Mickey Mikitani on sustainability, Japan’s e-commerce potential and an ambitious ten trillion yen goal

Every January, Japan’s leading e-commerce platform hits the ground running with the Rakuten Ichiba New Year Conference. The conference is an opportunity for the thousands of merchants who attend online and in person to hear Rakuten perspectives on what’s ahead for e-commerce, including frank and open comments from Rakuten CEO Mickey Mikitani.

Halfway to 10 trillion

In 2021, Rakuten reached a significant milestone for domestic e-commerce: five trillion yen (roughly $43 billion USD) in annual gross merchandise sales (GMS).

“From when we founded the company and launched Rakuten Ichiba in 1997, it took around 12 years for us to reach one trillion yen,” recalled Mikitani. “The jump from four to five trillion happened in just one year.”

As growth continues to accelerate, Mikitani reiterated his vision for the next milestone: 10 trillion yen. And underpinning that vision is a firm belief in the growth potential of Japan’s e-commerce sector.

“The global penetration rate of online shopping in total retail consumption was 17.8% in 2020. Last year it was estimated to have reached nearly 20%,” he remarked. “Meanwhile, data shows that the rate in neighboring China is as high as 40%.”

“I believe that every company, large or small, should recognize sustainability as a social mission.”

MICKEY MIKITANI, CHAIRMAN & CEO, RAKUTEN GROUP

In comparison, Japan’s e-commerce penetration rate in total retail consumption of just 5.8% in 2017 climbed to 8.1% in 2020. “It feels like we’re catching up, but the gap between Japan and the world is actually widening.”

And Japan’s digital transformation could well turn this around.

Accelerating digital transformation

“The pandemic has accelerated Japan’s digital transformation dramatically,” Mikitani noted. “We’re embracing a new style of working – remote work … [and so] the convenience of online shopping combined with the fact that more and more people are leaving major cities to work in regional areas could very well see Japan’s online shopping rate grow from 8.1% to 20% in the future.”

This would bring Japan closer to the likes of North America and Europe. “Perhaps we won’t reach 40% like our neighbors in China. But reaching 20% would mean the size of the market would grow by a factor of 2.5,” he ventured. “The e-commerce market as a whole could well grow by a factor of two or three. In addition to this, the Rakuten Ecosystem – not just Rakuten Mobile but all of our ecosystem parts together – will help us achieve our 10 trillion yen target.”

Mobile growth is e-commerce growth

In 2020, Rakuten Mobile launched the world’s first fully virtualized cloud-native mobile network, to become Japan’s fourth major mobile carrier.

“By being the first in the world to do everything with software, we have many diverse advantages,” Mikitani explained. “Costs are lower, it’s easy to build in new programs, it’s versatile and speedy.”

The mobile business has already had positive knock-on effects for Rakuten Ichiba’s merchants.

“Users who subscribe to Rakuten Mobile are buying 1.7 times more [on Rakuten Ichiba] over the span of a year,” Mikitani revealed. “At first, I thought this was because we gave away so many points as an incentive to sign up with Rakuten Mobile. But it seems like this is a permanent change in behavior.”

Mikitani explained that a significant number of new customers joining the Rakuten Ecosystem – as many as 20% – are doing so through Rakuten Mobile. But the majority are existing members who are already accustomed to shopping on Rakuten Ichiba.

“With other mobile carriers, most customers flow in through the mobile services before being sold new online services like online shopping and finance,” he outlined. “For us, it’s the reverse: Around 60% of Rakuten Mobile users are regular shoppers on Rakuten Ichiba. Compared to our competitors, this rate is astronomical.”

“We pledged to achieve a 100% rate of renewable energy use for our core services, a goal which we achieved in 2021, ahead of schedule.”

With new mobile subscribers spending an average of 70% more on Ichiba, growth of the Rakuten Mobile user base can only mean good news for Rakuten Ichiba merchants. Mikitani compared Rakuten Mobile’s beginning years with those of Rakuten Card, which after 16 years in business, has now issued some 25 million credit cards in Japan.

“It is the top credit card in Japan by a wide margin. And it’s growing the fastest, too. The growth trajectory of Rakuten Mobile, meanwhile, is around three times faster than that of Rakuten Card,” he remarked. “We have around five million Rakuten Mobile subscribers right now, and as this number grows to 10, 20, 30 and 40 million, I think you can expect your GMS to skyrocket as well.”

A responsibility to the environment

Mikitani also took the opportunity to stress the rising importance of running a sustainable business.

“With an annual GMS of 10 trillion yen, seven to eight percent of Japan’s consumption would come through Rakuten Ichiba,” he told the merchants. “That means that we have a social responsibility to address these issues.”

In 2019, Rakuten Group, Inc. joined the RE100 initiative. “We pledged to achieve a 100% rate of renewable energy use for our core services, a goal which we achieved in 2021, ahead of schedule.”

The remainder of Rakuten’s global businesses are projected to reach this same goal in the near future.

In the context of retail, Mikitani believes that shopping online has the potential to drive efficiencies: “Instead of everyone driving their own cars to different stores, buying online and having those items all delivered at once is a way to improve energy efficiency.”

Under the current system, however, buying multiple items from different online stores can often result in delivery companies making multiple trips to deliver each individual package. To help make this process more efficient, Rakuten has been working with Japan Post as part of a broad collaborative alliance formed in 2021 to develop and roll out an app to consolidate deliveries.

“I really think sustainability will become a major keyword in the world of online shopping in the future,” he ventured, citing results of a survey of Rakuten Ichiba shoppers. “81% of respondents have said that they have purchased, will purchase in the future, are interested in purchasing, or would like to purchase, sustainable products.”

“From when we founded the company and launched Rakuten Ichiba in 1997, it took around 12 years for us to reach one trillion yen….The jump from four to five trillion happened in just one year.”

Rakuten Ichiba’s “EARTH MALL with Rakuten” was another topic of discussion. The platform, which curates the many different sustainable products available across Rakuten Ichiba, has recently enjoyed a significant uptick in traffic and sales.

“EARTH MALL with Rakuten has proven to be incredibly popular. The amount of goods distributed through it increased by four times over the previous year,” he revealed. “Although we only have around 127,000 items available now, I believe that in the future, all the products on Rakuten Ichiba will have to be sustainable.”

To close out his address, Mikitani encouraged merchants to take the initiative while they still can.

“Instead of falling behind the curve, I think it will be important to approach this change with a positive attitude… and to get ahead of the problem before it becomes something that you’re forced to deal with,” he urged. “I believe that every company, large or small, should recognize sustainability as a social mission… I would be glad if you took this as a statement of our commitment to a green future.”