[Lee Jong-woo's Economic Reading] 'Baesaengbaesa' E-commerce... The Distribution Giants' Alliances Ignited by Coupang

Domestic E-commerce Market Expected to Reach 270 Trillion KRW by 2025
From 'Price War' to 'Delivery War'
Coupang Leading Innovatively... New Alliances Forming Against Coupang

On the 11th, e-commerce company Coupang was listed on the New York Stock Exchange (NYSE). The stock price was set more than 40% higher than the public offering price of $35, resulting in a market capitalization of 100 trillion won. Converted to our market, this is comparable to SK Hynix, which holds the second-largest market capitalization. Coupang's listing is expected to bring renewed attention to the e-commerce market. While COVID-19 increased interest in the e-commerce market, Coupang's listing serves as an event confirming its growth potential.

For a long time, our domestic e-commerce companies considered 'price' as the key differentiating factor. Since customers received the same products with similar delivery services, there was no incentive to attract people other than price. Therefore, buyers searched for the cheapest site among many, and there was a demand to create a platform that quickly informed them of the lowest prices. The first to meet this demand was internet portal companies, which is why they still hold a larger market share than Coupang in the e-commerce market.

Once the demand for low prices was met, e-commerce companies faced the challenge of maintaining customer loyalty. If a person who bought from site A yesterday moves to a slightly cheaper site B today, the company cannot maintain sales stability, so a strategy to retain these customers was necessary. Coupang solved this problem. By offering free delivery and delivering inexpensive products like water or ramen, and enabling customers to receive goods quickly at their desired time, it shifted consumer demands from 'price' to 'convenience.'

Coupang's listing will be a catalyst for revolutionary changes in the domestic distribution industry. Through this listing, Coupang secured 5 trillion won in funds, which the market expects to be used for expanding logistics centers and building big data infrastructure. Such investments by Coupang will likely prompt other distribution companies to take similar measures. This is to prevent growth slowdown caused by weakened infrastructure, and thanks to various investments, the domestic e-commerce market size is expected to grow. The market forecasts that the domestic e-commerce market, which was 133 trillion won last year, will reach 270 trillion won by 2025. If this prediction holds, the share of online shopping in total consumption will rise from 33% in 2020 to 45% in 2025, which is twice the global average.

Alliances and mergers among distribution companies to respond to Coupang are also expected to become active. In 2020, the number one in the domestic e-commerce market was Naver (NAVER), with a transaction volume of 25 trillion won, holding a 16% market share. Coupang ranked second (20 trillion won, 12%), and eBay Korea was third (13 trillion won, 8%). Until now, our e-commerce market had a segmented structure where various operators had their own unique domains. Since it is difficult for companies to survive independently in this form, combinations to avoid this are likely to emerge. This trend has already begun. Naver has sought to secure competitiveness through equity swaps with CJ Logistics and E-Mart, and Kakao is preparing to enter the bidding for eBay Korea. Because the distribution market had already been shaken before Coupang's listing, existing large distribution companies are also devising strategies to respond.

As the distribution industry is reorganized, interest in the delivery industry has also increased. In 2019, the company known for the delivery app Baedal Minjok, 'Woowa Brothers,' was acquired by a German company for 4.8 trillion won. At the time, there was debate about whether spending 5 trillion won to acquire a single delivery app was justified, but in hindsight, it seems to have been a good choice. This is because delivery is the service that consumers using e-commerce are most sensitive to.

Our country's delivery industry still focuses on receiving delivery food from nearby restaurants and delivering it to the customer who ordered. If the share of fresh food or product delivery increases beyond this, the delivery industry will enter a new phase. When consumers experience services where food ingredients are delivered within 30 minutes to at most an hour, they become captivated by the convenience and speed, and will inevitably continue to seek such services.

To provide this service, there must be locations where products can be received and then delivered to consumers, just as food is received from restaurants and delivered. Receiving goods from scattered production factories and delivering them to consumers takes a lot of time and cost, and freshness cannot be maintained, making it unsuitable for food. To solve this, two methods have been proposed: securing multiple proprietary logistics warehouses and delivery companies partnering with large offline marts that have bases. Large marts have good accessibility, handle a variety of product categories, and maintain sufficient inventory. If a delivery company partners with E-Mart, which has 29 stores in Seoul, the delivery company can quickly receive goods from nearby stores and deliver them to customers. In this case, E-Mart can increase sales, and the delivery company benefits from commissions. This is why E-Mart and Naver have entered into partnerships including equity swaps to strengthen competitiveness in e-commerce, and it is expected that the first results will appear in the near future.

Our country's e-commerce began in 1996 with Interpark and Lotte Internet Department Store. Now, the online shopping usage rate is close to 40%, ranking second in the world after China. The expansion of the e-commerce market brings development to many related industries. These can be broadly categorized into three groups: first, autonomous transport devices and robots needed to deliver products to end consumers, including vehicle and drone delivery. The U.S. market research firm Statista projected that the autonomous transport market, valued at $11.9 billion in 2021, will grow to $84.72 billion by 2030. To respond to this market, automobile companies including GM and Ford have begun product development. Second is the payment industry. Since e-commerce payments are made through electronic money including IC cards, the growth of the e-commerce market inevitably leads to the development of the payment market. Lastly, online advertising, artificial intelligence, and big data industries. Scientific analysis of personal preferences determines business success, so the importance of consumer preference analysis industries through SNS and personalized product recommendation functions will increase.

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