The low-price purchase of Play.com by Japanese online investor Rakuten has raised doubts about the brand’s success
Why are we talking about it now?
Play.com, one of the UK’s most successful etailers, is being bought by Japanese online investor Rakuten. The £25m price tag has raised eyebrows, with observers baulking at the low price, given that estimates earlier in the year valued Play.com at £400m.
What is Play.com?
It is a pure-play entertainment etailer that has capitalised on the appetite for internet shopping for its core products, which include CDs, DVDs, video games and electronics.
Founded in 1998, Play.com is a relative veteran in the online shopping game. It is well established as one of the UK’s biggest online companies and has survived the tough trading conditions that have resulted in the fall of entertainment retailer Zavvi.
Located in Jersey – which means its accounts aren’t available – Play.com exploits a VAT loophole that enables companies to sell certain goods online free of VAT from the Channel Islands, which are classed as sitting outside the EU. The advantage means Play.com can undercut high street stores.
What plans does the new owner have for Play.com?
It is unclear at this point what Rakuten has planned for Play.com, as the deal is yet to fully go through.
However, sources told Retail Week that Rakuten could merge Play.com with two of its latest European acquisitions – German retailer Tradoria and PriceMinister in France – both of which are ecommerce platforms.
Rakuten, which made it into the IGD’s top 10 online retailers to watch for 2011, wants to continue its expansion in Europe. Although relatively unknown in the UK, Rakuten has operations in 10 countries.
Why the low price tag?
Observers suggest that Play.com’s relatively low price tag raises questions over the brand’s success.
Ecommerce specialist eCommera director Michael Ross called the valuation “very, very low” and argues that it could indicate that Play.com has been struggling in a tough market along with other entertainment retailers in the face of competition from supermarkets and downloading.
One analyst argues that Play.com has lost its unique selling point – being the cheapest in the market.
“When you’re in commodities as Play.com is, you’ve got to be the cheapest,” says the analyst. “They were onto this early, but a lot more people have come along.”
Play.com declined to comment.