Navigating the Japanese E-Commerce Landscape: Trends, Tips, and Tangiblee’s Impact
Japan has the third-largest e-commerce market in the world, and with good reason. The island nation is among the most literate and technologically advanced countries in the world, with a long-standing reputation for innovation. Unsurprisingly, this has created a dynamic, rapidly evolving ecosystem — albeit one that's still relatively self-contained.
This blog will embark on a deep dive into Japan's fascinating digital retail market, exploring the numbers and trends alongside the growing importance of immersive shopping. We'll also highlight our own presence in the country, shedding light on our solution's adaptability by way of our collaboration with prominent Japanese retailer BONAVENTURA.
The Current State of E-Commerce in Japan
Japanese B2B e-commerce is dominated by the wholesale and manufacturing industries. The former accounted for nearly a quarter of all B2B transactions in 2022, totaling ¥100.61 trillion. Japan's various manufacturing sectors accounted for roughly half of transactions, at over ¥200 trillion. The next largest industry was construction and real estate, totaling ¥20.86 trillion.
Currently, one in three business transactions in Japan are carried out online.
B2B still represents the largest e-commerce segment in Japan by far. That said, B2C e-commerce has experienced steady growth over the past decade, more than doubling in size to ¥22.7 trillion in 2022. Leisure goods, electronics and household items represent the bulk of Japan's digital B2C sales, while food products and grocery items have largely remained brick-and-mortar — though this may soon change.
Traditionally, the majority of Japan's online sales have been domestic, occurring primarily through established marketplaces. The largest of these marketplaces are Amazon Japan, Rakuten Ichiba and Yahoo! Shopping. Other marketplaces include Wowma, PayPay Mall, Qoo10 Japan, Alibaba and Coupang are also present.
In addition to the landscape described above, Japan is also experiencing some growth in Consumer-to-Consumer (C2C) sales.
B2C E-Commerce Growth in Japan
Although a significant portion of SMEs have shifted towards multi-channel commerce and web-based order processing, Japan's B2C e-commerce penetration rate is still the lowest in the Asia Pacific (APAC) region. This is highly unusual given that Japan is an incredibly advantageous market for digital retail. The country offers virtually everything an e-commerce business could want:
- Highly developed infrastructure.
- A large, primarily urban population.
- One of the best-performing postal services in the world.
- Almost nationwide Internet access.
- Relatively small geographical size.
In spite of these advantages, several factors have historically impeded B2C.
Japanese shoppers tend to value trusted domestic bands over less recognizable international companies. Compared to North Americans, Japanese consumers also tend to be more risk-averse when shopping online. The inability to physically inspect items prior to purchase is more than a pain point for shoppers — it's a deal breaker.
While other economies gradually phased out physical currency in favor of digital transactions, Japan remained almost exclusively cash-based until 2021. Even now, Japan's cashless payment ratio is still only 36 percent, and the country struggles with an imperfect credit system. Compare that to China, where cash is only used for 8 percent of point-of-sale transactions.
The slow adoption of new payment methods is only exacerbated by Japan's aging population. Older shoppers still prefer to use cash, and even those who don't are often less inclined to embrace new technology like smartphones.
Japan's geographic isolation is another mitigating factor, as it's more challenging to ship goods to the country than to many other nations.
Japan's E-Commerce Landscape By The Numbers
- In 2022, nearly 53 percent of Japanese households with two or more people purchased goods or services online.
- E-commerce user penetration should reach 78.5 percent by the end of 2023 and 92.8 percent by 2027.
- B2C e-commerce revenue is expected to experience a 9.75 percent compound annual growth rate between 2023 and 2027, reaching US$225 billion.
- China represents the majority of revenue generated by the Japanese e-commerce market, with a projected volume of US$1,319 billion in 2023
- Average revenue per user is expected to reach US$1,600 by end of year.
- Japan's mobile penetration rate is currently over 136 percent.
- Japanese households that shop online spend an average of $303 per month. However, online shopping still accounts for only 7.2 percent of total household spending.
- The most popular B2C categories in 2022 were as follows:
- Food ($36 per month)
- Travel ($23 per month)
- Accessories and apparel ($17 per month)
- Spending on entertainment by households with a head of household aged 34 or younger spent 168 percent more on digital entertainment in 2022.
- Japan's domestic B2B e-commerce market exceeded ¥400 trillion, (~US$2.7 trillion) while its B2C e-commerce market reached ¥22.7 trillion (~US$151 billion).
- Gross Merchandise Value (GMV) in Japan's B2C e-commerce market will grow from US$221.7 billion in 2022 to US$319 billion in 2027.
The Most Significant E-Commerce Trends in Japan
While several of the trends driving and shaping the growth of Japan's e-commerce sector are unique to that country, it's also influenced by many of the same factors affecting other regions.
The Transition to Cashless Transactions
In 2015, the Japanese government committed to increase its country's cashless payment ratio to 40 percent by 2025. Japan is currently on track to achieve this goal, reaching a ratio of 36 percent this year. Unsurprisingly, however, this initiative is only the beginning.
The government's end goal is to transition to a fully cashless future while simultaneously promoting more widespread API use amongst credit card companies.
Credit cards aren't the only way to enable cashless e-commerce, however. ID payment services such as PayPal and Rakuten Pay have increasingly emerged as compelling options for sellers and retailers alike. By linking a person's payments to a persistent digital ID, businesses enable greater personalization, convenience and security.
A Surge in Mobile E-Commerce
As is the case with other markets, smartphones have emerged as the primary e-commerce platform in Japan, accounting for roughly 61 percent of e-commerce sales. What makes Japan's mobile e-commerce sector unique is its incredibly rapid pace of advancement and innovation. Because the country lagged in its adoption of B2C e-commerce, retailers and merchants have consequently accelerated their adoption of mobile commerce and mobile payments.
