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The Background  

In Japan, there is a renowned chain of stores with an iconic penguin-mascot that is a must-see for tourists, serving almost 300 million customers a year. The famous merchandise stores started with humble beginnings offering a collection of discarded goods and samples from companies on the verge of bankruptcy in 1978.

With insufficient resources to hire workers, founder Takao Yasuda spent long nights restocking shelves and took note of the high number of late night shoppers who mistakenly came into his shop thinking it was still open.

Yasuda opened the first 24-hour store Don Quijote (also known as Donki) in 1989. Don Quijote, pronounced ‘dawn kee-ho-tay’, operates with the rare concept of a compressed display in which items are displayed in clusters, causing aisles to feel like mazes.

Browsers can find anything under the sun, from toilet paper, snacks, sex toys to luxury cosmetic brands and pre-loved Rolex watches.

The point of the display is hard to find, hard to take and hard to buy,” — Takao Yasuda, founder of Don Quijote Co.

Mr. Takao Yasuda, standing in front of handwritten cardboard signs and stacked displays in one of his Don Quijote stores. Source: Reuters

Strange to think that any shop owner would want their items to be hard to find but Yasuda’s compressed display is actually a brilliant strategy that led the business to grow to 350 stores in Japan and the US, with annual consolidated sales topping $7.4 billion in Japan.

Shoppers seemed to have taken to the treasure-hunt mentality making the stores a popular destination for tourists visiting Japan.

Japanese retail is built on the concept of saving time. We want our customers to spend more time at our stores,” — says Yasuda

By adopting a unique retail strategy to become a consumer magnet, what could possibly go wrong with Japan’s largest discount store?

The Challenge

Japan has always been among the world’s most loved destinations for travel and culinary experiences but in 2014, the country fell to 22nd as the most-visited destinations. Due to language barriers, foreign tourists contributed to only 3.5% of revenues, generated in major cities like Tokyo and Osaka.


Being a business that relies heavily on revenue generated by tourists who spend on average more than 40,000 yen ($365) each visit, compared with local shoppers’ 2,400 yen, Don Quijote recognized the need to spur the country’s dwindling tourism or be less dependent on it.

But around this time, the Japanese government increased consumption tax from 5% to 8%, sending Japan’s economy into freefall at an annual pace of 6.8% from April to June in 2014.

Despite the decrease of household spending at a worse-than-expected rate of 4.7%, Don Quijote’s sales rose 2.3%.  

But Yasuda knew it wasn’t enough, the company needed to find another stable revenue stream.

The Strategy

The important thing is to create a framework that attracts visitors to Japan, and that requires cooperation that goes beyond one company or industry,” — Yasuda told Reuters

Don Quijote’s strategy to pack its stores with more shoppers was incentives for more spending. The company signed deals with countless hotels and travel agencies to distribute membership cards that offered 3% cash back at Don Quijote.

The largest discount store in Japan was also reportedly behind the Japanese government’s decision to exempt tax for visitors. Starting Oct 1, all Don Quijote stores allow non-residents to shop tax-free nationwide and even pack the goods to follow airline guidelines.  

With emerging technologies and advancements in digital marketing and logistics, it seemed there was no better time to launch ecommerce.

Don Qujote’s online shopping website.

Don Quijote’s online shopping website positioned itself as the number one source for authentic, popular products from Japan straight to your home.

“When it comes to capturing inbound visitors, Don Quijote is unrivaled,” said Ryota Himeno, retail analyst at Barclays.

Although no official sales records from Don Quijote’s ecommerce site were found, an analysis at Barrons predicted that Don Quijote’s “store is immune [to the arrival of Amazon] because its price points are below the minimum break-even points for most ecommerce sites.” 

But its success, whether from online or offline stores, boils down to Don Quijote’s strong marketing tactics. Not only did the company specifically chose prime tourist locations across Japan to open its stores, the discount chain has adopted its own mascot.

