eCommerce in Japan
Japanese eCommerce: Market Structure, Consumer Behavior & Future Projections
Japan's eCommerce balances a dominant online market with vibrant offline traditions. Explore how global giants and local trends coalesce, and decode the unique consumer signals hinting at emerging global shifts.Article by Cihan Uzunoglu | October 26, 2023
The duality of a robust online marketplace alongside a vibrant offline shopping culture captures the essence of Japan's complex and rapidly evolving eCommerce sector. A sector where global giants like Amazon and Apple coexist with domestic players, in a landscape influenced as much by technological trends as by deeply ingrained cultural practices.
As you browse through this comprehensive exploration, you'll discover a Japan that stands out as an enigma in the global eCommerce panorama. Expect to uncover why Japan leans towards a uniquely balanced approach to online and offline spending, how its consumers are perhaps the most patient online shoppers in the world, and what seismic shifts lie ahead, especially in the food sector. You'll learn not only what drives the key players in this dynamic arena but also how Japan's particular consumer behavior may very well signal emerging global trends.
Amazon, Apple and Yodobashi Lead the Market with 40% Share
Japan ranks as the third biggest market in the global eCommerce sector, anticipated to generate around US$154 billion in revenue by 2023, surpassing the United Kingdom. The revenue in this sector is forecast to grow at a compound annual rate of 9.8% between 2023 and 2027, leading to an estimated market size of US$223.5 billion by 2027.
Amazon.co.jp dominates the scene with a revenue of US$12.832 billion for the year 2022. It is followed by apple.com, which posted sales of US$3.613 billion, and yodobashi.com with revenue of US$2.502 billion. Combined, these top three online retailers hold a near 40% market share among the top 100 stores in Japan's eCommerce industry.
Rounding out the top 10, matsukiyo.co.jp comes in fourth with revenue of US$1.608 billion, closely followed by cocokarafine.co.jp at US$1.365 billion, and uniqlo.com at US$1.142 billion. The narrow revenue gaps indicate intense competition for these spots.
Similarly, positions 7 to 10 are marked by a tight race. Nitori-net.jp stands at seventh place with US$783.8 million, slightly ahead of shiseido.co.jp's US$773.9 million. Lipscosme.com and goo.ne.jp are not far behind, with revenues of US$727.6 million and US$716.1 million, respectively.
Consumer Behavior of Japanese Online Shoppers
In an examination of global online spending habits, Japan emerges as an outlier within its digital commerce market.
According to an extensive report by Wunderman Thompson, containing survey data gathered from 18 countries around the world, Japan registers only 49% of its total spending online. This puts the country just above France, where 48% of all spending happens online. In contrast, Mexico leads the pack with 69% of all purchases conducted digitally, followed closely by Colombia at 66%.
Building on that note, a shift seems to be on the horizon for Japan's eCommerce market. The same report indicates that consumers in Japan, along with those in the Netherlands and South Africa, anticipate a significant movement towards online spending in the coming decade.
Specifically, these countries are expected to see a 12% swing from offline to online transactions. This suggests that, while Japan currently lags in the proportion of spending done online, it may be on the verge of a substantial transformation in consumer behavior.
Most Patient Online Shoppers?
The same report by Wunderman Thompson shows that Japan has the lowest percentage when it comes to shoppers who will not shop with retailers, brands or marketplaces failing to match their expectations in the future. The country’s online shoppers are also highlighted as the most patient (or the least impatient) among the countries surveyed – impatience defined as expecting to have orders delivered in less than 2 hours.
The arguable patience of Japanese online shoppers also plays into the user experience. The Wunderman Thompson report points out that the country has the lowest percentage (38%) in terms of the share of online shoppers who want to get from inspiration to purchase as quickly as possible. In addition, it is important to underline the significant drop from the previous year, which stood at 66%.
(Still) Big in Japan: In-Store Shopping
The report goes on to explain why Japan consistently appears at or near the bottom of most of their survey tables.
Japanese consumers, it seems, are not disgruntled with their online shopping experiences. Instead, they relish the benefits of in-person shopping as well, desiring a balance between the two. Japan's robust offline retail landscape can be attributed to its high population density and a diversified range of shopping outlets, from supermarkets to drugstores. This convenience allows Japanese citizens to shop in-store every one to three days.
Moreover, for urgent purchases, local convenience stores offer quicker solutions than online delivery services. The decline in rapid online shopping, termed "compressed commerce" is also influenced by economic factors such as inflation and rising product costs, prompting consumers to be more judicious in their buying decisions.
Japanese eCommerce Market: Future Outlook
While the findings so far paint a nuanced picture of Japan's eCommerce behavior, it's critical to recognize that Japan, in fact, maintains its standing as the world's third largest eCommerce market. This position is forecasted to hold steady through 2027.
