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Rakuten Mobile shutters 20% of stores in bid to reach profit goal

Rakuten Group will shutter 20% of its mobile phone stores, the Japanese technology conglomerate announced Friday, as it scrambles to meet profitability goals for this year.

The number of locations will be reduced from 1,261 to about 1,000. The stores to be closed are all located inside post offices, where Rakuten had set up application counters to take advantage of the capital and business alliance with Japan Post Group. The company had counters in 280 post offices.

The company will instead place flyers at 20,000 post offices nationwide, directing potential customers to more profitable online sign-ups.

“We aim to increase points of contact with consumers and further improve recognition,” a Rakuten representative said.

Regarding the fate of stand-alone locations and those in electronics stores, the company said it will continue to adjust to customer needs. The company has seen customer flow at stores dropped sharply since the company ended its zero-yen plan that offered free data for light users.

The closures come as the company appears to be grasping at straws to reach its profitability goals. Another move to boost sales and gain customers in Japan’s highly competitive mobile market is calling on employees to enlist friends and family as new customers.

Rakuten rapidly expanded its store network after entering the mobile phone business in April 2020, aiming to improve name recognition. Now it is making profitability a priority.

Rakuten is not the only mobile company closing shops. Store visits have declined industrywide due to changes in consumer behavior such as not going out as much because of the pandemic and an overall decline in smartphone sales.

NTT Docomo, Japan’s leading mobile carrier, is also planning to close stores and focus on customer acquisition via the internet.

However, Rakuten’s situation appears more dire. Investments in its mobile phone business have piled up, with the company’s consolidated net loss for the January-September 2022 period reaching 258 billion yen ($2 billion).

In May, Rakuten Mobile announced that it was doing away with its zero-yen plan, which provided up to 1 GB of data per month for no charge, in a move to improve profitability. The reduction in stores may also partly be aimed at cutting costs.

Growing income is another challenge. Mobile phone business revenue is determined by multiplying the average revenue per user (ARPU) by the number of subscribers. In doing away with the zero-yen plan and setting the minimum monthly charge to 980 yen, Rakuten’s ARPU, which was previously less than 1,000 yen, rose to 1,472 yen in the period from July to September 2022.

By comparison, the ARPU for Japan’s major carriers comes to 4,080 yen for Docomo, 3,920 yen for KDDI and 3,880 yen for SoftBank Corp.

Still, the company lacks users. Rakuten Mobile is aiming to be profitable on a monthly operating basis by sometime this year. According to a UBS Securities simulation, even if Rakuten’s ARPU reaches 2,500 yen, it will be necessary to acquire about 900,000 new users per month to reach that goal.

User totals, which had exceeded 5 million as of last April, dropped to 4.55 million at the end of September following the end of the zero-yen plan. Although Rakuten says customer figures have recently returned to a net increase, “it will be extremely difficult to achieve the profitability goal,” said Kenji Fukuyama, an analyst at UBS Securities in Tokyo.

One method Rakuten is using to attract customers is through employee connections such as relatives and acquaintances.

Launched in November, the company aimed to sign up one to five new customers per employee, depending on the employee’s department. The original deadline was scheduled to be the end of December, but was changed to the end of this month after falling well short of the goal.

“Employees who produce good results are highlighted at morning meetings, and those who don’t are scheduled for interviews,” a Rakuten Group employee said. Other employees have said they are essentially filling quotas.

Another move that raised eyebrows was a decision to in December to raise the maximum number of lines per customer from five to 10. Docomo and other major providers limit the number to five as a countermeasure against fraud such as wire transfer scams.

Rakuten is also looking to start full-scale sales of corporate contracts.

Rakuten Mobile’s reputation for dropped connections has not helped it gain users. Despite coverage having reached 98% of the Japanese population, Rakuten does not have access to so-called platinum bands, which are reliable high-frequency bands used by the country’s three major carriers.

Rakuten has been pushing the three major carriers for a reassignment of bands. The Ministry of Internal Affairs and Communications is expected to finalize a policy this spring based on a proposal by Docomo in November to allocate unused bands.

The three major carriers have strengthened their retention of users through bundled contracts with utilities like electricity and gas, and “movements to switch carriers are slowing down,” said Hideaki Yokota, research manager at Tokyo-based MM Research Institute.

A recent series of corporate bond issuances also raised questions about the company’s future. In November, a total of $500 million of dollar-denominated unsecured senior bonds were issued at a high yield of 12%, followed by an additional $450 million. The company is also preparing to issue 250 billion yen in corporate bonds for individuals.

“Rakuten needs to properly explain its future outlook as soon as possible,” said Takahiro Kazahaya, a senior analyst at Credit Suisse Securities. Nikkei.Asia

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