Repositioning Rakuten: An In-Depth Analysis on How the Japanese E-commerce Giant Can Conquer Amazon's Empire

During a trip to Japan, I made it a goal of mine to fully immerse myself in the local culture. For my first night, I stayed at the Rakuten STAY Tokyo Asakusa. The brand’s presence was unmistakable from the moment I stepped into the lobby. Adjacent to the reception desk, a large map of Tokyo was featured prominently, adorned with stickers of its Shopping Panda mascot — a playful touch that set the tone for my stay. I booked the Shopping Panda Concept Room, which lived up to its name in every conceivable way. The panda motif was ubiquitous: it was on the walls, notepads, bathroom containers, shower curtains, and even on the slippers. In all honesty, I found the omnipresence of the mascot a bit overwhelming. However, the staff informed me that this room was by far the most popular room they had, with enthusiasts from across Japan booking weeks, sometimes months in advance, to secure a night in this panda paradise.

Such a dichotomy embodies exactly why Rakuten faces challenges in its global expansion efforts. The company is deeply rooted in uniquely Japanese cultural elements that resonate locally but often fail to translate as effectively abroad. Yet, even within Japan, some of the foundational principles that once propelled Rakuten to success are beginning to fade. Traditionally, Japanese consumers have valued high-quality, durable items, appreciating meticulous attention to detail and being willing to pay a premium for them^[1]. However, with recent trends toward cost-consciousness and convenience emerging since the pandemic, Amazon has taken the throne, even in Japan, with its aggressive pricing and seamless service eclipsing Rakuten’s emphasis on the finer things^[2]. By focusing on cost-consciousness and convenience, tailoring its business model to be more globally relevant while still honoring its Japanese roots, Rakuten could not only reclaim its market share in Japan but also strengthen its foothold internationally.

One of the key factors that maintains Rakuten’s prominence in Japan is its extensive ecosystem, affectionately termed “Rakuten World”^[3]. This comprehensive network includes a plethora of services such as an internet shopping mall, online bookstores, fashion outlets, and vendors for home appliances and daily necessities^[4]. Rakuten also diversifies its offerings with online discount coupons, a flea market, and well-stocked online supermarkets. Moreover, Rakuten extends its reach into mobile communication services^[5]. It provides a robust mobile network, home router service, a free calling and messaging app, optical line internet, and a variety of corporate telephone services. Central to these offerings is a sophisticated points system that ingeniously incentivizes users to remain engaged and loyal^[6].

When customers shop at Rakuten, they accumulate points that can be redeemed for a variety of indulgences and necessities. For instance, these points can secure a luxurious appointment at a high-end salon through Rakuten Beauty or be used for the convenience of ordering take-out sushi via Rakuten Gurunavi Delivery^[7]. However, customers can also use these points to invest in the stock market, trade cryptocurrencies, and make purchases at any of the more than 5 million locations where Rakuten Pay is accepted across Japan^[8]. Every 100 yen spent on Rakuten Ichiba earns you one point, equivalent to one yen^[9]. However, the potential to earn is dramatically increased with Rakuten’s Super Point Up (SPU) program. This initiative encourages the use of multiple Rakuten services — like Rakuten Card, Rakuten Bank, and Rakuten Mobile — not only to accumulate points but to significantly multiply one’s discount rate on Rakuten Ichiba, potentially up to 17 times the standard rate^[10]. Moreover, during special site-wide events and promotions, this rate can skyrocket to more than 45 points per 100 yen spent^[9].

While the concept of an integrated ecosystem is not unique to Rakuten or even Japan, with American giants like Apple, Amazon, and American Express executing similar strategies, Rakuten distinguishes itself through a deep-rooted connection to Japanese culture and a dedication to serving its local customers^{[11][12][13][14]} From its inception, Rakuten aimed to position itself as a global brand store, yet it has maintained the ethos of a high street mall where people shop for branded goods, prioritizing quality over convenience. Rakuten provides products that are not only high quality and durable but also feature meticulous attention to detail and elaborate packaging — qualities highly appreciated by Japanese consumers who are willing to pay a premium for them^[3][15]. Moreover, Rakuten prides itself on giving merchants the freedom to craft their product pages extensively. Product listings often tell a company’s backstory and provide every minute aspect of the product, tailored to give a custom experience as extensive as the seller desires^[3]. Further setting Rakuten apart is its commitment to quality assurance; every seller is rigorously vetted to ensure they meet Rakuten’s stringent standards, reinforcing the platform’s reputation for excellence and trustworthiness^[16].

