How to Start an Online Business in japan

Before diving into this article, let me share a true customer story: Ms. Zhang is a business owner who has been running a women's clothing export business for years, manufacturing private label products for Japanese clothing companies. As her business flourished, she decided to leverage e-commerce to sell directly to Japanese consumers. She approached a web development company in Yokohama, which quoted her 500,000 yen to build an e-commerce site using WordPress. While Ms. Zhang hesitated, a friend introduced her to me and provided some sound advice. I first advised against building an independent website because her current business focused on OEM production with no unique selling points. Instead, she needed to establish sales channels to test the waters and become familiar with the e-commerce model without investing too much initially. For small and medium-sized start-ups with limited funds and technical capabilities, opening stores on established managed e-commerce platforms like Amazon, Rakuten, and Yahoo Shopping is a better choice. These platforms have massive traffic, can quickly expand sales, require only moderate entry and operation fees, and do not require developing their own website or acquiring traffic from scratch. Even if Ms. Zhang launched her own women's clothing brand in the future, she should consider using SaaS e-commerce platforms like Shopify instead of building her own website. SaaS platforms have controllable costs, comprehensive functions, and low operational thresholds, making them more suitable for start-ups. This case illustrates the importance of choosing the right e-commerce model and platform for businesses. We should fully evaluate our resources and choose a model that lowers the barriers to entry while controlling risks.

With this case in mind, let's delve into how to start e-commerce in Japan.

Overview of Japan's E-commerce Industry

The Current State and Trends of Japan's E-commerce Market

Japan's e-commerce market is characterized by its diversity and maturity compared to other countries. The overall penetration rate is about 15%-20%, but it varies significantly across different product categories. Fashion apparel and electronic products have the highest e-commerce penetration rates, around 30%-40% and 25%-35% respectively. Japanese consumers are accustomed to buying clothing, accessories, smartphones, and computers online. On the other hand, food and home goods have relatively low e-commerce penetration rates, about 5%-10% and 10%-15% respectively. However, online sales of fresh food delivery and home decor products have been growing rapidly in recent years. 

The e-commerce penetration rate for beauty and personal care products is about 20%-25%, reflecting the increasing preference of Japanese consumers for purchasing these products online. Currently, the market shares of major e-commerce platforms in Japan are approximately: Rakuten 25%-30%, Amazon Japan 20%-25%, and Yahoo Shopping 15%-20%. 

Besides these comprehensive platforms, there are also dominant vertical platforms, such as Mercari, which holds 30%-40% of the second-hand goods market, and fashion platform ZOZOTOWN, which has over 50% market share. 

The pandemic has accelerated the development of Japan's e-commerce industry, with more traditional retailers attempting to move online. Meanwhile, the Japanese government has also introduced policies to support small and medium-sized enterprises in establishing e-commerce platforms. In the post-pandemic era, Japan's e-commerce market is expected to continue to grow rapidly, presenting opportunities for companies looking to enter this market.

How to Choose the Right E-commerce Platform

Managed E-commerce Platforms

Managed platforms like Amazon Japan, Rakuten, and Yahoo Shopping offer comprehensive e-commerce ecosystems. These platforms are suitable for selling electronic products, fashion apparel, and well-known branded goods. 

Their main costs include:

• Platform usage fees: Such as Amazon's professional selling plan fees and Rakuten's registration fees.
• Advertising and promotion fees: Costs for platform ads and promotional activities.
• Store rental fees and sales commissions: A percentage of sales paid to the platform.
• Logistics and storage fees: Costs related to product storage, delivery, and other related expenses.

The advantage of these established platforms is their large user base and robust sales systems, which can help merchants expand their business quickly. However, they also require relatively high platform usage, marketing, and logistics fees.

SaaS E-commerce Platforms

Using SaaS platforms like Shopify to build an independent e-commerce website is suitable for selling unique and niche products. Merchants can control website design, shopping experience, and marketing activities. 

The main cost structure includes:

• Platform subscription fees: Monthly fees paid to the platform based on the chosen plan.
• Advertising and marketing costs: Expenses for SEO, social media ads, email marketing, etc.
• Transaction and payment fees: Platform transaction fees and payment gateway usage fees.
• Theme and plugin fees: Costs for themes, plugins, and other tools to enhance website functionality and interface.

Compared to managed platforms, the use of independent websites typically costs less but requires merchants to handle all aspects of website operations and marketing, facing the challenge of acquiring traffic.

Self-built Online Stores

Another option is to build an independent store using platforms like NopCommerce or WooCommerce on your own server. This can meet the needs of selling unique products or services without being restricted by platform policies. 

