Coupang in the Digital Era: Navigating Opportunities and Challenges

Headquarter office of Coupang by Shutterstock

Introduction

Coupang is one of the most successful and largest online retailers in South Korea and has focused on leveraging digital media and technology to establish itself as a major e-commerce platform. This strategic focus presented unique opportunities and challenges.

Coupang’s first characteristic that comes to the customers’ mind is ‘fast delivery.’ This is the key reason why Coupang was able to succeed among the traditional large companies like Amazon. However, Coupang’s technological advancement work for innovation is still in progress.

Rocket Delivery

A picture of a Coupang Man by Coupang

Rocket Delivery is by far the best. Beyond simply being fast, Coupang has instilled the formula, that if you order a product, it will arrive within a day for 100 percent sure.

Coupang’s Rocket Delivery system is possible due to its own warehouses and logistics systems located throughout the country, as well as a delivery system called Coupang Man so it may be difficult for other competitors to keep up with the know-how and initial investment costs.

Artificial intelligence is used in managing the supply chain and logistics to reduce the cost, and allow more accurate inventory management and delivery systems. These technologies enable to optimize delivery routes and manage inventory more efficiently with predictive analytics.

Coupang Play

Coupang‘s newly launched streaming service

Coupang’s revenue comes not only from e-commerce sales, but also from order processing services, subscriptions, and advertising, so it can generate revenue in a variety of ways.

Coupang Play is an OTT service operated by Coupang. Although it doesn’t have enough videos to watch yet, it is totally free. Moreover, it has a clear advantage in content that cannot be found on other streaming services.

The dramatic effect of Coupang Play is that it can provide free movie and drama streaming by running advertisements without charging users directly.

Opportunities

IPO in New York Stock Exchange by CNBC

Coupang needs to find a stable “cash cow” like Amazon Web cloud Services to ensure long-term growth and success. Increasing market share is critical to Coupang’s success and growth. Coupang’s growth strategy is focused on initial losses, similar to Amazon’s initial approach.

Coupang’s investment, which has continued since the 2010s, has grown rapidly thanks to COVID-19 pandemic, which brought about full-scale non-face-to-face consumption. During this period, Coupang became the first domestic e-commerce company to enter the New York stock market.

On the other hand, Coupang succeeded in turning the first ever profit in the face of the pandemic. It has grown to compete with offline distribution powerhouses like Shinsegae and Lotte. In the first quarter of last year, Coupang surpassed every competitor in both sales and operating profit.

A large amount of investment, accelerating investment in innovative services

Coupang’s finiancial growth by KED global

Even as the deficit increased, Coupang continued to transfuse large-scale investments, putting the controversy over the liquidity crisis to rest for the time being.

In 2018, Coupang received an investment worth about $2 billion (about KRW 2 trillion) from the Softbank Vision Fund in three years. This is an additional investment made after Softbank Group’s $1 billion investment in June 2015, and is the largest ever among the domestic Internet companies in Korea.

Based on the secured investment, the expansion of new businesses is expected to accelerate. In particular, Coupang plans to differentiate itself from competitors by strengthening innovative services based on logistics and IT technology this year.

Challenges

Deficit hundreds of billions, Coupang Man also bears labor costs.

Coupang factory workers by Joongangdaily

Although Coupang is hitting record highs in sales every year, their losses are also increasing exponentially. In 2018, the operating loss exceeded 1 trillion won for the first time. The operating loss in 2017 was 638.9 billion won, but in year later it was 1.097 trillion won, an increase of about 72% compared to the previous year.

However, it seems clear that chronic deficits worth billions of pounds are the biggest risk factor holding Coupang back. Coupang’s deficit over the past three years has continued to increase.

Coupang plans to continue investing for future growth as this is a ‘planned deficit’. Last year’s performance is also meaningful in that the sales growth rate increased significantly rather than the operating loss. However, if Coupang fails to improve profits in the long term, it will inevitably end up having to rely on external investments again. Moreover, as new services and logistics infrastructure expansion continue for the time being, the size of the loss is expected to increase further.

Coupang Man, which is their own delivery manpower, is also a ‘double-edged sword.’ First of all, the burden of labor costs is increasing day by day. Last year, Coupang reportedly employed 24,000 people directly and indirectly and spent 986.6 billion won in labor costs. Additionally, large and small noises within Coupang Man also act as risks. In the past, there was controversy among some Coupang men as they claimed that they were being treated unfairly, including unpaid wages.

Intensifying competition: Will Coupang win in a saturated market?

The major competitors of Coupang in the e-commerce market by NH I&S Research Centre

Recently, Coupang appears to have become a ‘public enemy’ of the distribution industry. Regardless of whether online or offline, major domestic distribution companies in Korea are targeting Coupang, implementing discount policies. This shows that Coupang has emerged as a threatening entity in the industry, and this may be because competition in the domestic e-commerce market has become fiercer.

As the market grows, powerful competitors are also entering the market. Large corporations such as Lotte, Shinsegae, and SK have been making large-scale investments in growing their e-commerce businesses in earnest since last year. Lotte and Shinsegae also plans to invest billions of dollars in logistics and delivery infrastructure and IT technology for its new online corporation.

As competition in e-commerce intensifies, growth has slowed and making profits has become difficult. As the game of chicken between companies to be the last one standing continues, if they are unable to come up with differentiated services, they are expected to struggle.