Moreover, with an average expenditure of US$455 per item, Japanese consumers rank fifth globally in their willingness to spend on a single online product, according to the Wunderman Thompson report.
Examining the interplay between online and offline retail, there's evidence of an evolution. As per our data, online sales constituted 13% of total retail sales in Japan in 2020, a notable increase from 10.4% the year prior. While the proportion slightly declined to 12.2% in 2021, this dip was temporary and due to a resurgence in in-store shopping as pandemic conditions improved. Looking ahead, online retail is expected to claim a growing share, anticipated to reach 17.2% by 2027.
The rate of eCommerce adoption offers additional insights into Japan's retail future. According to Statista Market Insights, the penetration rate was 64.7% in 2017 and rose to 69.8% in the pre-pandemic year of 2019. The pandemic further accelerated this adoption, pushing the rate to 72.8% in 2020 and 75.8% in 2021. Although 2022 shows a modest growth to 77.7%, the trajectory remains upward, with forecasts predicting a penetration rate of 92.8% by 2027.
The Japanese eCommerce market presents an intricate, yet promising mixture of trends and behaviors. While it may have its own unique consumer quirks, the upward trajectory in online spending and digital adoption signals the market's robustness and adaptability. With that in mind, let's delve into the segment-wise nuances of this market, particularly in the food sector, where certain contrasts in consumer spending offer insights not just into Japan but possibly global patterns as well.
Online Food Has a Promising Future in Japan
In the realm of Japanese eCommerce, we identify five key segments. The Food & Personal Care category stands as the largest, contributing well above a third (36.9%) to Japan's total eCommerce revenue. Next in line is Fashion, making up 22.2% of the revenue, followed by Electronics & Media at 19.1%. Furniture & Appliances and Toys, Hobby & DIY round out the list with 11.0% and 10.8% of the market revenue, respectively.
The data from Statista Market Insights reveals an interesting dichotomy within the Japanese eCommerce market, particularly in the food segment. While the food segment's estimated revenue shows steady growth, it doesn't quite stand out when compared to other categories: the growth in estimated revenue for food is from US$18.79 billion in 2023 to US$34.95 billion in 2027. The percentage increase is notable but not significantly higher than other sectors such as Beauty, Health, Personal & Household Care, or Electronics.
However, the estimated Average Revenue Per User (ARPU) for the food segment paints a different picture. From 2023’s projected US$770, this figure jumps to US$1,180 in 2027. This is a considerably faster growth rate compared to the ARPU in other sectors.
There are several factors that could explain this. One plausible reason could be the introduction of premium or specialized food products in the online market. Consumers may be showing willingness to spend more per transaction on quality food items, driving the ARPU upwards.
Another explanation could be that while the market for food online is growing, it is doing so with a more modest increase in the number of users compared to other categories. In this scenario, existing users might be spending more, thereby lifting the ARPU, even though the total revenue growth is not radically different from other segments.
It is also worth noting that similar growth patterns in ARPU for the food segment are also expected in markets such as the United States and Germany. This could suggest a global trend or consumer behavior shift towards higher online spending on food products, possibly fueled by changing lifestyles or an increased focus on quality and convenience in food purchases.
Pandemic Accelerates Japan's Online Grocery and Meal Delivery Markets
Before the pandemic, online grocery shopping was uncommon in Japan due to a focus on fresh, quality produce. The market is now seeing a shift to online buying. Driven by dual-income households and less time for shopping, this change appears lasting.
Statista Market Insights data indicates a significant surge in revenues for both online grocery and meal delivery between 2019 and 2020. In 2019, online grocery delivery was at US$10.17 billion and online meal delivery at US$2.63 billion. These figures leapt to US$15.78 billion and US$3.57 billion in 2020, driven by the pandemic. Post-2020, both sectors continue to grow steadily, though at a more moderated pace. Forecasts for the future are optimistic, with online grocery delivery expected to reach US$42.97 billion and meal delivery to hit US$6.38 billion in 2027.
Large retailers with technological capabilities stand to benefit, while smaller ones face challenges. However, there's room for brick-and-mortar stores to adopt features like click and collect. The pandemic has sped up this shift, aligning with a global rise in average revenue per user in the food segment.
Online Food Scene in Japan
Japan's food delivery market is rife with both domestic players like Demae-can and Rakuten and foreign entrants like Uber Eats and DoorDash.
The prospects of these players depend on the evolution of consumer behavior in Japan. Is the shift towards food delivery a pandemic-induced anomaly, or is it indicative of a deeper change in dining patterns?
All competitors who want a piece of the pie must also confront the cultural factors at play. What works in the United States or Europe may require a different approach in Japan, where tradition often holds sway and where previous foreign businesses like Walmart and Tesco have faltered.
