Mail-Order Sales Mail-Order Sales Over Mail, TV, and Other Correspondence Methods
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Introduction Foreign entry into the Japanese mail-order industry began when Reader’s Digest, the subscription-based magazine, launched operations in Japan in 1946. Many foreign retail companies entered the market during the 1970s, when Japan was undergoing a gradual process of capital liberalization. At the same time, general mail-order corporations such as Sears, Roebuck & Co. (U.S.) and Neckermann Versand AG (Germany) entered the market by forming business alliances with department stores, while specialized mail-order companies such as The Franklin Mint (U.S.) and Damartex (France) entered the market using wholly owned subsidiaries. In the ’80s, Sumitomo Corporation and Otto Versand GmbH & Co. (Germany) established a joint venture company called Otto-Sumisho Inc., and in the ’90s the apparel direct-marketing corporations L.L.Bean, Inc. and Lands’ End Inc. also entered the market. In the second half of the ’90s, mail order via new cable and satellite networks was launched. Many Internet mail-order corporations also entered the market around 2000, but companies that simply imported foreign business models without adjusting them to the Japanese market often failed. It is said that mail order has lower initial investment costs and is easier to enter than brick-and mortar-industries, but that succeeding is not as easy. Those mail-order corporations that have succeeded in Japan have differentiated themselves from brick-and-mortar retail and other mail-order corporations by aggressively analyzing market data and customer segments to develop and offer unique products, while also developing new retail methods that are easy for the customer to use. Pricing must match the customer’s expectations and the system must be easy for the customer to access. Those corporations that sell unique products via unique business models usually survive. The economic stagnation and consumer sales slump that followed the economic bubble of the 1980s hit bottom in the winter of 2003, after which household consumption began to recover. The Japanese gross domestic product has been second only to the United States since 1968, and Japan has remained an economic superpower. The Japanese market, which is also No. 2 behind the U.S. in size, continues to attract foreign corporations. Mail order differs from brick-and-mortar sales in that catalogs, television, the Internet, flyers, direct marketing and other media are used for advertising, and telephone, postcards, fax, the Internet and other communication methods are used for taking orders. Also, products are delivered directly to the customer. This report focuses on mail-order companies that conduct business-to-consumer electronic commerce to sell items and services mainly through catalogs, the Internet and television. Reflecting a shift toward multichannel sales, however, the scope is not limited to just corporations that specialize in mail order, but also includes brick-and-mortar stores, such as department stores and boutiques, as well as manufacturers. Mail-order companies that focus on business-to-business electronic commerce to sell materials or unfinished goods, or that deal in Via insurance or finance, and those that use door-to-door sales or networking business sales, are excluded (Fig. 1). This report summarizes the current state of the mail-order market, related legal systems, business models and business practices. It also provides recommendations concerning entry into the Japanese mail-order market, drawing off lessons learned by foreign firms that are already in the market. The report data was developed by JTM Saison Life Research Institute and compiled by JETRO. Fig. 1 Scope of this Report (dashed line shows area covered in report) Mail-order Sales Mail-order sales over mail, TV, and other correspondence methods. Catalog Television Internet DM, Flyers, Other Types Side Correspondence of Advertisements Business Education, Finance, Senshukai, Japanet Takata, Rakuten, Insurance Nissen, Jupiter Shop Channel, Dell Computer, Nippon Broadcasting Mitsukoshi, Cecile, Prime, Vector, Projects (Radio), Takashima Benesse, Fancl, Nihon Bunka Center, Amazon.co.jp, Kodansha Famous Schools ya, Uniqlo, Nihon Tsushin Kyoiku Askul, etc. Xing, etc. (Magazine), Sofmap, Renmei, etc. etc. etc. etc. Sources: Compiled from various sources, including the “Illustrated Mail Order Industry Handbook,” Shop System Study Society, “The Spread of Vending Machines and Annual Vending Machine Sales,” Japan Vending Machine Manufacturers Association, and the website of the Japan Direct Marketing Association. Table of Contents SUMMARY ..........................................................................................................................................1 I. MARKET OVERVIEW............................................................................................................, ....2 , A. MAIL-ORDER MARKET................................................................................................................2 B. GENERAL CONSUMER MARKET ...................................................................................................8 C. MAIL-ORDER COMPANIES, BY BUSINESS SECTOR .....................................................................11 II. LEGAL SYSTEMS ....................................................................................................................15 A. LIST OF MAJOR LAWS................................................................................................................15 B. MAIL-ORDER LAWS...................................................................................................................17 C. COMPETITION LAWS ..................................................................................................................18 D. RETAIL SALES LAWS .................................................................................................................20 E. PENDING NEW LAW ...................................................................................................................22 III. BUSINESS MODELS AND PRACTICES .............................................................................23 A. BASIC STRUCTURE OF MAIL-ORDER BUSINESS .........................................................................23 B. BUSINESS MODELS ....................................................................................................................27 C. JAPANESE BUSINESS PRACTICES................................................................................................31 IV. FOREIGN ENTRY INTO MARKET .....................................................................................34 A. HISTORY OF FOREIGN ENTRY ....................................................................................................34 B. EXAMPLES OF FOREIGN ENTRY .................................................................................................36 V. MARKET-ENTRY RECOMMENDATIONS.............................................................................52 A. PROMISING FIELDS ....................................................................................................................52 B. KEY POINTS ...............................................................................................................................52 C. RECOMMENDATIONS, BY BUSINESS CATEGORY ........................................................................57 VI. REFERENCE INFORMATION.............................................................................................59 APPENDIX A. SALES RANKINGS IN FY2003 ...................................................................................59 APPENDIX B. TRADE SHOWS, EXHIBITIONS AND ORGANIZATIONS ................................................62 PROCEDURES FOR INVESTING IN JAPAN...............................................................................64 Summary Market Overview According to the Japan Direct Marketing Association (JADMA), the size of the Japanese mail-order market in FY2003 (April 2003 to March 2004) was estimated to be ¥2.79 trillion (approximately $25.39 billion). This was the largest amount since the survey began in 1983, and came after a continuous four-year increase that started in FY1999. The mail-order industry has expanded smoothly in spite of Japan’s stagnant retail market. According to the 2002 Census of Commerce, mail order accounted for 1.8% of total retail sales in Japan, behind supermarkets, department stores and convenience stores. Business Models This report divides business models into the following five categories: resale, direct sales (build-to-order and make-to-stock), service sales, content business and platform business. Foreign Entry to the Market As examples of foreign corporations entering the market, first we examined Amazon Japan K.K. and Dell Inc. Next we examined Lands’ End Japan, K.K. and Otto-Sumisho, two corporations that have not been greatly affected by the rising popularity of brick-and-mortar stores offering low-priced clothing and have thus succeeded by following their own business models. Jupiter Shop Channel Co., Ltd., which introduced television shopping in Japan, and autobytel Japan K.K., which acts as an intermediary for automobile sales, have succeeded as international joint ventures. Other key points regarding market entry were derived from the case of eBay Japan K.K., which eventually withdrew from the market. Market Entry Recommendations Japanese consumers are strict when it comes to quality and are extremely particular when