have created to better understand what our community wants and what inspires them has contributed to our growth.

How do those programs work?

Through Be the Buyer, we work with designers to provide samples of products we are considering, and then allow our community to vote and comment on these designs to ultimately help us determine what the final product will look like. Historically, Be the Buyer items sell up to twice as much as others, and designs have received more than 20 million votes.

Style Gallery, our user-generated image gallery, allows our community to express their style and be inspired by each other. Users can upload pictures of themselves to show off their personal style, browse images, “love” other community members’ images and shop similar items.

Since Style Gallery’s launch in November 2012, more than 14,000 outfit photos have been shared, and those photos have been “loved” more than 800,000 times.

Whether through social media, our blog, customer care, or one of our on-site social platforms and programs, we always give our customers a voice.

Who is ModCloth’s target audience?

Our core audience had been standard-sized women aged 18 to 34 in the U.S. But our goal is to be inclusive of women of all ages, shapes, sizes and style types.

What sets ModCloth apart from its competitors?

As a leader in social shopping, ModCloth is changing the role that consumers typically play in the fashion industry. We employ a pull model where the customer is impacting the fashion choices that are available to her and her peers, rather than the traditional push model where retailers set the trends.

This creates a virtual cycle for our business: She engages with our brand and community, both on-site and on off-site social networks. She influences the merchandise we carry and shares the merchandise she loves. We use this data to enable a more relevant and personalized experience, and every time she returns, she feels a sense of ownership and belonging, thereby starting the cycle over again.

What’s the correlation between the pull model and conversion rates?

Social proof drives conversion, and we see this across the experiences ModCloth offers. From the “loves” on an item, to the rating of a product, to an outfit photo on Style Gallery, we’ve found that social engagement increases conversion rates.

One specific example of how this works is through customer reviews. Reviews with measurements and photos are both great resources for our girl to browse through and see how an item might fit her based on what others with similar measurements have said. This is why we launched Fit for Me, a feature that allows a customer to input her measurements and then sort through real customer reviews to find products most likely to fit her. Reading reviews and seeing photos of our items on community members similar to her helps our girl with her purchase decision, which leads to higher conversion rates.

How is ModCloth’s ‘mobile first’ edict driving business?

As of November 2013, mobile visits represented more than 50% of our total visits [because we’ve built] out an experience that both optimizes for each device, such as phones and tablets, as well as enables our customer to move seamlessly across platforms.

As a result, we are seeing strong results on mobile. For example, our average revenue per user (ARPU) on our iPhone app is twice that of desktop. And the ARPU of our iPad app is three times that of desktop.

What tops your agenda this year?

We plan to continue creating a rich mobile experience.

Keeping our eye on the future is also always top of mind for us. For example, wearable technology platforms like Google Glass are exciting to watch, as they offer so many opportunities in the retail space. Voice recognition and location services also represent interesting opportunities for expansion in the social-shopping space, and exploring how these and other mobile trends might fit into our mobile strategy will be on our agenda for 2014.

What are the biggest growth opportunities in 2014?

We believe that plus-sized clothing will continue to be a huge growth opportunity for us. Our plus business has more than tripled since 2011, and average order values with plus items are 25% higher than average. In 2014, we’re really excited to expand our assortment into full-range sizing, and our growth into private label will help us do this.

International expansion also represents significant growth opportunities for ModCloth. We currently ship to more than 130 countries around the world, and are seeing an increasing percentage of our sales coming from Australia, Canada and the United Kingdom in particular.

What new content initiatives are planned?

We’ve been working on more content with our community, including highlighting our top Style Gallery contributors, and we look forward to collaborating directly with our girl on content through contests, videos and more. And of course, we will continue to do collaborations with our amazing network of bloggers.

What’s the biggest challenge ModCloth faces in the areas of the business you oversee?

ModCloth is in the fortunate position of being a beloved brand with several significant growth opportunities. We are continuing to quickly scale the team, our systems and our processes to deliver on these opportunities, but scaling this quickly represents challenges for an organization. That said, it’s a great problem to have!


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