Moreover, Rakuten’s brand is a pervasive presence across Japan, deeply embedded in its culture. In 2004, the company expanded its influence by establishing a new professional baseball team, the Tohoku Rakuten Golden Eagles, and further demonstrated its commitment to sports by acquiring Vissel Kobe, a professional Japanese soccer team^[17][18]. The brand’s reach extends beyond sports, with its Shopping Panda mascot becoming a cultural phenomenon. This charming character not only boasts over 170,000 followers on Twitter but has inspired its own anime series, a book, and a range of stuffed animal merchandise^[19][20]. Rakuten also hosts and sponsors events such as the Rakuten Fashion Week and Tokyo Rainbow Pride^[21][22].

However, the localized foundation of Rakuten’s business model presents significant challenges in its globalization efforts. Japanese customers, accustomed to navigating sprawling department stores and malls with hundreds of shops across dozens of floors, have distinct shopping habits^[23]. They favor extensive research and invest in products designed for longevity, preferences that are less pronounced in other countries^[15]. In contrast, factors like price and convenience hold greater sway in many Western nations, notably the United States, which diverges sharply from the strengths Rakuten typically capitalizes on^[24]. In a bid to tap into these foreign markets, Rakuten aggressively expanded its global presence through acquisitions, including Buy.com in the United States, Play.com in the United Kingdom, and Priceminister.com in France^[25][26][27]. Unfortunately, these initiatives fell short of expectations. All three of these ventures ultimately ceased operations, largely because the companies Rakuten acquired lacked substantial infrastructure — they essentially offered nothing more than a platform^[28][29][30]. In essence, Rakuten was merely purchasing users and a brand name, both of which lost much of their value under the forced integration into the Rakuten umbrella.

Before the shutdowns, Rakuten’s shopping platforms in Western markets struggled to captivate users. Members could still earn Rakuten points, but not to the extent possible in Japan, due to the absence of an array of additional services and programs like SPU. Additionally, Rakuten’s prices were markedly higher^[31]. This primarily stemmed from a crucial issue: a lack of infrastructure. Generally, it is both harder and more costly for sellers to launch on Rakuten. For instance, sellers must invest 50,000 yen as a startup fee for each product, and then continue to fork over 50,000 yen monthly, whereas on Amazon, listing products is almost free^[16]. Rakuten also lacks its own fulfillment services, forcing sellers to use third-party fulfillment agencies, all of which are significantly pricier than Amazon’s Fulfillment by Amazon (FBA) service^[32]. Consequently, these extra costs are inevitably passed on to the consumer, making Rakuten’s offerings considerably more expensive. While Amazon frequently undercuts Rakuten on price in Japan, as well, Rakuten’s robust loyalty program and a strong sense of local pride compensate for these drawbacks, keeping customers loyal^[33].

With that being said, it is unlikely that such elements would be very effective abroad regardless. However, the issue is not inherent to the loyalty programs themselves. For instance, loyalty programs like Starbucks’ Stars and Marriott’s Bonvoy have proven highly successful internationally, each generating over $2 billion in revenue^[34][35]. The success of such schemes, however, hinges on the appeal of the underlying product. Simply put, people flock to Starbucks because they love its coffee, and they buy into Marriott’s program because they enjoy its hotels. With Rakuten, the underlying product is just not enticing enough abroad for customers to consider the loyalty program worth it.

In the Americas, the appeal lies in simplicity and convenience. Customers are drawn to Amazon not only because they can effortlessly locate the products they need, but also because they can receive them within a day, or sometimes even in a few hours^[36]. Aware of this trend, Rakuten has taken significant steps to enhance its platform and logistics systems. Before its closure in 2020, Rakuten Shopping (formerly known as Buy.com) presented a more simplistic and streamlined interface compared to its Japanese counterpart, yet it fell short of Amazon’s advanced personalized search and recommendation model^[28]. In a similar vein, in 2019, Rakuten established two new fulfillment centers in Narashino and Yamato^[37]. However, investors remain wary of Rakuten’s capital expenditures abroad, favoring instead the opportunities within Japan^[38]. Thus, it appears highly unlikely that Rakuten would be able to commit the tens of billions required to come anywhere close to Amazon’s scale, which boasts over 200 fulfillment centers^[39].

