Zozotown Plots Growth in Japan and Abroad

The online retailer is thinking global with a new site in English, Chinese and Korean.

TOKYO — Yusaku Maezawa took a circuitous route into the world of online fashion retailing. As a drummer in a punk band in the Nineties, he got a taste for the business world when he started selling CDs and records first at concert venues and later through catalogues and mail order.

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“At one point I turned that into an online shop, and from there I expanded the product range to include clothing. Now, I’ve quit [the record and music business],” said the 35-year-old, who founded Japan’s fast-growing online fashion mall Zozotown in 2004.

Zozotown is now a leading fashion retailer in Japan, a country that was slower than others to embrace the notion of e-commerce. It has nearly 3.4 million subscribers and 1,500 brands, including Beams, United Arrows and A Bathing Ape (Bape). The parent company, Start Today Co. Ltd., is predicting sales of 32.3 billion yen, or $418.84 million, for the current fiscal year, and last May Zozotown initiated its international push with a new site in English, Chinese and Korean, serving over 80 countries worldwide.

Maezawa, who serves as chief executive officer of Start Today, said that although it’s still early, the international site seems to be performing well.

“We’ve gradually started doing some promotion [campaigns] internationally, so depending on how effective that is, we’ll [see how it goes] from now,” he said. “We’ve put ads in international magazines, as well as online ads. Of course, because we have a lot of Japanese brands, we get many orders from [elsewhere in] Asia, such as Hong Kong, Taiwan, South Korea and China.”

But not all brands carried on Zozotown’s Japanese site are also available to be shipped abroad. Currently the international site carries about 700 brands, less than half the number on its Japanese counterpart. And while product quality is high and the rate of returns is low, Maezawa noted that there are still difficulties with selling Japanese clothing to customers overseas.

“Everyone is interested; however, from the viewpoint of Chinese people, it’s still expensive,” he said. “For American and European [customers], the sizes don’t quite work unless [the brands] make things specifically for that [market].”

While Zozotown’s international venture is just beginning, its business in Japan remains strong and continues to grow. Despite a slight setback in March, when sales only increased by about 5 percent year-on-year due to the effects of the earthquake, Maezawa said things are now back on track. He said the company’s transaction value is expected to increase by nearly 50 percent this fiscal year, and net sales are predicted to grow by about 35 percent.

“We’re not really feeling any effects [from the earthquake] now, but of course the sales [growth slowed] in March,” Maezawa said. “Now they’ve recovered. At first there was talk that manufacturing plants in Tohoku had been damaged and that [some companies] wouldn’t be able to make their products, but now there are none [of those problems].”

Of a predicted 84 billion yen, or $1.07 billion, in transaction value, Maezawa said he thinks only about 1 billion yen, or $12.75 million, will be from international sales.

In addition to Zozotown’s expansion to countries besides Japan, Maezawa and his team are working hard to increase the number of brands carried on the Japanese site.

“Now we’re expanding with the aim of including all of the brands that are in Japan, but until now we were just gathering together brands that we ourselves liked,” Maezawa said. “From Uniqlo to Louis Vuitton, we want to do everything.”

In particular, Maezawa wants to be able to include more luxury brands on the site, but he said that it can be difficult to convince these companies to take the leap. Zozotown has done test runs with brands such as Coach, Fendi, Loewe and Marc Jacobs, and Maezawa feels they are slowly making progress.

“There’s still a difference in customers [between Zozotown and luxury brands],” Maezawa explained. “The current circumstances aren’t such that expensive things sell right away, so we have to expand our customer base. Also, the quality of customer service is different with luxury brands. We want to improve those things so that we can sell [these products].”

But even the fact that Zozotown is in talks with luxury brands shows just how far the e-commerce business has come in Japan since Maezawa first entered the scene.

“I’d been doing e-commerce since 2000 with records and clothing, and in those four years [until 2004], I started a lot of separate [online] stores,” he said. “Then I put all of those together to create Zozotown. Incidentally, Rakuten, a Japanese [online] mall, started from 1998, so by about 2004 it was doing quite well.”

Maezawa attributes the slow rise of e-commerce in Japan to a simple lack of initiative.

“There was nobody doing it. There was no one who did it well. That’s actually why I decided to — and was able to — do it,” he said. “Japan is a small country, so if you go just a short distance there are a lot of stores. So compared with the U.S., the mail-order culture here is [very small]. There’s always been catalogue mail order, but they’re all aimed toward old ladies.

“Speaking about the fashion field, [the e-commerce landscape in Japan] really started to change gradually since about the time I started Zozotown,” Maezawa continued. “For example, United Arrows started [selling online] in 2004, and after that Beams started. From that time, things have really changed a lot.”

Euromonitor International estimates that the value of internet retailing for clothing and footwear in Japan was 598.3 billion yen, or $6.83 billion, in 2010, larger than the e-retailing market for any other product category. It also estimates that the market grew by 14.7 percent from 2009 to 2010, and is expected to grow by a further 62 percent by the end of 2015. While companies like Amazon, Yahoo and Rakuten — all of which sell a range of products from clothing and media products to housewares and electronics — continue to dominate the overall e-commerce market with combined shares of nearly 18 percent, Zozotown is picking up steam in the fashion sector.

“In the Japanese market, Zozotown is a pioneer of fashion shopping malls, whereby a number of apparel retailers have their own online outlets, and consumers are able to choose and visit and compare different apparel products from different manufacturers,” said Euromonitor retailing analysts in an industry brief last month. “It is predicted that online fashion shopping malls such as Zozotown will continue to attract more consumers in the future, with an increasing number of older people who are computer-literate. Compared with the online shopping Web sites operated by different retailers and manufacturers, online fashion shopping malls have a much wider variety of brands and products distributed through Web sites. This makes them able to meet a wider variety of consumer needs.”

In a March 2010 report for McKinsey & Co., Brian Salsberg said that 61 percent of shoppers surveyed during a poll in Japan gather prepurchase information for apparel online.

“More than ever, brick-and-mortar retailers are under fire from younger, nimbler online attackers,” Salsberg said in the report. “At the same time, land-based retailers have an opportunity to differentiate themselves: Get online right, and the physical locations could become an instant advantage over purely online competition. Retailers who continue to find themselves behind in the race for today’s multichannel shoppers must urgently establish a digital presence before competitors lock up the bookmarks, partners and other prime ‘locations’ in the virtual world.”

It’s to Maezawa’s credit that he understands — and is able to adapt to — the needs and behaviors of Japanese consumers. Zozotown’s product pages include several photos of each item, as well as detailed information on sizing and measurements. Until April, Zozotown didn’t accept returns, but even now that it does, Maezawa says that the actual number of returns hasn’t increased. Most items ship from Zozotown’s warehouse within 24 hours of being ordered, and arrive anywhere in Japan within a day or two. This efficiency and user-friendliness is likely one reason behind the company’s success, but Maezawa also cites the unique attitudes of Japanese customers.

“I’ve never really thought about it, but Japanese tend to be shy,” he said. “There are people who don’t like to be served in a shop.”

To make the Zozotown experience more interactive and similar to the experience of a physical retail space, the site also includes various social networking and editorial features.

“There’s a section called Zozopress, which our own staff updates, but it’s not viewed very much,” Maezawa admitted. “More than that, the blogs updated by normal customers inside social networks are [quite popular]. Twitter, for example. Those have much more influence. There’s a sidebar on the site’s top page with Twitter comments, which has been very popular. Facebook still isn’t that popular in Japan, but we’ve linked with Mixi. And inside Zozotown there’s also a social network called Zozopeople, which members can join.”