E-Commerce Market in South Korea

The South Korean e-commerce market has been diverse and scattered for over a decade, and Coupang stands out this year among the competition.  It is now heading to take over more market share and more profit. There is a reason behind this Coupang rocket ship soar; Coupang pivoted in 2014 to 1P direct buying and 3P marketplace e-commerce platform like Amazon from Groupon concept coupon-selling social commerce.  However, as a Korean consumer, we tend to crave new trends, adapt fast to changes, and easily forget the routine effort. There is no time to enjoy the fruit of success and be ready to battle with new growers. This is why many global startups use South Korea as a test market to see the peek results faster.  <h2 style="text-align: justify;">South Korean E-commerce Now  </h2>In 2023, South Korean e-commerce companies are focusing on market size scaling, reducing the deficit, and strengthening internal stability for monetization. The market growth rate has declined due to the post-pandemic and intensifying competition in the South Korean e-commerce industry, and in line with the obvious global trend, it is challenging to receive large-scale investment as before, as economic variables such as interest rate hikes. E-commerce companies again plan to accelerate profitability improvement in the second half of 2023 by improving business efficiency and restructuring commissions. After Coupang's planned bold deficit, in the first quarter of this year, it turned a surplus operating profit of KRW 136.2 billion compared to the same period last year (2022 Q1 operating loss of KRW 252.1 billion). Due to the efforts to improve profitability, such as an increase in WOW membership fee (2,900KRW to 4,900KRW per month per member, 1.1million paid members), 1P direct buying margin improvement, and logistic efficiency improvement benefiting an increase of freight volume by adding Rocket Growth fulfillment service (3P items fulfillment by Coupang). Coupang’s following competitors in all category e-commerce platforms, SSG.com and LotteON, also showed the same trend of reducing the deficit. The losses of SSG.com decreased by 2023 Q1 loss of KRW 15.6 billion from 2022 Q1 loss of KRW 25.7 billion. SSG.com's strategy to focus on high-margin products, such as luxury goods and beauty, worked well. Also, SSG.com’s 2021 newly purchased platform, Gmarket, also reduced losses through high-margin products, efficient marketing, and logistics costs. In the case of LotteON, it has been focusing on improving its profit structure, such as completely discontinuing early-morning delivery. Currently, LotteON is concentrating on high-margin verticals (category killer e-commerce) such as beauty, luxury goods, and fashion. All category-aimed marketplace e-commerce platforms’ 2022 performances are as below. <ul style="text-align: justify;"><li>Coupang (2022 revenue KRW26.35 trillion/2022 operating profit KRW9.9 billion),  </li><li>SSG.com (KRW1.75 trillion/-KRW111.1 billion),  </li><li>LotteShopping (KRW15.48 trillion/KRW386.2 billion) - includes all Lotte offline retail businesses,  </li><li>11st street (KRW789 billion/KRW-151.4 billion) </li></ul>   <h2 style="text-align: justify;">E-commerce Strategy for Success </h2>At each stage of Coupang's growth, various expansion strategies were used. Logistics Next-day delivery, early morning delivery, same-day delivery, and Rocket Growth delivery (3rdparty selling item fulfilled by Coupang) that backed up by Coupang’s large-scale logistics centers and an increasing number of local hub logistics centers, also a strong use of manual labor for flexible response to the volume before adding logistics automation 1P Coupang Direct Buying Selection Expansion Baby category selections -> Daily necessities selections for repeat purchase -> large-scale longtail items selections resulting in 5 million SKU selection -> Electronics category selections with pre-order service, especially Apple devices with pre-order promotion and early morning delivery benefit -> Fresh food category with early morning delivery (However, categories still not conquered: beauty, fashion, travel) Customer Benefits WOW Membership launch (KRW 2,900/month vs. KRW 3,000-4,000 per parcel shipping fee for e-commerce in Korea) and Coupang Play (OTT services like Amazon Prime Video and Netflix) provided for free for WOW Membership customers Pricing Strategy Online lowest price matching strategy for major 1P strategic items  <h2 style="text-align: justify;">Rising Vertical E-commerce Startups in South Korea </h2>Here is a quick look at a few vertical e-commerce platforms available in South Korea. The below categories still need to be conquered by above all category e-commerce companies, and each competitor is showing its edge to survive. (2022 revenue KRW/2022 operating profit_loss KRW) – below financial data is referenced by outstanding. kr post that aggregated dart.fss.or.kr company disclosure data Fresh Market Kurly (2.37 