Online Shopping Market Fragmented

The author is an analyst of NH Investment & Securities. She can be reached at jy.lee@nhqv.com. -- Ed.

 

Fragmented online shopping market

In our view, the defining characteristic of the Korean online shopping market is fragmentation. In 2019, the Korean online market was crowded with multiple players—the largest player, NAVER Shopping, had a market share of 12%, followed by Coupang (10%), eBay Korea (10%), 11st (6%), Wemakeprice (5%), and TMON (3%). In contrast, single players tend to dominate overseas online shopping markets, such as Amazon in the US and UK (44% and 30%, respectively) and Alibaba in China (56%). In addition, the gap between the number-one player NAVER Shopping and the number-two and three companies is insignificant, with NAVER Shopping’s market share only 2%p larger than Coupang’s, and Coupang and eBay Korea’s market shares almost the same size. In contrast, in the US, Amazon is ahead of the number-two play Walmart.com by a whopping 37%p, and in China, the market share gap between the number-one firm Alibaba and the number-two play stands at 39%p. In the UK, the number-two player eBay lags behind Amazon by 20%p.

Korean consumers given diverse choices

Taking a closer look at the Korean online retail market, we can find that different market segments have different leading players. For example, NAVER Shopping is the dominant player in the C2C segment thanks to its strong price comparison tool, but in the B2C market, Coupang enjoys a strong presence based on its quick delivery services. Meanwhile, brand companies with strong sourcing power and customer appeal are focusing on D2C marketing, and Kakao Talk shopping is leading the growth of the social networking service-based commerce market. Other online shopping segments that have been developing rapidly in Korea include: influencers’ live commerce, quick-commerce (Q-commerce) for instant delivery of small quantity of goods, online grocery shopping (Market Kurly), deal commerce (TMON), and the reseller market (Danggeun Market). With diverse choices of online shopping at hand, Korean consumers tend to switch online shopping places depending on their present needs. And, amidst such a market landscape, consumers enjoy diverse online shopping services at attractive prices. With domestic consumers already well accustomed to Korea’s unique online market situation, the emergence of new commerce services is further raising consumer expectations for online shopping players.

Low entry barrier to enter online retail market

The fragmentation of the Korean online retail market is attributable to a low entry barrier. In Korea, as delivery and logistics infrastructure is well-developed, and residential areas are dense, making a foray into the online retail market is relatively straightforward.

Korean online players’ investment limited

On the other hand, heavy investment is required in countries such as the US and China in order to establish nationwide infrastructure, and this serves as a high entry barrier. In 2019, Amazon’s North American logistics centers, facilities, and equipment (excluding assets for other businesses such as AWS) were valued atUS$31.72bn. In Korea, having made the biggest investment in logistics among domestic players, Coupang’s tangible assets and licensed assets were valued at US$950mn, which represents a mere 3% of Amazon’s assets. While Coupang’s assets are not small in absolute terms, the figure is below Amazon’s annual investment expense.

In Korea, use of offline store networks makes little difference to competitiveness

As large-scale investment is required for online businesses in the US, existing offline companies have ventured into the online market, boasting logistics competitiveness backed by their nationwide store networks. Such players are faring well. Looking at the top-10 US online retailers, the majority of them are offline retail-based firms, including Wallmart, Home Depot, Best Buy, Macy’s, and Costco. In Korea, existing offline retail players are also using their offline stores as online logistics centers, including Lotte Mart’s smart stores, Homeplus’ store fulfillment centers, and Emart’s PP centers. But, their competitiveness in this arena is lacking. For comparison, the online retailer Market Kurly handles 40,000~50,000 dawn delivery parcels a day, which is way higher than Emart’s 31,000 parcels. Also, the transaction value of Rocket Fresh (F&B dawn delivery service) at Coupang is estimated at nearly W1.9tn this year, which is similar to Emart Mall (within SSG.com)’s 2020E transaction value of W2tn.

In Korea, anyone can enjoy comprehensive logistics services similar to Amazon’s fulfillment service

Not only large companies, but also individual retailers, enjoy the low entry barrier to the online retail market. Individual retailers rarely find it difficult to secure logistics services. There are more than 500 online logistics service providers in the country. They offer fulfillment and third party logistics services for which product storage, inventory management, packaging, shipping, return, and CS services are all available. In Korea, anyone can enjoy comprehensive logistics services similar to Amazon’s fulfillment service.

 

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