Start Today goes after Rakuten

Jan 15

Start Today has launched a new market place offering SMEs in the apparel and fashion world access to its large base of fashion consumers. It may well threaten the fashion merchant business at Rakuten and Yahoo but the move is also part of a much bigger story about who will win in e-commerce: general merchandise portals or specialty sites.

Start Today will launch a fashion-only SME and CtoC market place this month. Called Zozomarket, the online market place will let designers, brands and shops sell directly to consumers through the portal. Zozomarket appeals to the small business and individual creator market that is not served by Zozotown or Zozovilla, which focus on fashion retailers and premium brands. Start Today already has a substantial database of small businesses and creators through its recent acquisition of Stores.jp, an easy to use e-commerce package that lets users set up an online store within an hour with no coding experience, using templates and pre-installed payment processing. Stores.jp already has 60,000 sites up and running, of which 70% are small and medium-sized apparel or fashion businesses. However, while stores are quick to set up, reaching customers remains a serious hurdle. Stores.jp offers a basic marketing package, but gaining visibility is hard. Zozo’s brand visibility and vast reach of nearly 5 million customers will now be able to serve any home-based designer or back street boutique.

Start Today’s cut of sales will be 10%, much lower than Zozotown, although it is still higher than Yahoo, which recently removed all charges for merchants. Start Today is hoping to gain traction for Zozomarket by focusing on fashion and design, creating a defined market place with a uniform and higher level of design compared to Yahoo and Rakuten. Start Today will also capitalise on Zozotown’s brand power which should attract quality brands, stores and designers to the store. All Stores.jp merchants selling fashion and design will be able to automatically sell through Zozomarket. One of the appeals for up and coming designers and brands is the potential to be taken on by Zozotown itself. Start Today will track sales on Zozomarket, and recruit the most promising merchants for promotion on Zozotown, creating a form of incubator for talent in the fashion industry.

Start Today says Zozomarket could be much bigger than Zozotown. It describes Zozovilla as the top end of the pyramid, Zozotown as the middle and Zozomarket as the broadbase, complementing the used clothing operation, Zozo Used. Although Zozotown sells more than 2,200 brands and has sales of ¥100 billion, it believes boutiques and start ups across Japan will want to access Zozo’s customers, with potential for thousands of brands and designers, from home-based scarf knitters to new fashion school graduates. Since there are no set up fees or monthly charges, inventory aside, setting up on Zozomarket is risk free, encouraging more start ups in the fashion industry, yet still with access to millions of dedicated fashion consumers. The service will also be of interest to small overseas fashion businesses that want to access the Japanese market – although for now a Japanese bank account will be required.

Zozomarket is a potential new source of income for Start Today, adding to a spate of new ventures by the online portal in recent months to offset slower growth for the core Zozotown business. As well as Zozo Used, it has launched a mobile social shopping service called Wear.jp, and Laboo, an online portal similar to Zozotown but focusing on the teen and 20s womenswear market.

Specialty sites more efficient?

As well as new income, Zozomarket has the potential to disrupt the general portal model established by Rakuten and Yahoo. While Yahoo now charges no fees, both Rakuten and Yahoo suffer from being general merchandisers. Their original premise of offering easy access to online sales for SME physical merchants made sense, but new technologies and platforms, not least template stores like Stores.jp, now mean there are many more options. Given Rakuten’s wide product base, some might think the threat isn’t important, but fashion-related merchandise and apparel accounts for around 30% of transactions.

The main USP for portals has always been their vast databases of customers, but e-commerce is now segmenting into specialist forms, a trend somewhat similar to the shift from general merchandise retailing to specialty retailing. Although in the latter case, a key basis for specialty growth was efficiency of supply, in e-commerce the winning strategy exemplified by Amazon is efficiency of delivery. This does indeed favour general merchandisers like Amazon that can justify investment in the necessary and expensive logistics because of their huge volumes; it does not, however, favour the likes of Rakuten and Yahoo that depend on merchants for fulfilment with all the inconsistency and unreliability this implies. Amazon’s USP is unbeatable unless third party fulfilment services can match it – no specialty site can justify the cost of such a logistics network. Without investing like Amazon, and with pricing too easy to match, the only USP that remains for Rakuten and Yahoo is simply their huge user and merchant bases. But these are also a weakness. With so many forms of merchant and so many categories, navigation becomes sclerotic; the portal sites simply grow too large and varied. In this sense, specialty sites become more efficient, not in delivery like Amazon, but in search and presentation – i.e. specialty online retailing again trumps general merchandise retailing through a form of efficiency. Simply put, what is the point of a one stop shop when it’s so hard to navigate unless fulfillment is blazingly efficient?

Having a huge user base of customers in the virtual world does not guarantee long-term success, especially if this is the only USP, since users can evaporate in months – just look at Mixi. An e-commerce portal needs something more. Specialist sites can gain traction by delivering not only large customer databases to merchants but also sites that are tailored to deliver the easiest navigation, the best presentation and brand communication for that category of product, and services such as try before you buy.

Social networking and online community building around product categories also favour specialist sites over general portals. As @cosme has proven, CtoC interaction and discussion of brands, designers, and stores in fashion, cosmetics, interiors or food, is more natural and better served within a site dedicated to a single product. Peer review of product is one thing, but online discussions about new stores, ideas on great outfits using different products, and recommendations make more sense inside a dedicated site.

Zozomarket then, looks like a play to lure away the small fashion merchants and boutiques from Rakuten and Yahoo, promising easy to set up stores, good, clear site designs and technologies such as 3D viewing, and access to a large and specifically fashion driven customer base. While most merchants will probably consider selling on all platforms at once (assuming they are willing to pay Rakuten’s now expensive looking fees), consumers may well choose the site that makes it easiest to find great fashion. Unless Rakuten and Yahoo improve their image, navigation, product views, and information on sizing, style, fabric and cut – or invest in speedy logistics like Amazon – it may well be the specialists that win in the end.

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