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Rakuten gropes for ways to sharpen business edge

Investors yet to show support for Japanese e-commerce champion's recent ventures

Rakuten Chairman and CEO Hiroshi Mikitani shakes hands with Walmart President and CEO Doug McMillon in Tokyo on Jan. 26. (Photo by Masayuki Yuda)

TOKYO -- There has been an air of desperation about Japanese e-commerce and internet conglomerate Rakuten of late.

In a volley of major announcements which began last month -- from forming a partnership with U.S. retailer Walmart, to acquiring a property insurer -- Rakuten Chairman and CEO Hiroshi Mikitani has been seeking to impress consumers and the market, attempting to sharpen the company's business edge and expand its ecosystem of services. However, the announcements have so far failed to motivate investors, simply because none of the deals has looked to be a game changer.

The most recent move came on Wednesday. Rakuten announced a merger of its two consumer-to-consumer (C2C) marketplace apps Rakuma and FRIL. The merged service will be relaunched under the new Rakuma brand.

Currently, Mercari, founded by ex-Rakuten intern Shintaro Yamada, leads Japan's C2C marketplace app business, leaving others far behind. Rakuten is trying to succeed in the already highly competitive business by merging the two services and seeking advantages of scale.

Last week, Rakuten announced it would start purchasing shares in Asahi Fire & Marine Insurance, a unit of Nomura Holdings, through a tender offer the following day. It plans to eventually spend about 45 billion yen ($412 million) to acquire 100% of the insurer. It aims to develop new insurance products tailored to customers' family situations and lifestyles, based on data gathered from Rakuten's roughly 93 million registered users.

Rakuten entered the life insurance business in 2013, and with the latest move is branching into property insurance as well. The company wants to both develop a new revenue source and expand the Rakuten ecosystem, which already covers a wide range of areas from e-commerce to financial services. In the first of the recent run of announcements, Rakuten even unveiled a plan in December to march into the mobile phone business by the end of this year.

Since e-commerce has helped the company become what it is today, Rakuten did not neglect to refine that part of its business.

On Jan. 26, the company announced a partnership with retail group Walmart to operate an online grocery delivery service in Japan. Under the deal, Walmart will also sell Rakuten's Kobo e-readers and associated content exclusively in the U.S.

Then on Jan. 30, Mikitani voiced a plan to form Rakuten's own Japanese logistics network within two years, without detailing how much he intends to invest in the project.

"The fusion of online and offline business is a world trend," said Mikitani. He added that Rakuten will connect with customers both online and offline, maintaining its edge by developing new services not offered by its competitors.

But do these moves look refreshingly new to the company's audience? Maybe in Japan, but not globally. Rakuten's businesses are formed more from recycled ideas than from revolutionary ones. The alliance with Walmart was clearly inspired by e-commerce group Amazon's buyout in mid-2017 of food retailer Whole Foods. Kobo e-readers are also not dissimilar to Amazon's Kindle.

Fierce competition awaits where businesses are mimicked.

The Japanese internet conglomerate began developing its ecosystem around 2006. At the time, few peers offered a payment service, allowing Rakuten to dominate the space. But in recent years, the number of rivals pursuing a similar business model has shot up as smartphones and cloud data have proliferated.

Investors are aware of the fact that Rakuten's recent efforts would not fully sharpen its somewhat blunted edge. On the day Rakuten announced the tie-up with Walmart, its stock price went up by 4.5% to reach the 1,000 yen level. It then lost steam within a few days because of anxiety about the costly projects, falling back to the 900 yen level.

The recent market turmoil also hurt its stock price, which fell at one point to 905.0 yen on Friday, its lowest level since April 2013.

From a longer-term perspective, Rakuten's stock price reached 2,395 yen in April 2015, forming a double-top pattern. Since then, it has generally been on a downward trend. It share price trajectory looks a lot less promising compared to domestic rival internet conglomerates, such as SoftBank Group.

Since Rakuten's stock price is already heavily distressed, there are not many analysts who expect it to fall further. Equally though, there are not many who expect Mikitani's recent moves to immediately translate into success for the company.

"The key issue for Rakuten is to expand alliances with other physical retail chains," UBS analyst Sumito Takeda said. In order to do so, "they must turn the Walmart collaboration into a success." Another analyst said Rakuten's entrance into online supermarkets would not be a game changer for the already competitive segment, with Amazon Japan having launched fresh food delivery service AmazonFresh in 2017.

Speed has been one of Mikitani's mantras since founding the company in 1997. However, the required speed to stay competitive has accelerated exponentially. Rakuten's reflexes might not be fast enough for the current globalized internet business.

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