The blue penguin donning a red cap is paired with its very own theme song called “Miracle Shopping” that plays on repeat in stores, bringing the Don Quijote stores to life.

Don Quijote has become woven into people’s lifestyles. For them, spending time at one of our stores has become part of their lives.”

The Japanese brand’s ability to attract flocks of young people and tourists to its stores has gained the attention of other notable retailers such as FamilyMart Uny that will transfer a 40 percent equity sake in wholly owned subsidiary Uny Co., a general merchandiser from Inazawa, Aichi Prefecture, to Don Quijote.

The Future

In addition to turning some of FamilyMart Uny’s stores into Don Quijotes, the pair are in talks about developing a service similar to Alibaba’s Alipay, which currently over 4,000 Japanese vendors are accepting, including both Don Quijote and FamilyMart.

Earlier this year, the company announced its goal to reach operating profits of $537 million by 2020 – 20% higher than the current target.

In order to achieve this, the company also opened its first store in Southeast Asia in Singapore, a country-state Yasuda actually relocated to for retirement. Why did he choose Singapore as HQ for the region?

Singapore is a very important market for us. It is also a good base for us as people speak English here and it makes it easier for us to expand globally.”

Singaporeans queueing outside Don Quijote (debuted as ‘Don Don Donki’ in Singapore) before it was officially opened on December 1. Source: Straits Times

The 1,397 sqm double-storey building is also offering in partnership with Hokkaido Marche, a themed retail and dining experience. There are also plans to launch at least 10 more stores by 2022.

This is exactly what Yasuda wants – having customers staying in the stores longer.

Yasuda looks to capture the hearts of Thais next, where about 901,400 of Thais visit Japan every year, ranked as the 6th highest foreign visitors to Japan. In fact, Thais were among the top overseas customers of ‘Donki’, after the Koreans, Chinese and Taiwanese.

If Yasuda gets his way, there will be a piece of Japan everywhere in the world.

 

Here’s what you should know before starting the week.

1. Japan eyes cooperation with ASEAN to improve ecommerce

In an effort to spur progress in negotiations for the Free Trade Agreement in wider Asia region, Japan is eyeing cooperation with the Associations of Southeast Asia Nations (ASEAN) by proposing a plan to improve ecommerce and customs procedures.

The plan will primarily focus on supporting the bloc’s small and midsize businesses, which are seen as holding the key to ASEAN’s economic growth. Many of the businesses are selling their products online without having their own logistics networks. 

Japan offered to introduce delivery methods pioneered by Japanese companies and have personnel share their know-how on improving efficiency. This delivery system is hoped to be more efficient and allow the businesses to cut costs.

Read the rest of the story here.

2. Indonesia’s conglomerate, Salim Group, joins B2B ecommerce space

Salim Group has recently established its B2B ecommerce platform, IDMarco, reported DealStreetAsia. The platform is currently still on the trial basis and focussing on small and traditional stores, hotels, restaurants, cafes, and individuals looking to buy in bulk. 

The other companies under Salim Group are said to be involved in supporting the platform, especially in FMCG and automotive parts. 

Salim Group is not the only big player showing interest in the growing niche. Prior existing players in B2B space like Bizzy and Mbiz each has the backup of conglomerates like Sinar Mas and Lippo Group respectively.

“Indonesia is still a promising market for B2B ecommerce, some competitors are also targeting different market segment. So the pie is still big but less competitive”.

Read the rest of the story here.

3. Ecommerce platform for virtual goods, Itemku, raises funding from 500 Startups

Jakarta-based Five Jack, the parent company behind Itemku, announces today that it has raised $1.2 million of funding from 500 Startups and undisclosed South Korean venture capitals, as reported by e27.

Itemku is a platform that allows gamers to make money from their in-app purchases with a secure financial system. The company is planning to use the funding to expand its operation in Southeast Asia within the second half of 2017.

