By Brian Baker
When the defending NBA Champion Golden State Warriors arrive for practice, they arrive at the Rakuten Performance Center in Oakland. When they put on their game jerseys, they put on a jersey with a Rakuten logo.
In Spain, FC Barcelona, one of the world’s most recognizable soccer teams, also wears the Rakuten name across its uniform.
These sponsorships have not come cheap for the Japanese e-commerce giant–each reportedly running into the tens of millions–but the company hopes they will help it reach a more global audience.
Rakuten Inc. was founded in 1997 by Hiroshi Mikitani, a graduate of Harvard Business School, who grew the company to more than ¥944 billion in sales during 2017, or about $8.8 billion.
The company got its start as a marketplace for independent retailers to sell goods online, but has used acquisitions as a way to grow into new product areas and geographies.
Japan’s declining population has forced the Tokyo-based company to think globally if it wants to keep growing. In 2010, Rakuten purchased U.S.-based Buy.com for $250 million as a way to establish a presence in the U.S. Four years later it added rebate site Ebates.com to its portfolio.
Despite the acquisitions, Rakuten remained relatively unknown outside of Japan. The company recently made the decision to rebrand the websites using the Rakuten name.
In November 2016, Rakuten announced the sponsorship deal with FC Barcelona, for €55 million a year according to the Financial Times.
Less than a year later, it announced the agreement to sponsor the Warriors uniform, for $20 million annually, ESPN reported. The deal included a 2.5-inch patch on the team’s jersey and naming rights to the practice facility. The agreement was almost twice as expensive as the NBA’s next highest jersey sponsorship between the Cleveland Cavaliers and Goodyear Tire and Rubber Co., according to ESPN.
Critics might question whether sponsorships like these make sense considering their cost and distance from Rakuten’s home market. J.P. Morgan analyst Haruka Mori cited the costs of the Warriors and Barcelona agreements as limits to profit growth in a December note to clients.
Tom Collinger, an associate professor at Northwestern University who specializes in marketing, says that companies should think about building awareness in an integrated way. “These are not investments to drive immediate sales,” he said in an email. While sponsorships should not dominate a company’s advertising plan, Collinger argues, they can be a part of building awareness.
Rakuten’s advertising strategy differs from that of other e-commerce companies, notably Amazon.com Inc., which built its business without spending large sums on traditional advertising. Collinger notes that Amazon offered an innovative website and superior customer experience that allowed it to attract customers quickly.
Rakuten is in the difficult position of competing with Amazon which last year booked $177.9 billion in sales, including $11.9 billion in Japan. David Weiss, a partner at Chicago-based retail consulting firm McMillan Doolittle LLP, is skeptical of whether Rakuten can compete with Amazon in the U.S. “At present, Rakuten doesn’t have the brand awareness, niche offering, or easy-to-shop experience that would capture new customers in the US for everyday items in an easy way,” he said in an email.
In January, Rakuten joined forces with Walmart Inc. to sell groceries online in Japan and e-books and audiobooks in the U.S. Revenue in Rakuten’s Americas segment grew 23 percent to ¥148.8 billion in 2017, or about $1.4 billion. Its Americas segment accounts for about 16 percent of total sales.
For Rakuten and its global ambitions, building awareness is an important first step. “Nobody knows about Rakuten in the U.S.,” said Mikitani during a press conference announcing the deal with the Warriors last September. “When we heard about the opportunity, it was a no-brainer.”