Why $10 billion Japanese retailer Rakuten is building a one-day delivery machine in the US - Amazon's home turf

Tomohiro Ohsumi/Getty Images

Rakuten is doubling down on logistics in the US. Should Amazon worry?

• Rakuten, which is Japan's largest online retailer by revenue in part thanks to its banking side, is rapidly building out a one-day logistics machine in the US.
• That may threaten Amazon as more retailers are refusing to use the Seattle-based company's delivery network - even though it's one of the most extensive in the industry.
• And beyond its immediate logistics implications, the delivery network is slated to power Rakuten's growing US-based retail business.
• The incentive for Rakuten to expand in the US comes from Amazon and Alibaba's growing global market share. In Japan, customers' increasing preference of Amazon over Rakuten is eating away at the domestic player's top line.
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Last year, an unfamiliar e-commerce company began flooding Americans' social media feeds - Rakuten.

FC Barcelona, Live Nation, and American Express partnered with the company, communicating to customers that Rakuten users could get cash back at more than 3,500 stores. Golden State Warriors darling Stephen Curry started hawking the company, and all Golden State Warriors jerseys boasted a Rakuten patch for the 2018-2019 NBA season, reportedly generating $40 million in value on a $20 million annual deal.

In total, Rakuten's media plan landed more than 14 billion impressions last year.

But brand awareness isn't the only thing Rakuten is building out in the US - the company is working on a one-day delivery system that could soon threaten Amazon.

Ezra Shaw/Getty Images

Stephen Curry in his Golden State Warriors jersey - which shows the Rakuten icon.

While Rakuten remains somewhat of an outsider in the US, it's hardly a newbie. In fact, it's often called the "Amazon of Japan." Rakuten's 2018 revenue totaled $9.9 billion, or more than 1 trillion yen. That makes it the youngest company in Japan to beat that yen benchmark.

And simple brand awareness is not the only facet of American e-commerce Rakuten is making big bets on; it's upping its US facilities and capabilities with an eye on rivaling Amazon's American foothold on same- and next-day delivery in the coming years.

As UPS and FedEx increasingly frame themselves as the powerhouses of e-commerce - and amid signals that Amazon is looking to beat both package giants at their own game in the coming years - Rakuten is doubling down on logistics, too.

Rakuten has gone from zero to 15 facilities in the US in seven years. In 2013, Rakuten Super Logistics entered the US logistics market by acquiring cloud-based fulfillment company Webgistix, which had five distribution centers at the time. Webgistix was also known for its industry-leading fulfillment technology.

Based in Las Vegas, Rakuten Super Logistics joins a growing group of companies that combine warehousing and fulfillment technology, like Chicago-based ShipBob (valued at $195 million, according to Pitchbook) and Seattle-based Flexe ($193 million).

These companies do the back-end distribution for anyone who operates online - from trendy direct-to-consumer brands to Amazon third-party sellers who don't want to pay the retailer's distribution fees.

As Rakuten Super Logistics CEO Michael Manzione put it in a recent interview: "If you receive a package from one of our clients from our distribution network, it doesn't have our logos all over it. The end user never knew that Rakuten Super Logistics was the one that was behind the fulfillment of the order and delivering it to you."

Manzione said the sudden build up of distribution centers comes from an investment influx from its Japanese parent company - Rakuten, Inc. - and a shift in strategy from two-day to one-day shipping.

Andy Kiersz/Business Insider; Rakuten Super Logistics data

"We saw the movement was going towards same-day and next-day delivery," Manzione said. "And this was obviously initiated by Amazon. We're really trying to level the playing field."

Manzione said Rakuten Super Logistics is aiming to have same-day and next-day delivery in America's 25 largest cities in the next three to five years.

"By the time that the consumer is really demanding it, our customers have our support to deliver that," Manzione said.

For now, Rakuten's 15 warehouses don't quite challenge Amazon's 169. But, if Manzione does manage to reach one-day or same-day shipping in America's largest cities, it could pose a threat to Amazon's soaring fulfillment capabilities.

In Japan, Amazon has pulled ahead of Rakuten. Rakuten has reason to eye a similar coup.

Both Rakuten and Amazon have invested in the US and Japan, respectively, for several decades. But the competition has heated up in recent years.

Amazon blew past Rakuten as the online retailer of choice in Japan in 2016. Amazon is also actively expanding grocery delivery and its cash cow, Amazon Web Services, in the country of 126 million.

Amazon is striving to quietly dominate logistics there, too. As of June 2019, Amazon delivered 41.2% of its own packages in Japan - up from 5% just 25 months prior, according to data from Japanese last-mile consultancy E-Logit. Not unlike its US moves, Amazon Japan is directing more and more of its parcels from the post office and its last-mile giants, Sagawa and Yamato.

