A huge wave that began with Chinese e-commerce platform AliExpress is now on the horizon, making it to more difficult to predict the future of the Korean e-commerce market.
While Korean e-commerce players are competing fiercely for survival, the United States, China, and other Asian countries have joined the fray, turning Korea into a major global e-commerce battleground.
According to Statistics Korea, South Korea’s online shopping market was valued at 227 trillion won in 2023. E-commerce companies have invested about 13 trillion won or more in the hopes of dominating the Korean e-commerce market.
JP Morgan forecast that the Korean e-commerce market will grow to 300 trillion won in 2026. Competition between local and global e-commerce players is expected to intensify to take a bigger share of the 300 trillion won market.
AliExpress which entered the Korean market in 2018 quickly gained recognition in 2023 by launching a platform marketing campaign with popular Korean actor Ma Dong-seok as its model. In October 2023, the company opened K Venue, a store specializing in Korean products, to attract Korean sellers and expanded its product range to include processed and fresh foods. Within a one-year period, the Chinese e-commerce giant stepped on the accelerator to better penetrate the Korean market.
The number of AliExpress users has been on the uptick as well. According to WiseApps, Retail and Goods, the number of monthly active users of AliExpress App was 8.18 million, the highest number ever, in Korea as of February. This is a 130 percent surge from 3.55 million in February 2023.
In the rankings of total mall users, AliExpress surpassed 11st (7.36 million) to take second place, forming a two-runner race with Coupang (31 million).
Temu, another Chinese e-commerce company that had launched its service in Korea in July 2023, also secured 5.81 million users in seven months, ranking fourth in the overall online shopping mall user rankings. Korean e-commerce industry insiders did not hesitate to call the rapid growth of Temu in Korea “a sudden attack by another strong Chinese e-commerce player.”
In particular, Alibaba Group, the parent company of AliExpress, draw significant attention when it announced that it will invest US$1.1 billion in establishing a logistics center and others in Korea over the next three years.
Many industry observers say that AliExpress may have set its sights on an optimal environment for its e-commerce business in Korea.
“In addition to the geographical advantage of China’s proximity to Korea, Korea has many factors that may have attracted AliExpress such as solid logistics infrastructure, a high-level information technology environment for e-commerce services, trend-sensitive consumers, and a population with strong purchasing power,” said an e-commerce industry insider on March 17. “AliExpress may have seen Korea as the best testbed for full-scale e-commerce business globalization.”
Other experts say that it is a strategic choice to bring Korean goods, increasingly popular around the world, to the AliExpress platform.
Coupang seems the most nervous about AliExpress’ moves to break into the Korean e-commerce market. Coupang, listed on the New York Stock Exchange, has become the strongest e-commerce company in Korea after launching its rocket-speed delivery service and investing 6.2 trillion won in setting up a nationwide logistics network.
However, with AliExpress and Temu entering the Korean market with ultra-low-cost products made in China, Coupang is no longer confident about continuing its growth as in the past.
According to WiseApp, the number of users of Coupang’s app increased to 570,000 in the past one-year period, which is far behind AliExpress (4.63 million) and Temu (5.81 million).
Other e-commerce players in Korea are more worried. Their biggest challenge is to get out of the red.
Gmarket, which Korea’s Shinsegae Group took over for 3.5 trillion won in 2021, posted losses for two consecutive years in 2022 and 2023. SSG.com, a Shinsegae Group-affiliated company that received 1 trillion won in investment in 2019, has yet to get out of the red. 11St, which received 500 billion won in investment in 2018, failed to have an initial public offering (IPO) amid growing losses and was forced to find a new owner.
Singapore-based global e-commerce giant Qoo10 has been expanding its size in the Korean market with the acquisition of Timon in September 2022, followed by Interpark Commerce in March 2023 and WeMakePrice in April. The total acquisition cost was reportedly around 600 billion won but all three companies are failing to turn a profit.
Market Kurly, which specializes in delivering foodstuffs, has also received about 1 trillion won in investment since its launch in 2015, but it has yet to make a profit.
“While Korean e-commerce companies are focused on overhauling themselves to reduce losses, they are deeply troubled in the face of Chinese e-commerce giants’ ultra-low-cost volume offensive,” said an official of a Korean e-commerce company. “We are at a crossroads of whether to actively respond to the invasion of Korea by Chinese e-commerce players or wait and see them a little longer.”
Some Korean e-commerce industry insiders believe that Chinese e-commerce players’ entry into Korea may open up new opportunities as the cross-border e-commerce market expands.
Cross-border e-commerce is a market concept that freely crosses borders and generally refers to cross-border shopping, which involves buying goods from overseas, and reverse cross-border shopping, through which Korean companies sell goods to consumers in overseas markets.
While Korean e-commerce companies have been recruiting Korean sellers and selling products to Korean consumers, cross-border e-commerce is characterized by expanding product sourcing and sales networks to overseas sellers and consumers.
For Korean e-commerce companies, cross-border e-commerce can find them a breakthrough in their growth by boosting product quality and price competitiveness through overseas sellers and securing consumer populations.
Gmarket will hold a business presentation in Shenzhen, China on March 20 to invite Chinese sellers. This is a step toward expanding its share in the cross-border shopping market, which is growing larger by the year in Korea.
“The event’s purpose is to preemptively secure excellent Chinese sellers with value-for-money products,” said a Gmarket official, “This will mark the first time we have held such a business presentation overseas since our foundation.”
The company is also stepping up its reverse cross-border shopping business. Last month, it inked a business agreement with Mongolia’s largest e-commerce platform Shopee to sell Korean products in Mongolia. It plans to introduce 300,000 Gmarket products in March and gradually increase the number.
Since launching its Rocket Direct and Rocket Delivery Services in Taiwan in October 2022, Coupang has built two large integrated logistics centers in the island country and plans to launch a third in the first half of this year.
In China, Coupang introduced Rocket Gross in the second half of 2023. The Rocket Gross Program is responsible for delivering goods to Chinese sellers.
Coupang is also expanding domestic live broadcast commerce opportunities for local sellers to promote their products and holding briefings to recruit outstanding local sellers in China.
In the same vein, Qoo10 acquired Wish, a global shopping platform based in North America, for a whopping 230 billion won.
Qoo10 plans to use Wish as an outpost to sell Korean products in conjunction with its subsidiaries -- Timon, WeMakePrice, and Interpark Commerce.
“The cross-border e-commerce business is still without an absolute powerhouse in Korea, so there is a movement to take advantage of this opportunity,” said an industry insider. “As competition in the Korean e-commerce market intensifies, e-commerce companies will step up their efforts to explore growth possibilities overseas.”