The main costs for self-built stores include:

• Custom development fees: Costs for website setup, function development, and other software customization services.
• Advertising and marketing costs: Expenses for SEO, social media ads, email marketing, etc.
• Server and broadband fees: Costs for server rental, maintenance, and bandwidth.
• Payment gateway and transaction fees: Mainly transaction fees for online payment channels.

The biggest difference from SaaS platforms is that self-built stores require the business to handle all website development and server deployment maintenance, requiring more investment in technology and capital. It offers the highest flexibility but is also the most challenging to operate.

Besides the initial investment costs, all three models require ongoing operational expenses, such as new product launches, customer service, marketing and packaging, and logistics.

Selecting Products for Managed E-commerce Stores

Product selection is crucial for the success of any e-commerce model. Poor product choices can lead to unsold inventory and financial losses. In Japan, the principles for product selection include:

Selling Hot Products

Following market trends and choosing popular products to "resell" can minimize sales risks. Using tools like Google Trends and platform best-seller rankings can help identify popular product categories and star products to meet the current consumer demand.

For instance, suppose Google Trends shows a surge in searches for yoga mats. You can use tools like JungleScout to analyze top-selling yoga mat brands and styles on Amazon and then source similar products from suitable suppliers to follow market trends.

Ensuring Product Quality

Whether reselling or selling own products, it is crucial to ensure product quality through careful checks. One effective method is to study user reviews, focusing on hot-selling products that receive some negative feedback but still have good overall sales or new products that quickly rank high after being listed.

User reviews often reflect the actual experience with the product, helping identify and eliminate products with quality issues. A boutique store should prioritize product quality to truly win consumer favor, boost store traffic, and drive sales, creating a virtuous cycle.

Influencing Customers with Taste

Product selection can also be approached from cultural and taste perspectives. Japan is known as a fashion origin, and local brands and designs have significant influence worldwide. By crafting a well-thought-out brand strategy and marketing packaging, you can infuse unique taste into product selection and store operations.

For example, a carefully curated selection of high-quality Japanese tea sets can appeal to both local consumers and international customers seeking authentic Japanese cultural products.

Leveraging Low-Cost Platforms

Low-cost platforms like Temu and SHEIN have gained traction in Japan, attracting price-sensitive consumers. However, they also face regulatory challenges from the Japanese government.

On the one hand, this indicates a demand for low-cost products in Japan, coupled with an active second-hand goods market. Therefore, entering the Japanese e-commerce market via low-cost platforms might be a convenient route. On the other hand, the uncertainty of these platforms also poses higher operational risks.

You could combine the advantages of Japanese domestic strengths with low-cost platform advantages, selling mid to low-end products on low-cost platforms while actively developing branded independent sites targeting mid to high-end markets to mitigate risks through differentiated operations.

Advanced Strategies for Experienced E-commerce Operators

Partnering with Local Brands

Japanese consumers have a unique brand identity and loyalty towards domestic brands. For foreign e-commerce companies, collaborating with local Japanese brands is an excellent entry point, leveraging brand influence to attract traffic and consumers.

For example, consider partnering with Japanese fashion brands or lifestyle brands to set up flagship stores on their online marketplaces or independent brand websites, helping these brands expand their online sales channels. By smartly packaging and marketing, you can integrate Japanese features and cultural elements with the products, offering a shopping experience with a distinctive Japanese flair.

Alternatively, consider acquiring or collaborating with local Japanese retailers to directly leverage their existing brand recognition and sales channels, assisting them in completing their online transformation and avoiding the costs and challenges of starting from scratch.

Local Services and Cross-Border Supply Chain Integration

In addition to partnering with local brands, another significant opportunity lies in utilizing local Japanese service providers and integrating cross-border supply chains.

On the one hand, you can collaborate with local Japanese service providers, such as e-commerce platform service providers, marketing agencies, and logistics companies, to offer localized e-commerce support services. This helps better meet the needs of Japanese consumers and reduce operational costs.

On the other hand, for cross-border e-commerce businesses selling Japanese products overseas, integrating a global supply chain system is essential. By establishing strategic partnerships with suppliers, logistics companies, and overseas warehouses, you can create efficient order processing workflows, streamline inventory transportation, and customs clearance processes, providing excellent shopping experiences for global buyers.

Think Local, Act Global

In summary, to successfully expand into the Japanese e-commerce market, it is crucial to fully understand and adapt to the unique culture and preferences of the Japanese market and consumers. By combining local advantages with global resources, you can formulate precise operational strategies. Whether in platform selection, product selection, brand marketing, or supply chain integration, it is essential to fully integrate with Japanese culture and offer truly localized services and experiences.

At the same time, always pay close attention to operational details, maintain keen insight into consumer feedback, and continuously optimize and adjust strategies. The market competition in e-commerce will only intensify, but for companies with deep local cultural understanding and a global perspective, the Japanese e-commerce market is undoubtedly a vast blue ocean.