"Rakuten feels threatened by Amazon Japan and Yahoo! Japan," E-Logit CEO Ryoichi Kakui wrote to Business Insider in an email interview. "More of the young generation buys from Amazon."

Amazon declined to comment.

Atsushi Tomura/Getty Images for IMG

Amazon Fashion Week Tokyo in 2016, the first year Amazon began sponsoring the global event. In 2019, Rakuten nabbed the top sponsorship name - rebranding it to Rakuten Fashion Week Tokyo.

Meanwhile, not unlike its US counterpart's domination of cloud computing, Rakuten has seen its greatest growth in a sector outside of its core retail offering: consumer finance. Securities trading, credit cards, and home lending have powered much of Rakuten's recent financial growth.

And in the US, Rakuten has attempted to match Amazon's Japan expansion by acquiring more and more US businesses. It's acquired companies in fields including ad services (like LinkShare and Media Forge), rewards programs (Ebates), and online shopping data (Slice).

The competition has even come down to fashion. Amazon became the headline sponsor of Tokyo's Fashion Week in 2016. Just three years later, Rakuten ousted Amazon to claim the top sponsorship name - rebranding the global event to Rakuten Fashion Week Tokyo.

Koichi Kamoshida/Liaison

Amazon CEO Jeff Bezos and then-Amazon Japan country manager Junichi Hasegawa announce the launch of Amazon Japan in 2000. It was Amazon's fourth international website.

"Rakuten lost market share in global e-commerce because of Alibaba and Amazon," Cathy Roberson, chief analyst with market-research firm Logistics Trends & Insights LLC, told Business Insider. "Amazon is moving into Japan, taking share away from Rakuten on their home base."

Rakuten's distribution network could be a boon in itself - and for the retail side's expanding US presence

Ken Cassar, who is the VP of research at retail-industry event Shoptalk, told Business Insider that Rakuten Super Logistics is "aggressively expanding." RSL, as the US logistics arm is called, is bringing together capacity and automation. InVia Robotics provides autonomous retrieval and storage of warehouse goods in some RSL warehouses.

The end result is not unlike Amazon's ultra-automated fulfillment centers. And, according to Cassar, that might be the point - Amazon-like logistics services, but without working with the brand that some say hasn't been so kind to the retail and transportation industries.

"There are a lot of companies, particularly retailers, that don't want to have anything to do with Amazon," Cassar told Business Insider. (Until last year, Cassar was a principal analyst at Slice Intelligence, which was acquired by Rakuten in 2014.)

"There's an important opportunity for the vendors that provide necessary services that aren't named Amazon - and Rakuten Super Logistics is a great example," Cassar added. "They are certainly aware of what Amazon is doing and trying to bring some of those capabilities to merchants."

Tomohiro Ohsumi/Getty Images

Rakuten CEO and founder Hiroshi Mikitani.

Manzione noted the same trend.

"A lot of our clients are similar, because frankly, a lot of our clients are looking for other alternatives to Amazon," he said. "I think one of the things that Amazon is struggling with is really how to build better partnerships with their with their customers."

Still, he emphasized that RSL is "agnostic" to the brands it serves - which even include Amazon sellers.

The warehouses are smaller and more automated than what transportation companies like UPS or FedEx would build out, and they're meant to serve retailers that can't drop the delivery investment that Walmart or Target can.

"Rakuten Super Logistics' strategy is - rather than having [one] or a couple of giant, mega-, highly-automated fulfillment centers - building out smaller, but automated fulfillment centers," Cassar said. "That allows merchants to spread their inventory to multiple locations, putting the inventory closer to the consumer."

Manizone, who has more than 30 years of experience in logistics, foresees a point where RSL connects Rakuten's US retail business. "We're each building out our separate networks and then eventually they'll connect to each other," he said.

In Japan, Rakuten's logistics network boasts doorstep deliveries throughout the nation, robots delivering to universities, and even drones. Manizone told Business Insider that the US network will eventually match the Japan network.

Kimberly White/Getty Images for Breakthrough Prize

CEO Rakuten Hiroshi Mikitani and Alex Rodriguez speak at a 2017 award ceremony at NASA.

Presently, both Rakuten's delivery and retail presence in the US are a far cry from what it has in Japan - and, indeed, what Amazon has in Japan - but the company's US-centric moves are rapidly scaling in recent years, experts said.

And Rakuten's transportation network could provide the same "flywheel" effect that Amazon's delivery network has for the $1 trillion retailer. Amazon's delivery network has built density from having lots of customers all over the US, and those customers go to Amazon in part for super-fast delivery. That density makes it cheaper for Amazon to have an extensive logistics network.

But for now, Rakuten's US hurdle goes deeper than developing a density-oriented retail-customer loyalty flywheel. Americans can't even pronounce "Rakuten."

"The key is you hit the first syllable hard and then remember to go 10 at the end," Cassar said. "I think as long as you hit the first syllable hard and go 10 at the end, you can't miss."

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