This adoption will only continue to accelerate as Japan's population continues to age out and more spending and decision power is passed to younger generations.
Over the past several years, people around the world have grown increasingly cognizant of how their shopping habits impact the environment. Japan is no exception to this rule. Consumers are increasingly choosing to shop with socially responsible retailers and purchase eco-friendly products, while merchants are reducing packaging and exploring the use of biodegradable materials.
Many Japanese consumers still prefer in-store experiences to online shopping. That does not, however, mean they're entirely opposed to shopping online. Nor does it mean they'll shy away from a retail experience that seamlessly blends the physical and digital.
On the contrary — more and more shoppers in Japan are openly embracing omnichannel and hybrid retail experiences.
Per McKinsey, this is exemplified by Japan's luxury goods market. Although shoppers still believe the in-store experience is crucial, they're increasingly reliant on digital channels for brand interactions and information. As of 2022, 41 percent of luxury consumers research and purchase across channels, while over 30 percent use e-commerce platforms to compare products, prices and reviews.
Japan's Augmented Reality (AR) and Virtual Reality (VR) markets have recently seen explosive growth, and they show no signs of slowing down. According to a recent press release from Markets and Markets, the Japanese AR/VR space is expected to grow at a CAGR of 30.6 percent through 2027. Although much of this growth is fueled by the gaming and entertainment industries, it also represents a golden opportunity for retailers.
Increased market growth and awareness, coupled with the Japanese government's plan to expand the use of new digital technologies, have the potential to greatly benefit e-commerce. Consider also that the APAC region has long been ahead of the curve where AR and VR are concerned. VR/AR market penetration in APAC is more widespread, and consumer attitudes towards the technologies are considerably more favorable.
Increased Foreign Presence
Japan's e-commerce market is arguably now in its prime. The region is well on its way toward embracing cashless commerce as consumer attitudes around online shopping grow increasingly favorable. Major e-commerce brands like Amazon have long maintained a presence in Japan, but the door is now open for other retailers to break into the market, as well.
For instance, last year saw a significant increase in cross-border purchases of apparel and consumer goods, an ongoing trend that originated with increased imports of small lot cargoes during the pandemic. Some have expressed concern that if this trend continues, it could threaten the country's retail sector. International goods purchased online are exempt from the country's tariffs and tax, giving them a price advantage compared to local items.
The Rise of Social Commerce
With a projected CAGR of 9.8 percent, Japan's social commerce market is expected to reach US$26.73 billion by 2028. Japanese consumers both recognize and enjoy the convenience of shopping via social platforms. Sales and promotion codes are also attracting an increasing number of price-conscious shoppers.
How Immersive Experiences Redefine Online Shopping
We've long maintained that immersive shopping experiences are invaluable to retailers — and as mentioned above, they're gaining traction in Japan for many of the same reasons as other markets.
Immersive commerce tools allow a shopper to engage with products similarly to how they would in a physical brick-and-mortar outlet. This not only increases shopper engagement but also improves buyer confidence and reduces the risk of returns. In the context of the Japanese e-commerce market, AR also bridges the gap between physical and virtual, allowing retailers to provide an omnichannel experience that meshes with the average Japanese shopper's preferences.
Immersive shopping also enables a more consistent customer experience, providing a company with data-driven insights to tailor their offerings and marketing strategies. This, in turn, leads to increased personalization and allows a retailer to build much-needed trust with their audience.
As an added benefit, Japanese shoppers are likely to be familiar with AR and view it in a favorable light, meaning they're also likely to adopt it.
As early as 2009, Japanese retailers were using augmented reality to improve the in-store experience for shoppers, providing everything from interactive signage to QR codes. Furutanisangyou Co. Ltd. created one of the most compelling technologies at the time. The retailer created a 'magic mirror' that combined cameras and non-real-time imagery to let shoppers 'virtually' try on outfits.
Given the country's long history with AR, it should come as little surprise that 66 percent of Japanese consumers expect offline stores to offer AR. That expectation provides retailers with an ideal springboard for introducing immersive digital experiences to their customers. Many have already done so.
And that's where Tangiblee comes in.
Tangiblee's Presence in Japan
Tangiblee has long been a key player in the immersive shopping landscape. At least in part, that's because we've always made a point of providing a solution that's easy to adapt and aligns with specific customer preferences and product offerings. We're also willing to work directly with brands to ensure our solutions match the language and cultural preferences of their region — which is precisely what we did for leading luxury retailer BONAVENTURA.
A renowned global luxury goods retailer, BONAVENTURA approached us after opening several flagship stores in Japan. The company knew that in order to succeed in Japan's hyper-competitive luxury goods market, it needed to adapt to the habits and preferences of its audience. That meant not only providing a superior in-store experience but also updating its online store with immersive AR.
We helped BONAVENTURA do exactly that with our product sizing solution. What's more, our hands-on approach ensured onboarding and deployment were both seamless and painless. The end result was that BONAVENTURA's customers now had the information they needed to make more informed purchases — and BONAVENTURA was able to provide them with the kind of hands-on experience they deserved.
The Japanese e-commerce market is a study in contrasts — innovative and ever-changing, yet slow to adopt unfamiliar technology. Immersive shopping experiences and augmented reality are far from unfamiliar, however. As consumers demand more interactive and personalized online shopping journeys, solutions like Tangiblee are poised to play a crucial role.
By adapting to the Japanese market's unique needs and collaborating with retailers like BONAVENTURA, we are shaping the future of online shopping in Japan, ensuring a seamless, immersive and satisfying experience for our customers.