Direct Commerce Dominant in Japan

From BusinessWeek, Sept. 4 - Using data from the Japan Direct Marketing Assn. and Nomura Research Institute (NRI), the Nikkei daily estimates online shopping sales in Japan rose 22% [this year] to $67.2 billion. That's despite Japan's deepest recession in the postwar era savaging consumer confidence following the collapse of Lehman Brothers last fall. If catalog shopping is also included, the figure rises to over $86 billion—or more than is spent in Japan's department stores or ubiquitous convenience stores.

Noritaka Kobayashi, senior consultant at Nomura Research Institute in Tokyo, says that while the growth will likely slow due to the recession, the consumer e-commerce market will continue to outstrip other forms of shopping.

What explains Japanese consumers' shift to shopping online? In the last year, as the global recession pounded the Japanese economy, pundits began using the term sugomori ("chicks in the nest") to describe people who stay home to keep outside expenses to a minimum. Shopping online is not only often cheaper, especially when compared with expensive department stores, but it also saves on transportation and eating out while shopping.

Other reasons for the rapid expansion of online shopping in Japan are perhaps more compelling—and Japan-specific. One factor is undoubtedly the widespread use of high-speed Internet. Fast broadband connections are the norm in Japan, while high-speed Internet-enabled mobile phones are long established. NTT DoCoMo's (DCM) 3G service is now in its 10th year of operation. The upshot: Japanese young and old are comfortable and experienced online.

It helps that workers in Japan typically take long commutes, often in crowded trains. That leaves plenty of time to text, read the news, play games, or shop using a mobile phone.

Meticulous home-delivery service is another factor boosting online shopping. Delivery companies such as Yamato Transport, Sagawa Express, and JP Express are famously reliable. The companies usually offer to deliver within a two-hour time slot selected by the customer and are rarely late. They are also remarkably fast. Yamato, for instance, has a tieup with Amazon and other mail-order companies by which it offers next-morning delivery for orders made by midnight the previous day. And if the customer prefers, deliveries can be made to one of Japan's 50,000 convenience stores. For only a small extra fee, delivery firms will deliver frozen or chilled products, leading to the rapid expansion of online purchasing of fresh produce, such as freshly caught crab from Hokkaido or pineapple from subtropical Okinawa.

Payment options have evolved to meet customer needs and soothe fraud concerns. For consumers who don't want to input credit card numbers over the Internet, Yamato and others offer a pay-on-delivery service. "These finely tuned delivery services are boosting the mail-order business," says Masao Ueda, chief researcher at the Distribution Economics Institute of Japan.