April 27 (Bloomberg) -- Rakuten Inc., Japan’s biggest online retailer, is counting on acquisitions to help break the EBay and Amazon habits of European shoppers.
Pierre Kosciusko-Morizet, the 34-year-old Frenchman who joined last year as part of the company’s takeover of PriceMinister.com, is leading Rakuten’s European expansion. His goal is to replicate an online shopping mall that’s taken Japan by storm and helped the retailer increase revenue more than sevenfold to about $4.2 billion in the past six years.
The Tokyo-based company’s flagship shopping portal, Rakuten Ichiba, connects some 22,000 merchants to customers looking for a one-stop shop for products from electronics to pajamas. Rakuten is considering several takeover opportunities in Europe to add to the 200 million-euro ($293 million) purchase of PriceMinister.com that brought it to France, the executive said in an interview.
“We want to implement the Rakuten business model in other large European countries,” said Kosciusko-Morizet, who founded PrimeMinister.com in 2001. “There’s a willingness to invest in growth and aggressively expand.”
Doing so will mean translating a unique retail formula to European tastes. Rakuten makes money from commissions on transactions as well as fees like those levied on credit cards. The company has used its customer base to sell extra services such as those cards, which generated $771 million in revenue last year based on current exchange rates, or 18 percent of total sales.
Rakuten’s strategy for European deals may include providers of value-added services, which on its Japanese sites include travel reservations, banking and even golf-course bookings, Kosciusko-Morizet said.
A range of assets may be available. PPR SA, the owner of the Gucci luxury goods brand, plans to sell its fashion and home-furnishing retailer Redcats. The unit, which operates 31 brands in 17 countries including online retailer La Redoute, will add more third-party brands this year as it seeks to become a marketplace for fashion, CEO Jean-Michel Noir said last month. Redcats has an enterprise value of 1.35 billion euros, according to Sanford C. Bernstein estimates.
Besides marketplace-type sites, Rakuten could also consider acquiring specialized retailers like London-based fashion hub Asos Plc or Play Ltd., which sells DVDs and gadgets, said Matthew Stych, research director at retail consultancy Planet Retail in London.
Kosciusko-Morizet declined to comment on specific targets, saying the company won’t ignore promising opportunities “given the size of Rakuten in Japan.” Rakuten doesn’t have a fixed amount of cash set aside for deals in Europe, he said.
At the end of last year, Rakuten had about 73 billion yen ($892 million) of cash and deposits. Its footprint in its home market is growing, with transaction volume in Japan reaching almost 2.7 trillion yen last year, up about 44 percent. In addition to taking control of Paris-based PriceMinister, Rakuten bought U.S. site Buy.com for $250 million in May last year.
Rakuten fell 0.3 percent to close at 72,900 yen at the 3 p.m. close of trading in Tokyo. The stock has gained 7.2 percent this year, the fifth-best performance on the 58-company MSCI Japan Consumer/Discretionary Index, which fell 5.4 percent. The stock slipped 1.4 percent to 73,100 yen yesterday, giving the company a market value of about $11.8 billion.
Breaking the dominance of Amazon.com Inc. and eBay Inc. in Europe won’t be easy. Seattle-based Amazon, the world’s largest online retailer, received just under 20 million visitors from the U.K. in January, 24 million from Germany and 12 million in France, according to market researcher ComScore Inc. PriceMinister, which lets users buy and sell items including books and sporting goods, was visited by 10 million French Web surfers in the same period.
Amazon reported yesterday a 31 percent jump in first-quarter sales for its international segment, which include the U.K., German, French, Italian as well as Chinese and Japanese sites, to $4.39 billion. The company opened an eBookstore in Germany and announced new German applications for smartphones such as Apple Inc.’s iPhone and tablets.
“Online retail tends to consolidate dramatically,” with revenue accruing to one or two leaders in a given market, said Martha Bennett, a retail analyst at technology researcher Ovum in London. Shopping sites “are incredibly sticky. It’s a network effect and just inertia,” she said.
Louis Vuitton Partnership
Meanwhile, other retailers are increasingly functioning as Rakuten-like middlemen, giving consumers access to merchants offering a wider selection than it keeps in its own warehouses. Amazon’s Marketplace service, which connects third-party merchants to the site’s customers, accounts for about 34 percent of units sold, and is now “the driver of Amazon’s profit,” according to Andrea Carini, a Forrester Research Inc. analyst.
To help get ahead in Europe, Rakuten is counting on a secret weapon: friendly relations with luxury-goods producers. EBay has fought years of court battles with brand owners including L’Oreal SA and LVMH Moet Hennessy Louis Vuitton SA over the sale of counterfeit goods by third-party merchants, leading to fines and orders to halt sales of some products.
Last September, Rakuten and LVMH’s Louis Vuitton unit announced an alliance to work “proactively” to prevent the sale of fake goods on Rakuten’s auction sites. Similar deals with other brand owners may follow, Kosciusko-Morizet said.
“The future is playing nice with brands,” a lesson Rakuten has learned quickly in Europe, Forrester’s Carini said.
To contact the reporters on this story: Matthew Campbell in Paris at email@example.com;
To contact the reporter on this story: Andrew Roberts in Paris at firstname.lastname@example.org.