[Coupang Changed the Distribution Map] Coupang, the 'Apple of the Distribution Industry'... Created Their Own Ecosystem

①Coupang, What and How They Did

Started as Social Commerce in 2010
Transformed into a Comprehensive Logistics Company
Direct Employment of Delivery Workers and Reactions
Operating Loss of 1 Trillion Won in 2018
Turned Profitable with COVID-19 Windfall
'Lock-in Effect' 10 Million Wow Members
Expansion of Coupang Eats and Coupang Play Businesses

Editor's NoteThese days, the so-called most successful player in the distribution industry is Coupang. Its growth has been remarkable over the past few years, to the extent that it is now considered to have surpassed the traditional distribution giants Lotte, Shinsegae, and Hyundai. This is why the industry’s attention is focused whenever Coupang’s performance is announced. Moreover, Coupang’s growth has transformed the entire ecosystem of our distribution industry. We intend to examine the current state of our distribution industry, which is undergoing a tectonic shift triggered by the changes initiated by Coupang, over five installments.

Coupang started in May 2010 as a social commerce company. The founder, Chairman Kim Beom-seok of Coupang’s board, reportedly got the idea after seeing the popularity of social commerce in the United States at that time. However, the social commerce market in Korea was fiercely competitive and overheated. There were hundreds of social commerce companies including TMON and WEMAKEPRICE. Simply put, it was a 'red ocean.' Coupang sought change for survival. Its goal was clear: "To create a world where customers say, 'How did we ever live without Coupang?'" This was also the starting point of the tectonic shift that would sweep through the distribution industry in the future.

Kim Beom-seok, Chairman of Coupang's Board of Directors, poses in front of the New York Stock Exchange (NYSE) in the United States ahead of the company's listing. [Image source=Yonhap News]

They Were Merely Industry Mavericks

The first card Coupang played to bring about change was 'Rocket Delivery' (originally launched as Wow Delivery). This service, introduced in March 2014, delivers goods by 7 a.m. the next day if ordered before midnight. The industry was greatly stirred by the fact that a social commerce company did not just mediate products but built its own logistics centers and directly employed delivery staff. Coupang did not stop there; in April 2017, it launched 'Rocket Direct Purchase,' a cross-border direct purchase service. Subsequently, it rolled out a series of services including private brand (PB) business, Rocket Fresh (fresh food delivery), and Wow Membership (free shipping and returns for 2,900 KRW per month), demonstrating a path different from other companies.

These attempts led to increased sales but also significant losses. Operating losses, which were in the 100 billion KRW range in the first year of Rocket Delivery, ballooned to the trillion KRW level by 2018. Even looking only at the flagship Rocket Delivery service, the structure was such that the costs of building logistics warehouses, direct purchasing, and direct delivery inevitably exceeded the revenue generated. At the time, the industry often heard rumors that 'Coupang would soon go bankrupt' due to the growing deficit. Fortunately, Coupang overcame the crisis by covering the costs of expanding logistics centers and delivery systems with investment funds raised from SoftBank Vision Fund and others, but the deficit streak did not stop.

Coupang delivery vehicles parked in a parking lot in downtown Seoul [Image source=Yonhap News]

The Great Upheaval Triggered by COVID-19

The industry views the period of the COVID-19 pandemic as when Coupang began to exert influence over the distribution sector, which had been dominated by offline stores. Due to social distancing and other measures during the pandemic, the number of offline market users sharply declined, and the e-commerce market, including Coupang, reaped the benefits. Especially for Coupang, which had been struggling with losses but had built logistics centers securing wider delivery areas than competitors, this was an unparalleled opportunity. Although offline retailers entered the online market belatedly, Coupang gained an advantage by 'securing key routes' through its logistics centers. This rebound is also evident in performance. Coupang’s sales reached 14 trillion KRW in 2020, and operating losses significantly decreased to 550.4 billion KRW. In the third quarter of last year, it even recorded a profit for the first time since the introduction of Rocket Delivery.

Many expected Coupang’s growth to slow this year as COVID-19 transitioned to an endemic, anticipating that consumers who had shifted online during the pandemic would return to offline channels. The reality was different. The 'lock-in effect' of the Wow Membership service, launched in 2018 for 2,900 KRW, shone through. The lock-in effect refers to users becoming accustomed to a particular service and not switching to others. Coupang’s Wow Membership had already surpassed 11 million members last year. This year, other e-commerce companies and offline retailers like Shinsegae have started to follow suit, but Coupang has not seen customer attrition.

"The Journey Has Just Begun"... Change Continues

The services Coupang introduced in the past for survival have now become areas found in similar forms across the entire distribution industry beyond just e-commerce. Facing the possibility of another red ocean, Coupang continues to launch new businesses such as Coupang Eats (food delivery service) and Coupang Play (online video service). Its performance is also soaring. In the second quarter of this year, it recorded the highest quarterly sales and operating profit ever. It has posted profits for four consecutive quarters since the first profit in the third quarter of last year. At the current pace, it is expected to post an annual profit for the first time this year.

Chairman Kim Beom-seok said when announcing the second quarter results, "Coupang’s market share in the overall distribution market is still only in the single digits," adding, "Our journey has just begun." This can also be interpreted to mean that the major changes in the domestic 'distribution map' triggered by Coupang are ongoing. As he said, other distribution companies have absorbed the winds of change brought by Coupang over the past decade and are now trying to counterbalance it. The recent resurgence of various regulatory issues surrounding the distribution industry is also considered a variable.

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