trillion/-233.4 billion), Oasis Market (427.2 billion/4.8 billion) Fashion Musinsa (708.3 billion/3.1 billion), Ably (178.4 billion /-74.4 billion), WconceptKorea (136.7 billion/3 billion), Brandi (119.1 billion/-45.9 billion), Zigzag (101.8 billion/-51.8 billion) Travel Yanolja (604.5 billion/6.1 billion), 여기어때goodchoice.kr (305.8 billion/30 billion), Myrealtrip (22 billion/-27.5 billion) Lifestyle Marketplace 오늘의집ohou.se (186.4 billion/-36.2 billion), idus (54.7 billion/-10.8 billion) Reselling commerce Kream (45.9 billion/-86 billion), 당근마켓daangn.com (49.9 billion/-56.4 billion), 번개장터bunjang.co.kr (30.4 billion/-34.8 billion), 중고나라joongna.com (10.1 billion/-9.4 billion)    This article was contributed by our expert <a href="https://www.linkedin.com/in/youjeong-vero-lee/" target="_blank" rel="noopener">Youjeong Vero LEE</a>  <h3 style="text-align: justify;">Frequently Asked Questions Answered by Youjeong Vero LEE</h3><h2 style="text-align: justify;">1. What is the current state of e-commerce transformation in South Korea? </h2>According to the announcement of the Korea National Statistical Office, the Korean e-commerce transaction amount in 2022 was KRW 209.9 trillion, showing a 12.2% increase compared to the previous year.  In 2022, E-commerce held 33% of the total Korean retail market, and e-commerce kept its growth until the pandemic peak.  It can be e-commerce’s stagnant season for the next few years if there is no new vivid momentum. (The annual retail market transaction amount (retail sales) in 2022 was KRW 632.4 trillion, a 21.9% increase from the previous year's 518.5 trillion)  <h2 style="text-align: justify;">2. What is Coupang, and why is it considered a dominant player in South Korea's e-commerce market? </h2>Coupang Inc. is one of the largest e-commerce companies in South Korea. It was founded in 2010 as Groupon concept coupon-selling social commerce and pivoted in 2014 to a 1P direct buying & 3P marketplace e-commerce platform; and since then, it has grown into a major player in the country's online retail market, and from 2022, it became no.1 market share e-commerce company. Coupang operates as an online marketplace, offering various products across various categories, including groceries, electronics, fashion, beauty, home appliances, and more. Along with the Coupang app, Coupang Inc. also operates the CoupangEats app, food delivery service and CoupangPlay app, and OTT services like Netflix and Amazon Prime Video.Coupang, NAVER Shopping, and SSG.com+G market were the top 3 players in 2022 South Korean e-commerce, but in my article, I didn’t mention NAVER Shopping because it does not have a direct buying retail structure with a fulfillment center, and it only functions as a 3P marketplace platform. Coupang is a dominant player who has made a significant online transformation in the South Korean e-commerce market in terms of market share, deep penetration to retail core business with a fulfillment center, its expansion strategy, and also internal startup culture, which I will mention in the FAQ answer below. <h2 style="text-align: justify;">3. How has Coupang contributed to the transformation of South Korea's e-commerce landscape? </h2>Entering South Korean e-commerce as a latecomer, Coupang served as a disruptor of the retail industry. After attracting large-scale investment, strategically lowered product prices and aggressive marketing and built large-scale warehouse facilities to improve logistics costs. Also, internally, Coupang is more appropriate to refer to it as an IT company rather than a retail company.  Coupang's systems are developed internally from scratch, and it was Korea's first-generation unicorn startup in 2014. Coupang is keeping its fast and agile work culture with startup genes as its source of power, even though it has grown into a large employee size. <h2 style="text-align: justify;">4. What challenges does Coupang face in maintaining its dominant position in the South Korean e-commerce market? </h2>For 1P Coupang direct buying business, after complicated negotiations with South Korea’s major manufacturers, some major manufacturers turned their face away from supplying to Coupang and cooperated with other competitors, pulling out 1P sourcing to Amazon direct buying in the U.S. It is a challenge to Coupang to expand 1P retail profit with other suppliers on the way.  <h2 style="text-align: justify;">5. Are there any regulatory concerns or potential issues that Coupang needs to address? </h2>First, more the e-commerce market share Coupang, the issue of unfair competition will aim Coupang sharply.  The second concern of consumer protection and data privacy. Coupang handles vast amounts of customer data, and there is a need to ensure that personal information is adequately protected and used in accordance with relevant regulations. Data breaches or mishandling of customer data can result in reputational damage and legal consequences.

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