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Hiroshi Nakamura

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The Growth of Net Shopping and Its Support by Retailers

Hiroshi Nakamura
Professor, Business School, Chuo University
Area of Specialization: Marketing

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1. The Growth of Net Shopping

In recent years, while department stores, GMS, and other large-scale stores that once were the stars of the retail industry have been facing stagnant performance, net shopping conducted online has been growing at a remarkable pace. Today, it would not be far from the truth to say that just about everyone has purchased goods from net retailers like Rakuten or Amazon at least once. The proportion of various products including apparel, books, home electronics, and cosmetics purchased over the Internet is continuing to rise, with Rakuten, the largest net retailer in Japan, already showing sales of over 1 trillion yen. Also, although not publicly disclosing its figures, Amazon of Japan achieved a sales volume of approximately 700 billion yen in the 2012 fiscal year, with only a matter of time before it reaches the 1 trillion yen mark. In comparison, the department store Takashimaya has a sales volume of approximately 800 billion yen, showing that both Rakuten and Amazon are joining the ranks of such major retailers. Furthermore, the level of their growth is far superior to that of any other retail business category.

Factors in this rapid growth include handling of long tail products, unlimited product lineups (wide and varied lineup), and continual checking of other net retailers' prices by automated robots, enabling products to be sold for the lowest price possible. In addition, the development of net retailers is greatly supported by extensive functions for recommending appropriate products based on big data obtained through the conversion of customer information searches and purchase histories into database form, and logistics functions allowing the realization of high-speed, low-cost delivery services.

Even orders for food are becoming able to be accepted over the Internet and delivered to customer homes by supermarkets and convenience stores, although the percentage of such transactions is still low compared to non-food products. The number of profitable net supermarkets is still limited, but Ito-Yokado's net market has apparently finally reached a profitable level of business.

At present, the sales volume of net shopping is already on nearly the same scale as the total sales volume of home centers and drugstores, and has surpassed the 7 trillion yen total sales volume of department stores; moreover, its high level of growth is comparable to that of the convenience store business category. Net stores have passed through the introductory phase of the retail life cycle and have entered their growth phase, with no question that they are poised to become principal players in the retail industry from here on.

2. Seamless Consumer Shopping

When we shop, whether inside a store or not, we generally first search for information on a product we wish to buy, then purchase a brand that we like. Up until now, we would have visited a real store, collected information inside the store, and purchased our desired brand. Research estimates show that in roughly 70% of convenience good purchases, information was gathered inside a store and the good was then purchased from the store.

2.1. Showrooming

However, the spread of the Internet and smart phones has radically changed the way we make purchases. For example, there is a growing number of consumers whose shopping behavior involves finding out about products, such as home electronics, at a mass retail store like Yamada Denki, but actually purchasing them using the store's net shopping service, or even from sites like Amazon if lower prices can be found there. More and more consumers also have had shopping experiences where they would try out cosmetics at the cosmetics sales floor of a department store and if they liked the products, would purchase them over the Internet. This type of behavior, where product information is gathered at real stores but purchases are made on the Internet, is known as showrooming. Showrooming has the potential to greatly alter price competition, and also, because it is likely to occur if competing stores offer the same product lineup, it encourages an increase in private brands and other company-original products. It is becoming a major issue for manufacturers of national brands.

2.2. O2O (On Line To Off Line)

On the other hand, shopping where product information is first collected from the Internet and purchases are then made at real stores, or where products are ordered over the Internet but received at real stores, is also increasing. This type of shopping is referred to as O2O. For example, as a promotion using O2O, there is a service being implemented by Yahoo and Softbank known as Ultra Customer Attraction. With this system, products that can be sampled are listed on Yahoo's top Internet page, and interested consumers can click their product of interest to have a QR code sent to their smart phone. Scanning that QR code with a code reader device located in a store will then provide the consumer with a coupon for a sample, and taking the coupon together with a product displayed in the store to a register will let the consumer purchase the product at no charge. Because the sample coupon can only be obtained at stores where code readers are located, this in turn can lead to an increase in store customers.

3. Support by the Retail Industry

In these ways, consumers of today are able to purchase products that they want anywhere and at any time, a situation known as seamless retail. Amidst the spread of seamless retail, retailers that cannot provide appropriate support for IT focusing on the Internet are likely to be screened out within a period of 3 to 5 years.

A critical point is that in this age of seamless retail, it has become possible to acquire big data that includes the purchase histories of consumers visiting both real and net stores, data of information searches conducted over the Internet, and data posted to social media sites. The methods of applying such data to business administration, and particularly the role of data scientists who can analyze this big data and use it to increase sales, are becoming more and more important. The overall number of data scientists worldwide is insufficient, and so there will be an increasingly urgent need to secure and train personnel in this field in the times to come.

Hiroshi Nakamura
Professor, Business School, Chuo University
Area of Specialization: Marketing
Graduated from School of Commerce, Waseda University in 1979. Doctor of Business Administration (Gakushuin University). After having taught at School of Commerce, Senshu University, he became Professor of Business School (Graduate School of Strategic Management) at Chuo University in 2007.
His major publications include: Marketing New Products [Shin Seihin no Maaketingu] (Chuokeizai-sha, 2001); Prices and Promotion [Kakaku/Puromooshon] (co-author, Yuhikaku Arma, 2004); Pricing Science [Puraishingu/Saiensu] (co-author, Dobunkan, 2005); Market Segmentation – The Discovery of Market Opportunities Using Purchasing History Data – [Maaketto Segumenteeshon – Koubai Rireki Deeta wo Mochiita Shijou Kikai no Hakken –] (author/editor, Hakuto-Shobo, 2008); Shopper Marketing [Shoppaa Maaketingu] (co-author, Nikkei, 2011); and serial interviews with top retailers in Distribution Information (Strategies of Leaders) [Ryuutsuu Jouhou (Riidaa no Senryaku)].