Rakuten expects Q4 loss of $272m as it introduces its marketplace model to Play.com and Buy.com

Rakuten expects Q4 loss of $272m as it introduces its marketplace model to Play.com and Buy.com

Rakuten, the Japanese e-commerce firm, is predicted that its fourth quarter financial results will see it take a hit to the tune of 25,583 million yen (that’s around $272 million) due to the rebranding and restructuring of its operations in the US and UK: Buy.com and Play.com, respectively.

Note: The main figure above has been corrected since this article was first published – apologies for any misunderstanding.

The company is changing the way that the two sites — both of which are hugely popular in their own markets — work, with a move towards its ‘Rakuten Ichiba’ B2B2C marketplace model that has worked so successfully in Japan. That will mean no sales will come direct from the Rakuten-owned sites, instead they will host merchants who will provide goods to visitors. Rakuten will be the middle man, helping to bring shoppers and merchants together.

For example, Play.com’s retail business is to cease selling videos, DVDs and music and instead embrace a marketplace-style approach, which is also favored by Amazon. That’s a pretty controversial move, and it remains to be seen how it will play out.

It is more complicated than that, of course, of Rakuten maintains certain standards and works very closely with its sellers to ensure that they are getting the most from its service. It is far from a hands-off process, but it is one that many mainstream retailers and customers in the West are not hugely familiar with — yet.

The company explains more about its plans for Buy.com and Play.com in a note to investors:

One of the pillars of the medium growth strategy of the Rakuten Group is overseas expansion of the B2B2C marketplace model of “Rakuten Ichiba”, which has secured high levels of profitability and superiority in Japan’s e-commerce market.

Based on this strategy, to improve the medium term competitiveness of Buy.com Inc. (US), we have concentrated on transforming the business model away from first party (direct) sales which had been the principal model, to a B2B2C marketplace model. As a result, recent levels of profitability have been below our original plans, and so we are carrying out an impairment of goodwill and intangible assets. In addition, Play.com (UK) has also been switching its business model in a similar way, and amidst regulatory changes it carried out a corporate reorganization, hence we are recognizing a loss associated with this business reorganization.

Rakuten is set to announce record revenue for its 2012 financial when it posts its end of year financial results on February 14 — having already hit $3.8 billion in Q3 2012. However, it also details the figures behind the ‘extraordinary loss’ that it is expecting to see on account of its international restructuring.

Consolidated Accounts

(Millions of yen)
Buy.com: goodwill impairment 12,566
Buy.com: impairment of other intangible assets 5,778
Others 13
Business Reorganization
Play.com: impairment of other intangible assets 2,140
Play.com: other business reorganization loss 2,108
Loss on disposal of fixed assets, investment securities valuation loss and others 2,978
Extraordinary loss total (Q4/12 consolidated accounts) 25,583

Non-consolidated Accounts

(Millions of yen)
Business Reorganization
Play.com: business reorganization loss 7,600
Loss on disposal of fixed assets and others 1,906
Extraordinary loss total (Q4/12 accounts) 9,506

Rakuten will doubtless explain more about the changes this week. The company is in the midst of making some very impacting moves, as it looks to bring its marketplace model — which is already operating across Asia — to Western markets.

Image via Priceminister / Flickr

Read next: P2P FX platform CurrencyFair announces $500m of transactions so far, and vies for $1bn in 2013 alone