Can used goods trading platforms make money?

Daangn Market Co-Founder and Co-CEO Kim Jae-hyun / Korea Times photo by Choi Won-suk

By Lee Kyung-min

• Published Apr 19, 2023 6:55 PM KST
• Updated Apr 20, 2023 3:36 PM KST

Daangn says portfolio diversification key to long-term profit

By Lee Kyung-min

Daangn Market and Joonggonara ― Korea's two leading online flea market platform operators ― are struggling to find a breakthrough strategy to offset years of operating losses, a concern amplified by overall rising costs of labor, transaction fees, maintenance and promotion campaigning, according to market watchers and company officials, Tuesday.

Further clouding the prospects for the once-booming contactless service industry players over the past few COVID-19 pandemic years are a lack of sustainable profit models, compounded further by the thinning patience of profit-driven venture capitalists amid dimming outlook for handsome returns.

Also weighing on them is fierce competition in the rapidly saturating market, as evidenced by a growing number of online platforms including traders of high-end pre-owned designer brand goods.

KB Securities researcher Lee Soo-kyung said the online platforms should outline a strategy for growth, since charging transaction fees to platform users is not an option.

“Their profit models should utilize market dominance, or they will face calls from investors seeking to cash out.”

Daangn says its sales growth outpaced losses last year.

“We are growing. The increase in operating profit rose faster than the increase in operating costs,” a Daangn Market official said.

Its user numbers went up, reaching 32 million as of last year, an increase of more than 10 million from the year before. Its ad revenue doubled last year from the year before.

But its claim failed to account for how last year's two-fold year-on-year sales increase of 49.9 billion won ($37.8 million) is widely eclipsed by an operating loss of 56.5 billion won and a net loss of 54 billion won. The operating loss and net loss were up 60.4 percent and 48.3 percent from the year before.

The firm hasn't been able to end years of sustained losses since its launch in 2015. The poor performance of Daangn Pay, its payment service, is not helping, either.

Its operating costs, all the while, spiked to 106.4 billion won last year, up 74.8 percent from a year earlier, the major deficit driver.

Labor costs and payment fees, which account for 30.5 percent and 28.9 percent of the firm's total spending, doubled. Promotional campaign ad costs which account for 24.7 percent of total expenditures increased 15.7 percent.

The situation is far worse for Joonggonara, jointly acquired by financial investors and Lotte Shopping, a consumer business affiliate of Lotte Group.

Its operating loss came to 9.5 billion won last year, a seven-fold jump from 1.2 billion won a year earlier. Net loss spiked sixfold to 9.3 billion won, whereas sales climbed only 16.7 percent to 10.1 billion won.

Sales maintenance costs nearly doubled last year to 19.2 billion won. Promotional ad campaign costs surged tenfold to 5.4 billion won, up from 500 million won in 2021.

Whether the two will be able to find a timely new strategy to capitalize on the rapidly growing market remains to be seen.

Data from the Korea Internet & Security Agency, an ICT ministry-affiliated organization, showed that the size of the local online flea market stood at 24 trillion won in 2021, up from 4 trillion won in 2008.

Daangn remained the most-downloaded app for over three years between May 2020 and last month.

The number of its monthly active users (MAU) dropped to around 15 million this year, from a peak of 17.03 million in April last year.