Mercari’s expansion into Europe: where did it all go wrong?

By Melissa Francis

Tokyoesque are experts in Europe-Japan relations and provide clients with unique cultural insights that can be used to accelerate business growth across the globe. In this post, Tokyoesque looks at Japanese e-commerce giant Mercari and the reasons why they decided to exit the European market after a relatively short period of time.

What is Mercari?

Mercari is a flea market app founded in 2013 by four Japanese entrepreneurs; Tommy Tomishima, Shintaro Yamada, Ryo Ishizuka and Hiroshi Toshima. It is a mobile-only marketplace that focuses on enabling users to sell goods. In Japan, Mercari has become a helpful way for seniors to declutter their homes of items they no longer need. Benefits of the service include; zero listing fees, a simple browsing interface as well as 24/7 assistance.

The buyer also receives solid protection as the money is only transferred to the seller once the buyer marks an item as received and they are satisfied with the quality. The company expanded rapidly and soon became Japan’s first unicorn startup (valued at $1 billion USD). The fact that the company achieved unicorn status after just three years is largely due to its success on home ground, but also thanks to its expansion into the US just one year following the initial launch.

Source: Mercari.com

Cashing in on the digital payments scene

Within the Japanese fintech scene, digital payments are one of the growing areas as Japan heads towards becoming a ‘cashless’ society. Mercari unleashed its own payment solution, Merpay, which allows users to use the balance accumulated via the Mercari app to pay for other goods on Mercari or to purchase items from stores nationwide. At the end of March, Mercari announced that they would be joining forces with messaging app LINE to maximise the reach of digital mobile payments. Users of each respective service would be able to pay for goods at locations that accept either LINE Pay or Merpay, reaching around 2.6 million stores across Japan.

What lies behind Mercari’s success in Japan?

One of the main reasons that Mercari became a hit in Japan is that the buyer can remain anonymous. In Japan, the concept of privacy is extremely important, so this gave users peace of mind that their personal information wasn’t going to be revealed to strangers, and that they could easily and safely conduct transactions. For example, one user interviewed for this Nikkei Asia Review article, states that she used Mercari to help sell unwanted items after clearing out her living space and feels that compared with other flea market apps, “being able to remain anonymous lowers the psychological hurdle for using the service.” The app is also user-friendly and only requires a few steps to list an item.

Adopting a new strategy for the US market

Mercari spent a good chunk of money developing their operations in the US, with the majority of the budget being spent on advertising in addition to securing top executives working for tech giants, like John Lagerling from Facebook. The initial idea behind expanding into the US market was that success there meant Mercari would get a solid springboard to further develop in other markets, and they wouldn’t require much localisation. They also rebranded to appeal to US consumers by focusing on the inherent culture of holding garage sales, and ramped up their communications to include billboard advertising in strategic locations.

Partnerships with couriers also meant that they could improve their service to users. At the time of the expansion, competition in the US included the likes of Craigslist, but there was a prime opportunity space for Mercari as no dedicated customer-to-customer flea market apps were dominating the market. The fact that there were no mobile-only players in the market also worked in Mercari’s favour.

Why did Mercari stop its operations in the UK?

Given Mercari’s widespread and established appeal in both Japan and the US, they opted to expand the marketplace offering into Europe by opening a UK-based office in 2017. At the time, the app had already amassed 60 million downloads globally and was enjoying its success. In 2018, riding on the coattails of the upturn in popularity, Mercari went public on the Tokyo Stock Exchange. But less than two years into its expansion to the UK, the company announced that it would cease its European service from January 2019.

On their UK website, Mercari noted:

“We’ve absolutely loved our journey together over the last two years — helping you find new things and sell your old stuff. Unfortunately, as we’ve not grown as quickly as we’d hoped, we’ve made the difficult decision to end the service in the UK.”

So what could have stilted this growth?

1. Inadequate marketing and communication strategy

Despite significant investment in communication and key personnel for the US market, promotion just didn’t happen in the same capacity in the UK. One customer said: “I have never heard of them and therein lies the problem. People just didn’t know it exists, it is very hard for someone to compete with Amazon or eBay as they have such strong recognition.” A number of other consumers echoed this sentiment when they heard the news about Mercari’s UK closure. The relative lack of awareness resulted in a slump in uptake.

2. Poor customer service

Many customers on message forums slated the poor level of customer service, saying that it seemed as if Mercari were simply ‘copying and pasting’ responses, taking their time to deal with issues (despite the 24 hour resolution window cited by Mercari themselves), and holding money without reasonable explanation. This especially angered customers who were putting their trust in Mercari to ensure their transactions went smoothly. Overall, the app received negative ratings from those who had purchased several items through the service.

3. Susceptibility to scams

In Japan, consumers tend to be honest about their purchases. But scams are rife across many online selling platforms in western markets. With Mercari, buyers were able to discover loopholes that essentially enabled them to get items for free by flagging them up as fakes, even when this was not the case. Mercari’s default response was to automatically suspend the related seller account without conducting a proper investigation into the incident. Other e-commerce and flea market apps tend to be quicker to take action against instances of scamming. As a result of this, many consumers have felt that their money was vulnerable and the representatives seemed ill-equipped to deal with such issues. Given that scams are rarer in Japan, Mercari had not put enough measures in place in order to combat incidents.

4. Local competition

Combined with the severe lack of marketing communications, Mercari had the added disadvantage of being a relative latecomer to the UK market. Solutions including Shpock, Depop, and Vinted were already available and being used by millions of users looking for this exact type of service. Schpock, for instance, had 10 million users in 2015 and Depop was praised nationally for being a part-social media, part-flea market app. The visual style and ease of use has been especially popular among a key target market — millennials.

5. High operating costs

All the signs towards the UK exit became clear when Mercari reported an operating loss of £7.3 million pounds ($9.23 million USD) in the financial year 2018. This was likely due to a combination of all the above aspects, which naturally made it difficult for the company to continue. The headquarters in Tokyo sent Japanese engineers to be relocated to the UK instead of establishing a local team from the beginning.

Source: Advisory HQ

What could Mercari have done to avoid this?

Had Mercari taken the time to understand the nuances of the UK market, observed how the competition was already faring among consumers, and presented themselves as a truly viable alternative that wasn’t just a condensed version of eBay, things might have been very different. Mercari’s internationalisation strategy to take the app to the US first may have been a solid one, but the second part of that strategy was not applicable — Mercari would have to be localised for other markets. Investing in consumer-centric research may have provided valuable insights into the types of features and messages that would best resonate with the target audience.

The same concept holds true when expanding to the Japanese market. It pays to really get to deeply understand what is driving consumer behaviour. For brands already operating in Japan, it’s important to continuously monitor what’s happening to avoid common pitfalls or assumptions.

Tokyoesque specialises in providing Japanese consumer insights to western brands who wish to enter/expand in the Japanese market. Whether you’re looking to make an initial entry into the market, revitalise your brand’s existing presence in Japan, or localise your overall strategy to resonate with Japanese consumers, Tokyoesque can work with you to realise your objectives.