An Open Letter to Mercari Japan from White Rabbit Express
White Rabbit Express
4–8–5 6F Nakameguro, Meguro-ku,
Tokyo 153–0061
Tel: 03–6450–7109
September 27, 2018
The Board of Directors
Mercari, Inc.
6–10–1 Roppongi, Minato-ku,
Tokyo 106–6118
Attn: CEO Shintaro Yamada
Attn: COO Fumiaki Koizumi
I’m writing to you on behalf of White Rabbit Express, a Tokyo-based ecommerce company, and as a personal investor in the common stock of Mercari (4385:Tokyo).
The purpose of this letter is to share our thoughts on a significant growth opportunity for Mercari Japan. Specifically, we believe Mercari’s policies against proxy services is causing Mercari to miss out on a robust market with huge potential. Our considerable Japan-based cross-border e-commerce experience has given us a unique market understanding, and we’d like to share what we believe are well-informed recommendations for driving meaningful improvements in shareholder value. We thank you for your consideration of our thoughts and welcome any invitation to explore these opportunities further.
About White Rabbit Express
White Rabbit Express makes it simple and easy for overseas shoppers to buy-and-ship nearly anything from Japan. As a pioneer of proxy service in Japan, we understand the pain points of overseas shoppers when it comes to buying from Japan. We handle all of the logistical, backend details — communications, orders, payments, and shipping — so they don’t have to.
The robust demand for Japanese products among overseas consumers is served by a whole cottage industry of package forwarding and proxy service providers. These companies turnover tens of millions of dollars in aggregate revenue from overseas buyers wishing to purchase items from Japanese retail and online shops, auction sites and marketplaces like Mercari. Unfortunately, Mercari policies against proxy services and their actions to disable our account and the accounts of other proxy services, is causing the company to miss out on this explosive revenue opportunity.
The Value of Proxy Service Companies
Although Mercari operates marketplaces in Japan, the US, and the UK, each Mercari marketplace app only serves its respective domestic market; that is, items listed on Mercari Japan are not available in any other region. Overseas buyers wishing to buy an item from Mercari Japan face significant barriers, including:
- an inability to pay with foreign-bank-issued credit cards,
- the need to communicate with sellers in Japanese,
- seller inability to ship overseas; and,
- the need to verify a Japan phone number before they can buy on Mercari.
Mercari policies against the use of proxy services further deny foreign buyers access to the Mercari Japan marketplace — a position which seems at odds with Mercari’s global aspirations.
White Rabbit Express has a stellar reputation as a liaison between overseas buyers and Mercari sellers. We not only help overseas buyers: we deliver a valuable service to Mercari as well. Mercari sellers benefit from our many years of experience facilitating transactions and handling customer support and cross-border shipping between sellers in Japan and buyers around the world. And we provide these benefits at no cost to Mercari or its sellers: we charge buyers a fee for the value-added services we provide. Clearly proxy services are a win-win for Mercari, its sellers, customers and shareholders. Yet we see strong evidence that millions of dollars are being left on the table due to Mercari’s effort to discourage proxy services from participating on the platform.
Our activity on Mercari demonstrates the overseas market potential for Mercari Japan: in the period leading up to July 2018, when Mercari closed our account, we delivered 20,000,000 JPY in revenue to from overseas buyers. While the aggregate yen value may seem small considering Mercari’s total revenue, we were tracking exponential growth — a quarter-on-quarter growth rate of 338% — before Mercari closed our account and blacklisted our address
Furthermore, these numbers don’t show the total volume handled by other proxy services, such as Japonica Market. According to Mercari’s rating system, Japonica Market processed over 12,000 transactions before their account was disabled in late August. We think it’s counterproductive for Mercari to shut down what are surely some of its largest and fastest growing customer accounts, especially at a time when Mercari stock had declined more than 50% from its June high.
When we asked Mercari it doesn’t allow proxy services, Mercari cited concerned about “security”. But proxy services, like White Rabbit Express, in fact improve the security of the Mercari platform. As I’ll make clear below, White Rabbit Express assumes the financial risk of the transactions from abroad thereby protecting Mercari and it’s sellers such risk.
Package Forwarders and Fraud Risk Exposure
Package forwarding services normally work as follows:
- A customer living abroad is provided with a shipping address at the package forwarder’s warehouse in Japan.
- The customer can then place online orders and ask sellers to ship the purchases to the package forwarder’s address.
- The package forwarder receives those packages and ships them out to the customer’s foreign address.
Because the overseas buyer’s true location is “hidden” behind a domestic address, the sellers may believe the transaction is with a regular, domestic customer. As a result the seller may fail to perform a more diligent fraud risk evaluation. For these reasons, many Japanese shops prohibit forwarding services and ban the address of known forwarding companies.
Proxy Services Protect Sellers from Fraud Risk
Proxy services, unlike package forwarders, actually protect Mercari sellers from exposure to fraud risk. Since we pay for purchases on our customer’s behalf Mercari sellers receive payment directly from a local, Japanese business entity; not from any overseas buyers. If the overseas customer payment turns out to be fraudulent, the proxy suffers the loss; not Mercari.
Other Ways Mercari Benefits from Proxy Services
Along with bridging Mercari Japan and the global market, and protecting Mercari and its sellers from fraud, proxy services provide other benefits as well. Mercari sellers struggle with buyers who cancel at the last minute or who don’t communicate in a timely manner. However, Mercari sellers who work with White Rabbit Express are assured a more reliable experience compared with individual buyer behavior.
Sellers on Mercari Japan may also feel uneasy about doing business with new customers who have little or no reputation on the platform. But as a high-volume purchaser, sellers who receive orders from proxies can rest assured they are dealing with a reputable buyer. Mercari has stated they worry proxy services may lead to “trouble” on the platform, but before our account was disabled, we had completed over 5,000 transactions all while maintaining a near perfect 良い (good) rating. Only 13 out of 5,173 sellers gave us a “poor” rating. We believe this argument from fear is without substance.
Considering the enormous value proxy services are providing, we feel it makes more sense for Mercari to acquire us; not fire us!
Mercari Should Embrace Market-Expanding Partnerships
The industry trend among leading e-commerce platforms is aggressive market growth through channel expanding partnerships. We see that with the Amazon and Snapchat collaboration, and with Shopify — the leading multi-channel commerce platform — collaborations with Facebook, eBay, Pinterest, and Instagram.
At Shopify Unite 2018, Satish Kanwar, VP & GM of Channels, said empowering multi-channel retail will be Shopify’s “biggest commitment this year”.
During a Q2 earnings call earlier this year, Amy Shapero, Shopify’s CFO, stated, “The diversity of our revenue drivers and of our merchant base contributed to our strong revenue growth this past quarter,”
Harley Finkelstein, COO of Shopify, stated, “the future of the industry is being shaped by consumer choice. They want products to be available for purchase on any channel they want, they want multiple delivery options and they want to pay for it through multiple gateways.”
Yet Mercari Japan remains isolated to a single domestic market and unwilling to collaborate with proxy services who maintain a proven track record for delivering access to the overseas market.
Overseas demand for Japanese products is large and growing. Proxy services like White Rabbit Express have done an exceptional job of serving this demand. We’d like to continue providing our valuable service, enabling Mercari sellers to serve the global marketplace. We believe all shareholders will benefit from the value-creation that results from Mercari embracing a more collaborative attitude with cross-border specialists.
We look forward to starting a collaborative dialogue, and we are excited about the path ahead. Thank you very much for your time and consideration.
Sincerely,
Max Hodges
Founder & CEO, White Rabbit Express
