ANALYSIS Shinsegae raises challenge to Coupang
Retail giant to create synergy between on- and offline businesses
By Kim Jae-heun
Shinsegae Group has completed all the procedures for the acquisition of eBay Korea as of Nov. 15. Now the retailer only faces strong competition against Naver and its main rival, Coupang.
Shinsegae's market share in the online shopping sector only reached 3 percent before taking over eBay Korea. The Korean branch of the American multinational e-commerce firm, eBay, currently accounts for 12 percent of the market share of the online shopping sector. This figure, when combined with that of SSG.com (Shinsegae's online shopping platform), places the Shinsegae second overall in terms of its market share.
Naver and Coupang account for 17 percent and 13 percent of the market share, respectively. Shinsegae has managed to increase its presence, but has yet hit its stride in terms of implementing seamless business operations.
Tailing the big three is online retail competitor 11st, which recently joined hands with both Amazon, the world's largest e-commerce platform, and Lotte Shopping.
Shinsegae Vice Chairman Chung Yong-jin envisions establishing what he calls a “digital ecosystem,” where he will combine both the company's online and offline retail businesses to create a synergistic effect.
Shinsegae may be new to the e-commerce sector, but it has long been a super power in the offline retail business with its affiliate, E-mart, the country's largest retailer. E-mart operates the highly successful Shinsegae Department Store in Gangnam, Seoul. In January, E-mart acquired a professional baseball team in an effort to extend its brand's reach.
Chung's plan is to create a big platform where customers can come to watch baseball games, shop at a nearby mall and stay at a hotel ― all under the Shinsegae moniker.
But first, Shinsegae has to successfully merge SSG.com and eBay Korea. In the early stage, the retailer will be running two e-commerce firms independent of one another, but sharing E-mart's and SSG.com's fulfilment centers. Shinsegae will also share big data collected between eBay Korea and SSG.com to better understand the market and customers' needs.
EBay Korea employs IT experts in the e-commerce field, who are in high demand now as online shopping businesses are flourishing, and they are expected to expedite the building of Shinsegae's online business.
EBay Korea runs three open market platforms here: G-market, Auction and G9. The platforms have strengthened price competitiveness for products sold at Shinsegae's department stores and expanded the range of items it can sell online. Previously, Shinsegae lacked much variety of products for sale online, except in the grocery sector.
Shinsegae will utilize E-mart's warehouses as fulfilment centers for its new e-commerce firms too. This move can help Shinsegae to deliver online orders faster, resulting in more small traders selling their products through Shinsegae's online malls.
However, this scenario has produced concerns over extra spending, as the plans mentioned above are contingent on additional investment.
Shinsegae spent 3.5 trillion won ($2.9 billion) to acquire eBay Korea, but it is uncertain if the price it paid can be regained in the form of profit.
“There is a big chance that Shinsegae will suffer a loss in the short-term, as it has to carry out discount promotions to compete against Naver and Coupang. This applies to not only the e-commerce market but to the retail business overall, and Shinsegae will have to watch out for newcomers as well,” an industry source said.
Coupang presents biggest threat
Coupang is only two percentage points behind Shinsegae in terms of its e-commerce market share. With its explosive growth in the last few years, the online retailer is a force to contend with.
Coupang achieved accumulated sales of 1.6 trillion won as of the third quarter this year, and if this performance continues, the figure is likely to reach 20 trillion won by December.
E-Mart and Lotte Shopping showed sales of 18 trillion won and 16 trillion won, respectively, in the third quarter of this year. Experts believe that Coupang's fast growing business is likely to continue even under the government's “Living with COVID-19” strategy, and to surpass that of Shinsegae and Lotte.
“Coupang's loyal customers are behind its consistent sales growth. Active customers ― those who have purchased items with Coupang more than once ― have increased by 20 percent this year. There are 16.82 million of them ― meaning that one in three Koreans is using Coupang,” the source said.
As customers are finding online shopping more convenient, the average purchase amount on Coupang has soared by 25 percent to $276 per customer. The number of customers who shopped in more than six product categories has doubled compared to two years ago.
Watching Coupang thriving aggressively pushes its competitors to build more distribution centers; even though that means enduring operating losses. Unless one of the retailers yields in the face of the intense competition, their losses are likely to continue.
Successful IPO of SSG.com is key
For SSG.com, its initial public offering (IPO) is inevitable. The retail giant's plan to go public looks to secure funds for its online mall's growth and for investing in the building of more fulfilment centers.
In this context, Shinsegae moved the date for its IPO up a year to 2022. SSG.com's sales between July and September soared by 14.7 percent year-on-year, but its losses also increased by 12 times, reaching 38.2 billion won. Shinsegae sees the growing deficit as something it has to endure until it can secure the liquidity it needs via the IPO.
“While it is of utmost priority for SSG.com to expand its market dominance with eBay Korea, increasing loss is inevitable. It is an investment cost for the company's growth,” a Hyundai Motor Securities researcher, Park Jong-ryul, said.