In 2022, Didi Global, the Chinese ride-hailing giant, winded down its food delivery arm, DiDi Food Japan, signaling a strategic retrenchment amid broader challenges. The Osaka-based food delivery venture had commenced operations in April 2020 and later expanded to nine prefectures in Japan.
Moreover, Didi is not alone in its retreat from the Japanese food delivery market. Germany's Delivery Hero also opted to sell its FoodPanda operations in Japan in December 2021. Although the pandemic provided a boost to the online food delivery sector, the high cost of customer acquisition has been a persistent issue for companies operating in this space.
The withdrawal of DiDi Food Japan from the market serves as a case study in the volatility of the online food delivery industry. While the demand for such services has increased, particularly during the pandemic, the challenges of maintaining a profitable operation have proven formidable.
Can Start-ups Light the Fire of Digital Transformation in Japanese Restaurants?
Japan's online food sector is not just about large retailers and global delivery giants; it also presents fertile ground for startups and innovators. The story of Serkan Toso and Kaoro Joho illustrates this entrepreneurial spirit.
Both were managing food-centric startups — Tokyobyfood.com and Tablecross — aimed at helping foreigners discover Japanese cuisine and make restaurant reservations, respectively. In 2019, they merged their enterprises to form Tablecross Co Ltd, rebranded as byFood.com. This union has been profitable, securing US$2.24 million in Series A funding, with an eye on international expansion to markets like Taiwan, South Korea, and Thailand.
Their vision is to make byFood.com the go-to platform for food tourism in Japan, a country where, according to Toso, a remarkable 70% of travelers arrive mainly to savor its culinary offerings. However, there exists a gap between demand and supply. Only a fraction of restaurants in Japan offer online reservations. "Everything is so manual. Some restaurants are still using fax machines,” Toso observes. This chasm provides a significant opportunity for digital transformation in the restaurant sector, something byFood aims to address.
YouTube Creators’ Impact on Japan’s Online Food Scene
As Japan's food scene adapts to the digital age and changing consumer behavior, YouTube has emerged as a surprising ally. YouTubers like Seiryu Sakoda of F-Area Ltd., with his mission-driven channel Japanese Food Craftsman, offer a lifeline to local eateries through English-subtitled documentaries. The success of Sakoda's channel even led to the opening of a second location for a hot dog shop he featured. Other creators, such as the virtual YouTuber OniGiri, aim to diversify content by showcasing different facets of Japanese cuisine.
These creators are more than just influencers; they are the new custodians of Japan's culinary heritage. Their reach extends beyond entertainment, affecting business sustainability and even contributing to cultural preservation. The platforms they use are becoming specialized hubs for Japanese culinary content, offering audiences around the world a virtual seat at Japan's culinary table.
This marks a significant pivot in Japan's online food sector, revealing how digitization is reshaping not just business models but also cultural narratives. Whether it's large retailers, delivery services, startups, or content creators, the common thread is innovation. As we move forward, these evolving platforms will likely continue to shape the future of food in Japan, offering new opportunities and challenges alike.
Japanese eCommerce Market: Key Takeaways
Exploring through the multi-layered ecosystem of Japan's online commerce reveals a blend of modern innovation and enduring traditions. As digital trends and consumer needs continue to transform globally, Japan stands as a significant case study that fuses the old with the new.
The key takeaways below provide a streamlined look into this complex terrain, offering clarity and practical learnings:
Japan maintains its status as the world's third-largest eCommerce market, demonstrating resilience and adaptability. Major players like Amazon.co.jp, apple.com, and yodobashi.com dominate, but there's room for growth as the country shifts more toward digital transactions.
The consumer behavior in Japan is unique, balancing online and offline shopping due to factors like high population density and economic considerations. This distinct blend influences customer retention strategies, as Japanese consumers show loyalty and patience.
The Food & Personal Care segment stands out in Japan's eCommerce market, particularly for its rapid increase in Average Revenue Per User (ARPU). This could reflect a global trend toward premium online food purchases, a pattern also visible in the U.S. and Germany.
Despite the challenges posed by high customer acquisition costs and local preferences, Japan's online food and delivery services have been catalyzed by the pandemic and are poised for continued growth. This offers opportunities for large retailers, while smaller players may find avenues like click and collect services beneficial.
Digital platforms, particularly YouTube, are emerging as significant factors in Japan's online food sector. They are not just influencing consumer choices but are also playing a role in sustaining local businesses and preserving cultural traditions, adding another layer to an already diverse and evolving market.
Sources: Wunderman Thompson, Asashi, Financial Times, Nikkei Asia, Delivery Hero, WiT, The Japan Times, Statista, ECDB