Intensifying E-commerce Competition
Online shopping companies are going all out to attract investment.
Companies that have lost profitability in the heated e-commerce market competition for a few years are looking for breakthroughs by attracting investment.
Traditional offline distribution dinosaurs, Shinsegae and Lotte, are also keen to attract investment to beef up their online operations.
Industry sources said on June 19 that SK Planet will soon spin off 11 Street to attract invstement in its online shopping affiliate.
After the spinoff, 11 Street will issue a total of 500 billion worth of redeemable convertible preferred shares (RCPS) to private equity management company H&Q Korea. According to the plan, the National Pension Service will invest 400 billion won in the H&Q project fund, with the remainder invested by H&Q Korea. The fund will have a 20% stake in 11 Street.
Shinsegae has started a big deal to strengthen its online shopping business. Earlier this year, the company signed an agreement to attract 1 trillion won investment in its new online business unit from BRV Capital Management and Affinity Equity Partners (AEP). It is the largest scale after Coupang secured US$ 1 billion (about 1.14 trillion won) from Softbank in Japan in 2015.
Companies that started as social commerce such as Coupang, Timon, and Wemap are also focusing on attracting investment, ranging from 100 billion to 300 billion won. Coupang has thus far secured a total of 1.6 trillion won from investors. Timon recorded a total of 267 billion won after attracting 50 billion won from Simone Investment Managers. Wemap received 100 billion won from NXC in 2015 and is trying to attract more investment from the game industry.
It is difficult to stop logistics infrastructure investment and excessive marketing because of the recognition that “Once pushed behind, you’re dead.” The idea that you can dominate the market by pushing your competitors out is also encouraging investment attraction.
The investment industry is also paying attention to the e-commerce market, which is growing by more than 15% every year and is expected to be more than 100 trillion won for the first time this year. For investors, future value of online distribution would seem attractive regardless of current profitability. The fact that Shinsegae, Lotte, and other large distribution companies are entering online and mobile commerce is an important factor that makes the investment more attractive.
An official in online shopping industry said, "Money has recently started to flow into the market as Shinsegae, Lotte, SK Planet, and others have announced plans to strengthen their online shopping business. Investors, who have been hesitant, are making active moves."
The total amount of investment attracted by domestic online shopping companies since 2014 (excluding capital increases and convertible bond issuances) is around 2 trillion won and more than 2 trillion won will be added additionally to domestic online market this year.
If Shinsegae and SK Planet succeed in acquiring funds, they will attract 1.5 trillion won, and Coupang, Timon, and Wemap are trying to attract investment.
An industry official said, "Major online shopping companies are putting all efforts on securing investment in domestic and foreign investment markets in order to take the lead in the market. In order to attract funds, they need to make strategies for raising future corporate value and to find differentiated businesses."