ASKUL in $400m Yahoo tie-up

Deal creates Japanese e-commerce powerhouse.

Yahoo Japan has become the main shareholder in leading Japanese office supplier ASKUL.

Yahoo Japan has taken a 42.5% stake in ASKUL for ¥33 billion ($414 million) as the two companies look to develop a joint B2C e-commerce business which they claim will become the largest online retailer in Japan.

The transaction was scheduled to be completed on 20 May – the beginning of ASKUL’s new financial year – just after this issue of OPI goes to press.

ASKUL has issued just over 23 million new shares which have been acquired by Yahoo Japan in a third-party allocation transaction, making Yahoo the biggest shareholder in the ‘new’ Askul.

The stakes of ASKUL’s previous shareholders have effectively been diluted because of the deal. For example, Plus Corporation – previously the largest shareholder with around 27% of shares – has seen its holding reduced to about 15.5%.

ASKUL started life as a catalogue mail-order division of Plus in 1993, but was spun off into a separate company four years later. Since then it has grown into the leading B2B office supplier in Japan with annual sales of just over ¥200 billion.

In the last few years, ASKUL has implemented an ambitious B2B e-commerce platform designed to make it the leading reseller of business products, including MRO supplies, facilities management products and specialised medical products – a concept not far removed from the AmazonSupply website.

ASKUL moved into the consumer e-tailing space with the launch in 2010 of its ASMARU B2C portal, and it is this channel which is at the heart of the new agreement with Yahoo Japan. Yahoo is one of the leading e-commerce players in Japan and the yearly transaction value of its auction and shopping sites exceeds ¥900 billion.

‘Yaskul’ = B2C

ASMARU hasn’t developed as well as ASKUL would have liked and, in fact, underwent a cost restructuring programme last year in an attempt to stem losses.

So this link-up is designed to combine ASKUL’s broad product assortment, logistics capabilities and e-commerce systems with Yahoo Japan’s huge consumer base (over 50 million unique users per month) and online payment capabilities (23 million Yahoo Wallet customers) to create a new online retail giant that will eclipse rivals such as Rakuten and Amazon.

Development of the new e-commerce business – which is expected to be formally launched this October – won’t come cheap, and that’s where Yahoo’s ¥33 billion investment comes in.

After allowing for ¥200 million in transaction costs, about 80% of the remaining ¥32.8 billion has been earmarked for expenditure on new logistics facilities, while the remaining 20% will go on IT-related investments. These funds are key to ASKUL’s overall five-year ¥57 billion infrastructure and systems investment plan which will see it increase its presence from five to all ten of Japan’s regions. The goal is to offer same-day delivery to 70% of the country’s population with the rest still enjoying a next-day delivery service.

These investments will also benefit ASKUL’s core B2B business, which it still sees as its central pillar. With the acceleration of B2C sales which it now hopes to see, ASKUL has set an ambitious five-year target of achieving ¥500 billion in sales and ¥200 billion in operating income, more than double the current figures.

ASKUL CEO Shoichiro Iwata is no stranger to taking company-defining business decisions. The move to become an online business products and services company was far-sighted, and the Yahoo announcement is in a similar vein.

Iwata will be hoping that the latest venture gets a better boost from the economy than the SOLOEL B2B project. And he is pinning his hopes on a local e-commerce market which is estimated to be worth ¥14.5 trillion by 2016, making it the second largest retail channel after supermarkets.