Rakuten Seeks Asia Growth as Japan Online Mall Chases Amazon

Rakuten Inc. CEO Hiroshi Mikitani
Rakuten Inc. Chief Executive Hiroshi Mikitani pauses during an interview in Tokyo. Photographer: Junko Kimura/Bloomberg

Rakuten Inc., Japan’s biggest Internet retailer, plans to expand in India and Australia as the outlook for slowing economic growth at home hurts demand at its online shopping malls.

“We’re making very steady progress in terms of expanding our global presence,” Chief Executive Officer Hiroshi Mikitani said in an interview in Tokyo yesterday. Rakuten aims to have 70 percent of sales transactions overseas by as early as 2020, said Mikitani, 47, Japan’s third-richest man.

The retailer in the past three years announced more than $1.6 billion worth of purchases such as stakes in social network Pinterest and digital book seller Kobo Inc. as part of its strategy to catch up with Amazon.com. Mikitani, whose company’s revenue is about one-tenth that of his U.S. rival’s has a T-shirt that reads: Beat Amazon.

The move to expand overseas has yet to contribute to earnings in the aggregate, said Justin Weiss, a Tokyo-based analyst at JI Asia who is ranked second in one-year performance among 17 analysts tracking Rakuten. “It hasn’t disclosed country-by-country numbers showing what progress has been made to date and what it expects going forward,” said Weiss, who recommends selling the company’s stock.

Mikitani, a Harvard Business School graduate who requires employees to learn English, said he plans to expand to 27 countries and regions from the current 13.

Slow Growth

“We’re not that picky,” he said, when asked for details on Rakuten’s expansion plans. “We will adjust our strategy depending on the situation and maturity of the market.”

He’s also considering expanding into Southeast Asia, Eastern Europe, Latin America, the billionaire said.

Rakuten fell 0.8 percent to 757 yen in Tokyo trading. The stock has dropped 8.6 percent this year, compared with a 1.4 percent decline for the broader Topix index.

The company isn’t just smaller than Amazon, it’s also expanding at a slower pace. Rakuten’s annual sales growth averaged 13 percent over the five years through 2011, less than half the rate of Amazon’s 35 percent, according to data compiled by Bloomberg.

The Bank of Japan on Sept. 19 followed the government in downgrading its assessment of the domestic economy, saying growth has “come to a pause.” Morgan Stanley & Co. and Citigroup Inc. expect the economy to contract in the two quarters through December.

Market Share

In the past two years, Rakuten acquired online businesses including U.K. music and game retailer Play Holdings Ltd., U.S. retailer Buy.com Inc., French electronics seller PriceMinister S.A. and Brazil’s Ikeda. It bought Canada-based Kobo this year for $315 million.

The company’s flagship shopping portal, Rakuten Ichiba, connects about 40,000 merchants to customers shopping for products such as toys, electronics and pajamas. Its English-language website also offers Japanese goods to overseas customers.

The Japanese company had $10 billion in cash and short-term investments as of June 30, about double the amount for Amazon, according to data compiled by Bloomberg.

Rakuten is the world’s third-largest Internet retailer, with a 3.5 percent market share after Amazon.com’s 12 percent and Apple Inc.’s 3.9 percent, according to London-based research company Euromonitor. EBay was excluded because of its different consumer-to-consumer business model.

In Japan, Rakuten leads with a 29 percent share, ahead of Amazon’s 15 percent, Apple’s 4.5 percent and Yahoo! Inc.’s 3.2 percent, according to Euromonitor.

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