Major trading houses investing in e-commerce distribution

The rapid growth in e-commerce is leading to huge demand for state of the art distribution facilities and support. With Amazon Japan leading from the front, all the major players, and even the smaller ones, are now expected to provide short lead times at very low cost to the final customer but the cost of building their own DCs is prohibitive, leaving domestic firms at a disadvantage. Enter the four big trading houses.

The largest four trading houses are planning major  investments in distribution systems designed to support Japan’s growing e-commerce (EC) market. Itochu will spend some ¥100 billion on new logistics facilities over the next three years, and Sumitomo is preparing to spend ¥50-100 billion.

Itochu has established a joint venture with a Singapore-government owned investment fund tied to Temasek Holdings. The new business will begin with a ¥20 billion investment in a new logistics facility in Sakai, south of Osaka. The centre will be around 130,000 sqm and have capacity to handle EC supply for around 12 companies. Itochu says it will be targeting tenants with long term sales growth potential.

Sumitomo established a private fund to spend on similar facilities this previous Spring. By the end of next year, it plans to have invested ¥50 billion with an aim to expand to more than ¥100 billion in the medium term.

Meanwhile, Mitsubishi and Mitsui have both established REITs for the logistics sector. There are already 46 publicly listed REITs with interests in distribution with a total capital value of around ¥1.2 trillion. Mitsui and Mitsubishi’s public REITS alone will account for ¥400 billion of this.

Mitsubishi is currently looking at building a large scale DC in Kyoto and both trading houses have plans that should easily match those of Itochu and Sumitomo over the next five years.

EC retailing is expanding rapidly, with various estimates putting the market close to ¥20 trillion by the end of 2015 at the latest. Amazon Japan remains the largest single player by a significant margin and it continues to set customer expectations with free, rapid delivery, as well as low prices and excellent search functions and product range. It opened its largest DC so far late last year in Odawara in Kanagawa Prefecture, with 200,000 sqm dedicated to Amazon and its EC mall tenants alone. Rakuten is number two, but far behind although it too is now moving rapidly to expand directly controlled distribution facilities. Everyone else needs to keep up, but for any company targeting consumer markets, rapid, small volume deliveries will be key and the demand for state of the art logistics facilities will only continue to rise.