Previously, it has raised investment from BonAngels in 2014 and 500 Startups in 2015. The total accumulated investment to date is $1.7 million. Itemku has recorded average growth of 30% per month according to CEO Denis Kim.

There is a big price gap of virtual game goods between emerging and developed countries, so we can take advantage of arbitrage opportunities. itemku can connect sellers in emerging countries to buyers in developed countries,” said CEO Denis Kim.

Five Jack, founded in South Korea and Indonesia in 2013, started out as a price comparison and classifieds ads website before pivoting to sell game items and currency in 2015.

Read the rest of the story here.

UNIQLO, Japan’s global fashion label, will open an online store for the Thai market next Friday, in a move that will complement its physical stores by offering unlimited items, nationwide coverage and around-the-clock access to consumers.

Chanvit Khieonavavongsa, marketing and public relations director and head of ecommerce at UNIQLO Thailand, said the ecommerce channel is a means of answering the demand for broader coverage, since the firm has consistently received queries from consumers who do not live in those areas where it has branches

Entering the Thai market nearly five years ago, UNIQLO currently has 32 physical branches in nine provinces, covering around one-third of the population.

Chanvit said the online channel would not, however, decelerate UNIQLO’s expansion of its physical outlets in the Kingdom.

The Thai online store is the Japanese fashion label’s 12th worldwide, following similar stores launched in Singapore in 2014 and in Malaysia last year.

UNIQLO has assigned Singapore Post to handle logistics and delivery for orders placed via the Thai online store, with guaranteed nationwide delivery of between one and three days. The company charges no delivery fee, while the packaging charge is waived for orders of above 1,500 THB.

Thailand’s Internet penetration rate is expected to reach 56% this year, or 36 million people, growing over 20% from last year, while about 42% of Internet users have experienced buying online.

The estimated value of the Thai ecommerce market last year was 1.2 trillion THB, up 3.65% from the 2014 level. Beauty and fashion together accounted for 42.6% of all online transactions. Chanvit said UNIQLO sales in Thailand so far this year were still in line with its target.

A version of this appeared in The Nation on July 23. Read the full version here.

Line announces price listing amid a poor IPO market

Source: techinasia.com

LINE, popular Japanese messaging app, is slated to come public in New York under the symbol “LN” on July 14 and in Tokyo the following day. Just over 40 IPOs have been priced in the US this year, down over 50% from last year making 2016 the slowest quarter for IPOs in the last 7 years, with most of the volatility caused by uncertainties regarding the Chinese economy, according to Yahoo Finance.

Line plans to offer 35 million shares at a price range of $26.50 to $31.50 per share. This would value the company at approximately $6.5 billion.

At most, the company could raise $1.3 billion, making it the biggest tech listing of this year so far. Initially, Line was planning to delay its price announcement due to the Brexit craze, but decided to price the company as planned. This could be the biggest tech IPO since 2014.

Line announces price listing amid a poor IPO market

Further worries regarding Brexit followed this month and after a quiet first quarter, the IPO market is going through a phase of normalization. Pricings in the market were held back by a public-private valuation disconnect in the tech sector, and poor trading of 2015 IPOs. The Brexit cloud and its effect on interest rates also contributed to the first quarter slump in the market.

In 2014, Line highlighted its potential valuation at $10 billion, much higher than its current $6.5 billion. The company has seen a deceleration in sales growth, which was up 40% to $1.1 billion in 2015, as it has focused on profitability (operating income swung positive in the 1Q16).

“Instead of trying to expand dramatically, they’ve focused on existing markets and reduced marketing spend, becoming profitable at the expense of growing users,” said Kathy Smith, Manager at Renaissance Capital.

Line currently has around 218 million monthly active users, and is the dominant messaging application in Thailand, Taiwan, Japan and Indonesia. Globally, it faces competition from China’s WeChat, which has 760 million monthly active users, and Facebook’s Whatsapp and messenger, which have a total of 2 billion active monthly users combined.

