Taking aim at Amazon, Japan's Rakuten launches brand in US

Rakuten, the dominant Japanese e-commerce firm, converts Buy.com to its new American online shopping mall

By Jay Alabaster, IDG News Service |  IT Management

"People love to enjoy the shopping experience, they love to enjoy things," said Kirschner. "We're also trying to add this more emotional, this more human aspect. We make it easier for consumers to know who they're buying from."

This has proven true so far in Japan, where Rakuten also locks in customers with aggressive point rewards and deals that span its various online businesses. Its large number of small virtual shops also means it can offer a vast inventory of specialty items -- Rakuten's Japanese shops offer thousands of styles of traditional kimonos from all over the country, for example, many with phone numbers listed for help with purchases.

"Rakuten's strength is its large number of merchants, so they have products that are hard to find in other places," said Hiroshi Naya, an analyst at Ichiyoshi Research Institute in Tokyo.

Naya says the model should also help it quickly add online inventory in foreign countries as it strikes deals with such retailers. But he warns that Rakuten had very fortunate timing in Japan, where its growth largely coincided with the spread of the Internet to homes.

"Rakuten was one of the first to launch this kind of business in Japan, and it rode the wave of Internet expansion from around 2001," he said.

The company is due to announce its earnings for the fourth quarter of 2012 and full fiscal year on Feb. 14. Through September, it booked ¥29 billion ($310 million) in profit, on revenues of more than $3 billion.

Rakuten has used its strong earnings at home to fund its global shopping spree, which has also included Canadian e-book reader firm Kobo, a major investment in the Pinterest photo-sharing site, and French logistics firm Alpha Direct Service, or ADS. The company hopes to export the technology it acquired from ADS to its other markets, to offer retailers the use of its logistics and help it compete with Amazon's powerful infrastructure.

The firm has shown a willingness to sacrifice profits in the near term to enter new markets and businesses, and make sacrifices like mandatory English even at home, to fuel growth. It is pouring investments into its Kobo e-reader business and its online book catalog in Japan, for instance, as competition ramps up with Amazon, which introduced a Japanese Kindle and e-book store late last year.

"This business will make a large contribution to Rakuten over the mid-term, but it is inevitable that there will be expenses in the near future," Taro Ishihara, an analyst at Daiwa Securities, wrote in a report on the company.

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