Analysis: Why Rakuten could be stuck in a fatal decline

Although revenues in its second quarter rose, operating profit slid 12% year-on-year to JPY48.7 billion, while profit from its domestic online business tumbled 25% to JPY17.5 billion.

The figures overall indicate a marked lack of growth from Rakuten’s marketplaces, particularly in Japan, its core business.

Rakuten, which was very much a pioneer in Japanese online when it launched over 20 years ago, is now having to cope with younger regional rivals such as Line and Alibaba, as well as better-positioned international competitors such as Amazon.

Outdated model

These players’ propositions are proving to have far more consumer appeal than Rakuten’s model, which is beginning to look somewhat outdated and set in its ways.

Rakuten has been slow to tap into shifting shopper needs, particularly the desire for convenience and the lure of social media to draw users towards its offer.

”Rakuten takes very much a hands-off approach to how sellers conduct their business. This has led to frequent complaints around delivery and returns, all of which have tarnished the platform”

Rakuten’s marketplace exists largely as a hosting portal for a variety of sellers, but Rakuten itself takes very much a hands-off approach to how they conduct their business.

Unlike, say, Amazon – which imposes strict criteria on sellers with regards to elements such as shipping speeds and returns policies – Rakuten sellers can more or less do as they please.

This has led to frequent complaints around delivery and returns, all of which have tarnished the platform in the eyes of its declining user base.

Desperately seeking solutions

This is bad news for a company that has drastically reconfigured its global business, presumably with an eye on securing its position at home.

By shedding a number of overseas operations, Rakuten will now be able to concentrate resources on its Japan business.

“It expanded rapidly and added a number of disparate services and acquisitions to its offer, few of which improved the overall appeal of the business”

However, it will need to move fast before it loses any further ground to more aggressive and digitally adept rivals.

It is a sad state of affairs for a company that, until only recently, seemed to be leading on innovation and expansion beyond its Asian heartland.

It expanded rapidly and added a number of disparate services and acquisitions to its offer, few of which improved the overall appeal of the business.

Its retrenchment might enable a revival one day but, for now, it feels as if we may be seeing one of the original pure-players entering a prolonged – if not yet fatal – decline.