Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
INTERVIEW TMON adopts Alibaba way to boost profits
TMON CEO Lee Jae-hoo / Courtesy of TMON
By Park Jae-hyuk
CEO confident about competing with Shinsegae, Coupang
By Park Jae-hyuk
TMON aims to turn a profit in 2021 by following the business model of Alibaba, which acts as a middleman between buyers and sellers online, according to the head of the eight-year-old e-commerce company.
In a recent interview with The Korea Times, TMON CEO Lee Jae-hoo said such a strategy and its accumulated knowledge will enable his company to win the fierce battle with online retailers and forthcoming competition with offline retailers.
The online shopping platform provider, which has a longstanding rivalry with Coupang, WeMakePrice and other e-commerce firms, is facing new challenges from Shinsegae, Lotte and other offline retailers which have begun entering the nation's e-commerce market.
Lee, who took the office in October, said his company will outperform the retail giants in the market with its “digital DNA.”
“Online marketplaces differ from brick-and-mortar stores in terms of manpower management, merchandising and customer feedback,” he said.
“If you compare our website to the current online shopping platform of E-mart, you will discover the difference between the two in ways of communication with customers. E-mart lags behind us in ability to come up with something new. We have developed our abilities to draw attention from customers over the past eight years.”
Lee expects the conglomerates will need a certain amount of time to transition successfully from offline to online.
“As for categorization, online marketplaces should reduce partitions between categories, compared to offline stores. I don't think the conglomerates can learn such tips in a short time and catch up with us, because we have learned from trial and error over the past eight years,” he said.
“Although the brand awareness of E-mart among middle-aged consumers is incomparably higher than ours, we do not think our brand awareness is lower than E-mart's among young consumers in their 20s and 30s. E-mart will face difficulty in raising its brand awareness among young people.”
What he said is in contrast to what industry analysts expect.
When Shinsegae announced earlier this year it would attract 1 trillion won ($882 million) from Affinity Equity Partners and BlueRun Ventures to establish a new corporate body for e-commerce business, analysts said the retail giant with large economies of scale will threaten the market shares of existing online shopping platform providers.
However, Lee said the moves of offline retailers will create new opportunities for TMON.
“Shinsegae's market entry will increase the size of the market,” he said.
“Suppliers of perishable foods have no reason to sell their products to a single company. They will look for another channel to supply their products, because they want to avoid being subordinate to a single client. And for now, we are the only alternative for them, because we are the only e-commerce firm doing a supermarket business.”
Benchmarking Alibaba
The chief executive confidently said consumers will also make their purchases from TMON which can sell perishable foods for lower prices than E-mart does.
According to the CEO, TMON can offer lower prices because it follows Alibaba's approach, not Amazon's.
The Chinese online retailer is known as a company that focuses more on providing a marketplace for sellers and buyers, unlike the U.S. e-commerce company which directly sells what it bought from vendors.
“Attractive prices come from consignment sales,” Lee said.
“You may think direct sales are necessary for perishable foods, because you are used to E-mart's business model. However, direct deliveries from places of production reduce retail margins. This shows consignment sales are available for perishable foods as well.”
He believes Alibaba's approach also enables efficient logistics management.
“It is true that e-commerce business is comprised of both retail and logistics. However, it does not mean that a single company should manage both retail and logistics,” he said.
“When conglomerates established dotcoms in the past to run e-commerce businesses, they established logistics firms at the same time. In retrospect, however, the two have been irrelevant to each other.”
As an example, Lee cited CJ, which has failed to distinguish itself in the e-commerce market, despite its ownership of the nation's No. 1 logistics firm, CJ Logistics.
He added Amazon's approach hikes prices, because of companies' attempts to recoup losses from direct sales.
His remarks are aimed at TMON's rival, Coupang, which has followed Amazon's business model.
After increasing the volume of direct sales and expanding its logistics capacities, the cumulative deficit of Coupang has reached over 1 trillion won over the past three years.
Lee said e-commerce firms do not have to internalize what they can outsource.
However, he denied claims that his company will stop direct sales completely.
“Double-income families want to get deliveries during weekends or when they are at home,” he said.
“We will continue a certain amount of direct sales and will run a logistics center for such customers.”
Turnaround plan
The CEO said TMON will turn a profit in the second half of 2021, based on these strategies.
The schedule is a year later than what former CEO Yoo Han-ik said in April, when TMON posted a 118.5 billion won operating loss in 2017.
“We can actually hit the break-even point even now, if we reduce our investments in technologies,” Lee said.
“However, we would lose our market share. Also, we would be unable to offer what our customers want.”
The CEO emphasized TMON has always put the top priority on its growth.
“If our investors had ignored our growth potential, they would have not entered the e-commerce industry,” he said.
In 2015, KKR, Anchor Equity Partners and TMON founder Shin Hyun-sung acquired a 59 percent stake in TMON from Groupon for $461 million.
Since the private equity funds took control of TMON, the e-commerce firm has been rumored to be a takeover target.
Analysts also expect the stakeholders will pressure the money-losing company's young executives to concentrate on profit maximization.
However, Lee denied their claims, saying TMON's shareholders are not that short-sighted.
“Basically, I have knowledge in private equity funds, and most of them foresee the next 10 years,” said the CEO, who also worked for the U.S. management consultancy, Bain & Company.
“When private equity funds try to sell their stakes they bought five years ago, they should come up with blueprints for the next five years to show to buyers. For this reason, they cannot be short-sighted.”
The CEO added TMON's shareholders will make continuous investments for the e-commerce company's future.
“As chief executive, I have continued communicating with our shareholders,” he said.