"Mid-sized Companies' Growth Magic with Subscription Economy as 'Rental Stage' Goes Global"

[Subscription Economy Part 2] The Secret to Consumer Trend 'Preemptive Strategy'

The "subscription economy" has become the exclusive domain for the growth of mid-sized companies in South Korea. It has given rise to companies with sales of around 3 trillion won and enabled quantum leaps such as a startup growing sevenfold in six years. This refers to Coway and Bodyfriend. The subscription economy has served as a stepping stone for mid-sized companies to grow into globally recognized enterprises. While large corporations focused on sales paid little attention to the rental market, mid-sized companies proactively targeted consumer trends emphasizing usage over ownership.

According to the rental industry on the 30th, Coway, the number one player in this field domestically, had 6.24 million rental accounts in South Korea alone as of the third quarter of last year. Including overseas accounts (1.39 million), a total of 7.63 million households worldwide subscribe monthly to Coway’s services for water purifiers, bidets, air purifiers, and clothing care devices. Coway’s rental target for this year is 8 million accounts.

Coway’s sales, based on the subscription economy, are estimated to be around 3 trillion won (2019 estimate). The company’s value, including a 25% stake plus a management premium, is 1.74 trillion won. Netmarble drew renewed attention to Coway’s corporate value when it acquired 18,511,446 shares (25% stake) of Coway. Considering that in 2013, 30% of Coway’s shares were sold to the private equity fund MBK Partners for 1.2 trillion won, the company has steadily grown over the past seven years.

◆Notable Subscription Growth of Mid-Sized Companies = Behind Coway’s rapid growth lies the rapidly expanding subscription economy market. The reason why the gaming company Netmarble invested heavily to acquire Coway, which seemed unrelated to its core business, was due to the growth potential of the subscription economy market. A Netmarble representative said, "We plan to develop the smart home subscription economy business by integrating information technology (IT) such as artificial intelligence (AI), cloud, and big data with operational know-how."

The expansion of the subscription economy market has been directly reflected in Coway’s performance. Up to the third quarter of last year, Coway recorded sales of 2.2243 trillion won and operating profit of 413.6 billion won, putting it on track to achieve annual sales of 3 trillion won. Last year, sales, operating profit, and net profit all reached record highs. Compared to the same period the previous year, sales increased by 11.5%, operating profit by 5.8%, and net profit by 11.7%. Coway cited strong domestic and overseas rental sales, continued high growth in overseas business, and successful management of cancellation rates as reasons for its strong performance.

Not only Coway but also large corporations like LG Electronics and mid-sized companies such as SK Magic and Cheongho Nice are expanding their presence in the subscription economy market. Cheongho Group, which entered the rental market in April 2001, had accumulated 1.5 million accounts by last year and aims to surpass 2 million accounts this year. SK Magic, a latecomer, achieved 1.8 million cumulative rental accounts last year and set a goal to exceed 3 million accounts this year.

◆Massage Chair Sales Increased Sevenfold in Six Years = Bodyfriend is a representative success story of the subscription economy, having grown from a massage chair manufacturer to a leading healthcare brand. Established in 2007 and marking its 13th anniversary this year, the company has experienced nearly a decade of growth. Sales jumped about sevenfold from 65.2 billion won in 2012 to 450.5 billion won in 2018. Operating profit also increased more than threefold from 15.1 billion won to 50.9 billion won during the same period.

Bodyfriend’s dominant position as the market leader with a 65% share in a market initially dominated by imported products was partly due to the expansion of the subscription economy market. Recent achievements confirm this. In November last year, Bodyfriend set a record by selling 500 massage chairs in a single day through online and mobile channels, breaking its previous daily sales record set about six months earlier. This figure represents a 31% increase compared to the previous record of 383 units achieved in May last year.

Bodyfriend interprets the growing proportion of online and mobile sales as a sign of the subscription economy’s spread, which has popularized massage chairs and increased the number of consumers willing to purchase without direct experience. The broad-based brand trust has encouraged customers to open their wallets without visiting offline showrooms.

◆Know-How Required for Subscription Economy = The reason the rental-type subscription economy market has become the exclusive growth stage for mid-sized companies is that it requires extensive know-how in rental systems. Coway was the first in the industry to introduce the rental system in 1998. Companies like Cheongho Nice also entered the rental market early. They built and operated specialized teams focused on rental sales and management of household appliances such as water purifiers, accumulating know-how. Even large corporations with capital and nationwide distribution networks find it difficult to establish themselves in the market without rental system expertise. For example, E-Mart entered the home appliance rental business in 2012 but withdrew after about a year due to poor sales.

Although the massage chair subscription economy market also requires rental system know-how, the industry explains that the main reason mid-sized companies lead the market is that the market size is not yet large enough for large corporations to fully enter. As of last year, the domestic massage chair subscription economy market is estimated to be around 800 to 900 billion won. However, with significant growth potential, if the market expands further, other large corporations besides LG Electronics may enter the field one after another.

Professor Wi Jeong-hyun of Chung-Ang University’s Department of Business Administration said, "The subscription economy aligns with consumers’ desire to try various consumption within budget constraints. It reflects a shift in consumer trends focusing on usage rather than ownership and can be seen as aligned with the sharing economy."

This content was produced with the assistance of AI translation services.