However, this does not mean there are no effective alternative strategies available. One promising option could be to forge a partnership with a service like Instacart, which collaborates with retailers to deliver goods directly to customers’ doors within hours^[40]. Target executed a similar maneuver by acquiring Shipt in 2017, resulting in a substantial boost to its e-commerce operations with online sales skyrocketing by over 188% between 2019 and 2021^[41][42]. If Rakuten were to partner with Instacart, it could quickly and possibly more economically add a vital convenience factor, bypassing the enormous expense and effort of establishing numerous fulfillment centers on its own.

From an economic perspective, forming a partnership through a minority stake investment seems the most plausible, especially considering that Instacart’s valuation is now nearly on par with Rakuten’s^[43][44]. It is also worth noting that Rakuten could leverage its 11.9% stake in Lyft to expand its driver network significantly^[45]. Currently, Lyft boasts around 2 million drivers, compared to Instacart’s 600,000^[46][47]. By integrating Instacart’s established retailer relationships with its own and Lyft’s extensive driver networks — which span multiple countries — Rakuten could build fulfillment network that is capable of competing with Amazon on a meaningful scale.

Regarding pricing, Instacart’s offerings seem to fall short. Currently, the platform charges a $3.99 delivery fee for orders over $35, along with a service fee starting at 5% of the subtotal^[48]. Members of Instacart+, the platform’s premium subscription priced at $10 per month, enjoy free delivery on orders exceeding $35 but still have to pay a service fee. However, Rakuten has the opportunity to leverage both its loyalty program and existing cash-back offers to counter these costs. While Rakuten’s loyalty program is not as expansive outside Japan as it is domestically, it still possesses significant potential to draw in users. A promising strategy would be to capitalize on Rakuten Rewards (formerly known as Ebates). This platform operates on an affiliate model, allowing customers to accumulate Rakuten Reward points by shopping with designated partner merchants^[49]. Often, this leads to overall costs that are lower than Amazon’s when the rewards are considered.

Currently, the Rakuten Rewards site redirects users to merchant websites to shop, rewarding them with points, while Rakuten earns an affiliate commission^[50]. As such, this system does not involve Rakuten in the logistics of order fulfillment at all. If Rakuten were to integrate this rewards mechanism with Instacart’s logistical capabilities, it could shift its role from a mere affiliate to a comprehensive, full-service shopping platform. This merger could not only enhance the user experience by simplifying the purchase process but also increase savings and convenience.

However, one critical aspect to consider is the role of independent sellers. Restricting Rakuten’s focus solely to large retailers could significantly limit its potential, especially since independent sellers generate more than 60% of Amazon’s sales^[51]. Furthermore, if Rakuten aims to reclaim its position in Japan, it must cater to small and medium-sized businesses, since they account for 99.7% of all businesses and employ about 70% of the Japanese workforce^[52]. While Rakuten claims to empower its sellers by offering them freedom, it still falls short of being truly accommodating to smaller vendors due to the steep upfront and logistical costs previously mentioned.

Conveniently, Instacart has existing programs that seamlessly integrate with small businesses. Just as Instacart “Shoppers” go to major brick-and-mortar and grocery stores, they also visit small, independent mom-and-pop shops to fulfill orders^[53]. This arrangement enables any retailer with a storefront to venture into online sales without the need for fulfillment centers or expensive third-party fulfillment agencies. Although this approach does not address the needs of independent sellers lacking a physical location, it significantly broadens the scope of service to include a far more inclusive network than Rakuten previously adopted overseas. Moreover, in Japan, where a considerable portion of small businesses operate from physical locations — far more so than in the United States — the impact of such a service could be significant^[54]. While Instacart does not have drivers in Japan, Rakuten already has a partnership with Uber Eats to offer a comparable service in Japan^[55]. Additionally, collaborating with other Japanese delivery firms like Demaecan could further enhance their delivery capabilities^[56].

Overall, Rakuten can revitalize its market strategy by emphasizing cost-effectiveness, particularly through its Rewards program, which helps lower expenses for users. By also integrating delivery services like Instacart into its ecosystem, Rakuten can significantly reduce delivery times, enhancing convenience for its customers. This dual approach could enhance its now-diminished e-commerce presence overseas and enable it to regain some of the market share in Japan that it lost to Amazon. Moreover, this strategy aligns with Japanese values and adds to the benefits that local customers appreciate. Rather than deviating from the core principles that have underpinned its success, it simply addresses the growing concerns among these consumers that have been shown through Amazon’s increasing dominance. This strategic shift does not compromise the Japanese principles Rakuten upholds; rather, it enhances the attributes that have secured the loyalty of its Japanese customer base.