E-commerce War

The price competition in e-commerce sector reached the limits so easier and quick order and delivery systems will be the core competitiveness.
The price competition in e-commerce sector reached the limits so easier and quick order and delivery systems will be the core competitiveness.

 

South Korea’s largest e-commerce firm Coupang is seeking to raise 500 billion won (US$469.92 million) worth of funds. The domestic e-commerce market has already entered “chicken game” as Shinsegae attracted 1 trillion won (US$939.85 million) of investment.

An official from the investment banking (IB) industry said on Jan. 28, “Coupang consumed most of investments and the company has been seeking to raise funds from institutions at home and abroad from the end of last year. The cumulative amount of Coupang’s investment attraction reaches about 1.6 trillion won (US$1.5 billion). In 2014, SoftBank invested US$1 billion (1.1 trillion won) in Coupang, while Sequoia Capital and BlackRock made a US$100 million (110 billion won) and 300 million (340 billion won) investment, respectively. Coupang also received a 300 billion won (US$267.26 million) loan secured on its goods in stock from Goldman Sachs’ Special Situations Group (SSG) in July last year.

Coupang is seeking to attract a large investment in a hurry because the e-commerce market is reorganizing into the structure that is dominated by few well-financed players. Domestic e-commerce companies, such as Coupang, Ticket monster and WeMakePrice, are still suffering losses. They show a big growth in sales but significantly lower profits due to an intense price competition. Large-scale capital injection is one of ways to survive on large losses.

Coupang is expected to record a loss, though its sales reached 3 trillion won (US$2.82 billion). In 2016, the company posted 1.92 trillion won (US$1.8 billion) in sales but showed a loss of 565.3 billion won (US$532 million), a fourth of its sales. Market watchers say that e-commerce firms that fail to attract investment will not be able to survive and be eliminated after all. The IB industry believes that Shinsegae attracting 1 trillion won (US$939.85 million) of investment triggered a war over investment attraction among e-commerce companies.

Most funds attracted will be used to invest in infrastructure, including logistics, payment and delivery services. The price competition reached the limits so easier and quick order and delivery systems will be the core competitiveness.

An official from an e-commerce company said, “Not only lower prices but also faster and accurate delivery and other services are the core of e-commerce businesses’ competitiveness. In particular, customers today tend to choose companies that have a good delivery service, though they sell goods at little higher prices. However, most of these services of top e-commerce firms are becoming upward leveling.” In short, the e-commerce industry is becoming an extreme economy of scale system. 

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