Line’s performance in July may be indicative of the remainder of 2016 IPOs.

A version of this article was published in Yahoo Finance on July 6. Read the full version here.

DHL Express Japan expaanding its warehouse

Source: telegraph.uk

DHL Express unveiled a new $74 million, 215,278 square foot warehouse at Shin-Kiba in Tokyo, more than double its space in the city, to fill in the gap in the modern warehousing in Japan following the fast-growth of ecommerce industry in the country.

This is also to anticipate the increasing demand for international shipping, particularly from China and Southeast Asia.

There was also a pressing need to support [Japan] domestic companies focusing on international markets.

“Business expansion in overseas markets, especially in emerging countries, has now become the critical part of growth strategies for many Japanese companies,” Taketo Yamakawa, president and representative director of DHL Japan added.

This rising demand has led to strong sustained volume growth in DHL Express Japan over the last few years — the previous Tokyo Distribution Center facility had already reached full capacity. With the relocation, the DHL Express Tokyo distribution center will be converted into the DHL Express Tokyo central service center. This service center will subsequently become DHL’s largest in Japan.

Japan’s Footprint in Southeast Asia Ecommerce

Both Southeast Asia and Japan are experiencing fast-growth in their respective commerce industries, both favoring the marketplace model, but the similarities end there. The track record of Japanese companies in Southeast Asia is not a sterling one.

While Japanese electronic commerce and Internet company based ecommerce marketplace Rakuten successfully dominated its home market, the same could not be said to its presence in Southeast Asia as the company shut down its operation in three countries earlier this year. Sumitomo Corp, a Japanese trading company, also started the year by selling its ecommerce site soukai.my to Malaysian company Hermo.

A version of this appeared in Journal of Commerce on June 29. Read the full article here.

Line aims to raise $1.3 billion

The launch of Line’s pop-up store, with its popular bear and rabbit characters in New York City is an effort to give exposure in the West. Source: PR Newswire

Thailand’s  most popular chat app Line is aiming to raise $1.3 billion in a dual Tokyo-New York IPO listing in July, meaning that the company is sticking to its pre Brexit target, the Financial Times reports. It has set a price range between 2,700 and about $26.50-$31.50 per share.

It announced earlier this week that it plans to sell 35 million shares, putting Line on track for the largest IPO in the global technology sector of this year.

The global equity sell-off and price volatility following the UK’s exit from The European Union have cast a dark cloud over Line’s IPO plan, especially at a time when investors were already doubting the company’s growth prospects. Despite investors’ uncertainty, the company is still confident that it should be able to raise $1.3 billion.

This news comes after a two year delay in Line’s initial listings schedule. Fund managers have commented that investor interest in technology startups have lessened and wavered with intensified risk as a consequence of the Brexit vote. Although LINE does not have presence in Europe, this follows the global reaction trend of the fallout.

The risk tolerance of investors has declined in the post-Brexit market volatility. It is also hard to put a premium on Line’s growth potential. – Ikuo Mitsui, Fund Manager at Aizawa Securities

The social messaging app’s  dominance in Japan and Thailand is seemingly not enough to convince global investors of the company’s growth potential. With many competitors in the market, this makes it harder to evaluate potential growth rate. Two-thirds of Line’s 218 million users come from Japan, Taiwan, Thailand and Indonesia, but it is not a major player in Indonesia. Line’s struggle to penetrate the US and European markets has often been brought up by industry analysts and investors.

Line’s effort to establish a name outside Asia and take on rivals, such as Facebook, is reflected in the company’s goal to sell 63% of shares in New York. The company should not be too complacent with its place in Asia, as Facebook is making a push in the region, emphasized by the announcement that it was testing social commerce platforms in Thailand, an area which is also being facilitated through Line.

Excerpts from the Financial Times on June 27. Read the full article here.

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