One would think the e-commerce battle has been settled, with Amazon firmly at the top and Walmart's recent acquisition, Jet.com, in second place. In complete spite of this, Japanese startup Mercari is setting out to carve its own niche in the field and doing quite well in its charge forward.
After raising $75 million in March, the marketplace platform's valuation pushed above $1 billion, making Mercari officially a unicorn, and Japan's first one in years. It's completely dominated the e-commerce market in Japan since its founding in February 2013, connecting everyday people looking to buy and sell everyday items.
Now, with its sights firmly set on becoming a serious global player, Mercari has been heavily investing in expanding its platform to the US.
Leading that effort is Ryo Ishizuka, the CEO of Mercari's American business unit. Ishizuka is a seasoned entrepreneur, having founded and led RockYou, one of the first companies to start building games for social networks like Facebook and MySpace. The RockYou team expanded to Asia and became a dominant player in those markets, which caught the eye of Ishizuka's partner in Mercari, CEO Shintaro Yamada.
The founding Mercari team came together in Japan in mid-2013 and knew they had a massive uphill battle ahead of them, taking on the likes of eBay, Amazon, and any other dynamic e-commerce startups that were in the mix then or would pop up later.
From the outset, Mercari was meant to be a global company. Its core team all had previously founded and led successful startups of their own, but they didn't grow significantly outside of their respective domestic markets. Thus, their thirsts for success had not been slaked.
Considering the opportunity for disrupting the Japanese e-commerce market and their distinct familiarities with Japan made it the perfect place to get their footing. Explosive growth fueled Mercari's takeover in Japan and, less than a year after their founding, it was already expanding to the US.
"We really saw the US as a gateway to the rest of the world, to becoming a global company," said Ishizuka.
Since that expansion, Mercari has seen over 20 million downloads in the US and plans to double its American team over the next year.
Selling Something Different
When the company started, Mercari's founders believed that e-commerce was still an open and competitive field. Their path to success, however, would require them to build and offer a unique value proposition.
A distinguishing feature of Mercari's approach is that they built their business mobile-first, designing the app and launching that first, which is likely a product of their timing when compared to Amazon, Craigslist, and eBay.
The most important piece to their strategy was making the whole easy and seamless. Rather than a mixed fee approach for sellers like eBay uses, the platform simply charges sellers ten percent for the transaction. When the sale is made, sellers are offered a quick shipping option via Mercari.
The average transaction in Mercari's marketplace is between twenty and thirty dollars. With the platforms taking only ten percent ($2 or $3 each time), this figure reveals the sheer volume of transactions taking place on the platform considering the platform pulls $12.2 billion JPY ($107 million USD) in annual revenue.
Even the onboarding process for sellers is made to be simple. By comparison, eBay sellers must hurdle seven or eight steps, but Mercari only requires five. As well, the delay for listings appearing on the platform is mere minutes, while eBay frequently has hours-long delays before the listing is public.
Having An Impact
Mercari's approach is also having some noteworthy and positive side effects. When targeting the initial market, Ishizuka and team realized that people were becoming less fixated on buying new brand items every time they wanted something. In fact, they found this trend occurring worldwide.
A bulk of Mercari users are buying and selling used items, which Ishizuka finds to be much more economical and friendlier to the environment.
"We found the market was a lot more resource-conscious and we wanted to build for that," said Ishizuka. "Our platform enables a lot of people to clean up the house and make some money while they do it."
The most active demographic in the marketplace is women in their 20s and 30s, in both Japan and the US. Both user bases are significantly comprised of stay-at-home mothers and housewives and Ishizuka sees Mercari as a tool for them to gain more purchasing power and financial independence.
As has been stated previously, Mercari has a hard focus on becoming a global marketplace. Right now, buyers and sellers can only interact with each other within their respective countries, but Ishizuka wants to see the markets all connect and allow smooth transactions across borders.
"OfferUp focuses on neighborhoods, while Mercari started operating nationally. Starting at that level gives our buyers and sellers much more choice than they would on OfferUp," said Ishizuka. "This increase in choice improves the chances of transactions taking place."
In Japan, the Mercari platform was relatively free of fake listings and counterfeit items, but that was not the case in the US. The team vastly underestimated the amount of management the American market would require. Their small operations division grew tremendously (alongside an algorithm) to handle not only the problem of verifying listings, but also handling the spike in returns the platform was getting.
Most Japanese users tend not to request to do a return of items purchased. Instead, they typically give the undesirable item away or resell it, while Americans have a culture of getting their money back for a returned item.
Thankfully, the platform self-polices via the rating system and organically weeds out bad actors, which is a big supplement to the company's direct efforts, according to Ishizuka. To remedy any fraudulent transactions that get through the safeguards, Mercari refunds the transaction to the buyer.
After a couple years operating in the US, Mercari has found incredible success given the crowded market for e-commerce. The startup has already opened a new office in London and plans to launch the app early next year, taking the step in their quest to achieve a global presence.