Social commerce losing steam fast

By Park Si-soo

Once touted as a revolutionary business model that could please both sellers and buyers, social commerce is unable to grab the reins.

The latest financial report on Ticket Monster a week ago revealed jaw-dropping operational losses, likening the firm’s miraculous growth to “an empire built on sand” that could collapse at any time.

The first audit conducted by the Financial Supervisory Service on social commerce firms, triggered massive worries in the market that three other giant social commerce sites ㅡ Coupang, We Make Price, and Groupon ㅡ could be in the same state. Some pessimists predict that at least one will perish by the end of this year.

According to the figures, Ticket Monster recorded sales of 32.71 billion won ($27.8 million) last year, mostly from brokerage fees. It was a 10-fold increase from a year before.

But the firm posted net losses of 66.93 billion won during the same period, operating a money-losing structure. The amount of net losses increased nearly 26 times from the year before.

The drastic increase of losses was largely attributable to explosive business expansion and aggressive advertisement and promotional campaigns, spending as much as 26.7 billion won last year, a 10-fold increase from 2.67 billion won in 2010. Popular actor Kong Yoo is the main actor featured in Ticket Monster commercials.

Aside from advertising, Ticket Monster actively recruited last year and now has some 700 employees. In 2011, wages cost the company 16.1 billion won, up from 860 million won in 2010.

An accountant at Samil PricewaterhouseCoopers who conducted the audit questioned the firm’s sustainability. “The company is virtually in a state of impairment of capital,” the accountant said. “It’s doubtful whether the company can survive in the long run should this situation persist.”

Local credit rating agency NICE Information Service downgraded the firm’s credit rating to “watch,” a level given to a company with visible indicators that operations are deteriorating.

A Ticket Monster spokesman said the company will try hard to stabilize management by extending the maturity of unpaid debts, securing additional funds from banks and issuing new shares.

Information about the financial condition of the three other major social commerce providers was not immediately available. But many analysts and market insiders believe that they are also in a moribund state.

They said these companies should carry out painful downsizing and reduce expenditure for TV and online advertisements. The other three social commerce sites also run TV commercials featuring top celebrities such as actress Kim Tae-hee and singer Rain.

“The primary mission is reducing advertising costs,” said Shin Il-yong, president of Galaxia Communications, an information technology startup specializing in online marketing. “They should make more efforts to restore public confidence with upgraded services rather than increasing traffic to their websites through advertisements.”

Lingering concern is who will compensate clients in the worst event of bankruptcy of any of the four social commerce sites.

There is no government body monitoring the financial state of these sites. Instead the Fair Trade Commission and the Korea Communications Commission regularly monitor discount rates, the quality of products and others factors that can negatively affect consumers’ rights.

Last month alone, Ticket Monster brokered social commerce services worth 37.4 billion won and Coupang handled deals totaling 41.4 billion won.