COVID-19 induces rapid changes in retailing

The unprecedented coronavirus pandemic, which broke out in late December 2019 and has now engulfed the world, portends to reshape our lives, and the world order as we know it. This is the seventh of a series to cast light on the changes that might lie ahead. ― ED.

By Kim Jae-heun

It had been predicted that one day people would no longer go to a supermarket to shop for fresh food and daily necessities; but no one expected the day to come this early and in such a short period of time.

Local offline retailers such as Shinsegae and Lotte Shopping were enjoying their hey-day until e-commerce firms begin to appear on the scene in 2010 to take their customers away one at a time.

Shinsegae affiliate E-Mart, the country's largest retailer, ignored this reality until the second quarter of last year, when the company recorded its first ever operating deficit in the 26 years since its establishment in Nov. 1993. E-Mart's sales had increased 14.8 percent compared to those of the second quarter of 2018, but the fierce competition with e-commerce players dropped unit sales prices ― leading to a big loss

Shinsegae and Lotte Shopping did everything to keep their customers from moving to online shopping platforms, but the COVID-19 outbreak put an end to their last struggle.

The government advised people to stay home and avoid outdoor activities to prevent a massive spread of the novel coronavirus. Like it or not, people begin to grocery shop online with their computers and mobile phones. In addition, people began buying up large quantities of living necessities to prepare for the possibility of the whole country entering a lock down, and ensure that they did run out of food.

This changed the whole game in retailing where the number of customers at offline stores dropped drastically.

According to the Ministry of Trade, Industry and Energy, sales of major e-commerce firms in March this year increased 16.9 percent while those at offline stores declined 17.6 percent. Here, offline players not only refer to supermarkets, such as E-Mart, but also department stores and small specialty stores selling beauty and healthcare products.

Lotte Shopping announced in February that it would close 200 of its bricks-and-mortar outlets, around 30 percent of the 700 it operates nationwide. Of course, the process will take three to five years, and the retail giant said it plans to shut down just 15 stores this year ― mostly supermarkets.

To take their place, Lotte launched the online platform “Lotte ON” last week, which combines all of the company's online shopping malls, to fully focus on the e-commerce market.

Shinsegae started its online business two years earlier than Lotte, launching SSG.com in 2018 and it successfully brought loyal customers to shop at its grocery segment. Its E-Mart affiliate announced it would invest 1.31 trillion won into SSG.com over the next three years to take on Lotte ON and Coupang, the No.1 player in online platforms.

The game has changed so that now all retailers are focusing on their online businesses, whose volume has soared 24.5 percent to record 11.96 trillion won in February alone, according to data from Statistics Korea. The volume of shopping done on mobile devices also increased 31.1 percent to 8.14 trillion won.

The COVID-19 pandemic played the role of a catalyst in boosting the consumption pattern of millennials who were already enjoying online shopping, and further attracted other generations to the market.

The coronavirus also caused changes in people's dietary habits ― instead of frequently dining out, people are choosing to eat at home. Society has also been seeing an increasing number of one-person households and working couples than before. This helped sales of so-called home meal replacements skyrocket. CJ Cheiljedang's sub-label “Cookit,” which specialize in producing “meal kits” that provide all the necessary ingredients for a meal in one package, recorded a 47 percent sales increase in February and 100 percent in March compared to last year.

“COVID-19 has expanded home meal replacement options for customers, who were already enjoying them. It led to an increase in sales of our meal kits too,” a CJ Cheiljedang official said.