South Korea’s Amazon-equivalent Coupang sparkles, aims to take the e-commerce crown at home
Online shopping mall Coupang wants to become the Amazon of South Korea. The rapidly expanding unicorn startup behind it is attracting the attention of South Korea’s large chaebol conglomerates. With an extensive beauty section in its inventory, Coupang is a mega service that’s worth a closer look.
South Korea is among the world’s top three e-commerce markets, with a take-up rate of more than 12%. However, with just over 50 million consumers, the country’s e-commerce players — both large and small — jostle with each other in fierce competition. Coupang positions itself as having the lowest prices and makes this its big differentiator. It also sets itself apart with its next-day Rocket Delivery option, which delivers online orders the following day if they are placed by 11:59 pm the previous day.
Coupang started in August 2010 as a group-buying site, setting the success of online daily deal service Groupon as a benchmark. At the time, it was unique in South Korea for using ‘social commerce’ that emphasized social media and smartphones.
When Coupang kicked off its launch, it embarked on a celebrity-studded campaign. That savvy marketing helped to build a steady following, and by 2014, Coupang became South Korea’s number one online store.
By focusing on impactful marketing campaigns, Coupang increased its visibility within its home country. For instance, in a large-scale giveaway for new members in July 2015, it offered Coupang Cash (approx. 500 yen per member) in the form of points and coupons (approx. 1,500 yen per member) to be used on the site. In Japan, services such as PayPay and LINE Pay extensively carry cashback campaigns. Coupang has been able to attract new customers with similar campaigns.
Coupang lists a wide variety of products, including groceries and daily necessities, electronic appliances, fashion items, cosmetics, baby and maternity goods, and furniture and interior items. Take beauty. It sells around 1.43 million different beauty products, including most of the popular Korean brands.
Little wonder that Coupang is known as “the Amazon of South Korea”. Last year, it generated around US$3.8 billion (4.42 trillion won) in sales, a rise of 65% from the previous year, according to an audit cited by South Korean media. If we disregard* other South Korean e-commerce giants such as G-Market and 11Street, these figures put Coupang in first place with roughly 10% of the market.
Running deficits may also be Amazon-inspired
Although Coupang’s sales continue to flourish each year, its business losses exceeded US$948 billion (1.09 trillion won) in 2018. Its efforts to expand and diversify its business have led to increased distribution infrastructure and inventory, leading to losses over the years: 547 billion won in 2015, 560 billion won in 2016 and 638.8 billion won in 2017. However, the company isn’t interested in constraining this growth and wants to expand even further rather than make cutbacks.
In 2018, it added distribution centers across the country, hired more personnel and widened the array of goods that can be Rocket Delivered to five million. Last October, it also launched the new Rocket Fresh service, which ships fresh produce ordered before midnight to homes by 7 am the following morning, and rolled it out nationwide within three months. It has funded these leaps of faith into expansion thanks to a US$2 billion investment from Japan’s SoftBank Vision Fund in November. Through these cash transfusions, Coupang is working towards a healthy state of profitability.
As one executive of a robotic distribution company put it recently: “Finally, e-commerce sales have become profitable in the past several years, even for Amazon.” Coupang’s business model — a large inventory, mass selling at low prices and convenient, speedy delivery — is its main similarity to Amazon.
However, as Coupang becomes more like the American e-commerce giant, the question arises: how much of global e-commerce will it be able to conquer? Coupang has expanded overseas to China and the US. However, these e-commerce markets are already saturated with major local corporations firmly established, making it difficult to get a leg in.
On top of that, South Korea’s small market has no shortage of rivals. One competitor is the distribution giant Lotte. It has keenly noted Coupang’s rise and is now developing numerous strategies using online and offline networks of its own and with various related firms. By introducing features such as free delivery, discounts, and points services, Lotte has an eye to beating Coupang at its own game.
In Japan, Amazon remains the largest e-commerce business, including thriving beauty sales. Whether Coupang goes on to be South Korea’s strongest retail contender, even in cosmetics, depends on how the company decides to progress over the next several years.
*The reason for disregarding these other companies is that while Coupang is not tops in transaction value, it is ranked first in terms of sales. For South Korea’s other large e-commerce corporations, brokerage service charges make up the bulk of their sales. By comparison, Coupang has higher direct sales (selling products directly to customers in a non-retail setting) and is thus ranked number one.
Text: Denyse Yeo
Original text (Japanese): Jonggi HA
