[Why & Next] 'Neighborhood Book' Coupang... Retail Industry Throws Checkmate Moves

The industry battle surrounding Coupang, which has emerged as a 'distribution giant,' is intensifying. The Korea Fair Trade Commission (KFTC) has been receiving complaints about unfair trade practices between Coupang and other distribution companies, and after a power struggle over supply prices, some deliveries were even halted. As the rapid growth of the e-commerce market, which surged due to COVID-19, is expected to slow down, conflicts within the distribution industry are anticipated to deepen further.

Coupang Rocket Delivery stock photo / Photo by Moon Honam munonam@

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According to the distribution industry on the 19th, 11st reported Coupang to the KFTC on the 15th for violating the Act on Labeling and Advertising and the Electronic Commerce Act by comparing its sales commissions. Coupang recently posted a rebuttal on its newsroom against reports claiming 'Coupang takes a 45% commission from sellers,' specifying the sales commissions of online commerce companies but applied the comparison standard as 'maximum sales commission.'

Sales commissions are amounts paid by sellers to e-commerce companies when selling products through online platforms, and each e-commerce operator sets different rates by category depending on product price and sales volume, according to 11st. According to data disclosed by Coupang at the time, 11st's maximum sales commission reached 20%. Shinsegae (Gmarket and Auction) and Coupang's maximum sales commissions were 15% and 10.9%, respectively.

11st opposed Coupang's comparison, stating that Coupang compared only the maximum sales commission applied to some products without clear criteria or objective grounds. They claimed that Coupang distorted the information to make it seem like 11st's overall sales commissions were excessively higher than Coupang's. Furthermore, 11st argued that the maximum sales commission mentioned by Coupang applies to only 3 out of 185 product categories, while the nominal commission rates for the other 180 categories range from 7% to 13%.

11st pointed out that Coupang violated Article 21 of the Electronic Commerce Act, which prohibits false or exaggerated information or deceptive methods to lure consumers. However, Coupang maintains that there is no problem since the notice was based on disclosed data and clearly stated the standard as the maximum sales commission.

Maximum sales commission fees by online commerce platforms disclosed by Coupang through data.
[Image=Coupang Newsroom Capture]

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Conflicts between platforms over supplier deliveries have also occurred. Coupang reported CJ Olive Young, a health & beauty (H&B) store, to the KFTC in July last year, alleging that Olive Young blocked small suppliers from delivering to Coupang. Coupang claimed, "Since 2019, CJ Olive Young has continuously obstructed transactions by pressuring beauty companies not to supply to Coupang to block Coupang's entry into the beauty market." Olive Young countered, stating, "We have not restricted partner companies' store entries." The KFTC has yet to reach a conclusion on this matter.

There is also a conflict with CJ CheilJedang over supply prices. After disputes over supply prices, CJ CheilJedang has not supplied major products such as Hetbahn and Bibigo to Coupang since the end of 2022. Instead, they have held discount events on other e-commerce platforms like 11st and Gmarket, forming a so-called 'anti-Coupang alliance.' Coupang responded by highlighting that sales of instant rice products from small and medium-sized enterprises increased by up to 100 times year-on-year from January to May last year after CJ CheilJedang's products were removed. Coupang evaluated that "the disappearance of large corporations that monopolized various food items allowed emerging small and medium food companies to secure new growth momentum."

Coupang also clashed with CJ Logistics over the 'No Delivery Day.' The 'No Delivery Day' was introduced to allow delivery workers to take holidays and has been designated on August 13 or 14, before the Liberation Day holiday. However, Coupang released a press release titled 'For Coupang, every day of the year is No Delivery Day' ahead of last year's No Delivery Day, which provoked opposition from delivery companies including CJ Logistics. Coupang explained that its delivery subsidiary, Coupang Logistics Service (CLS), has backup drivers and direct delivery personnel called Coupang Friends, enabling delivery workers to take holidays without costs.

At that time, CJ Logistics issued a press release saying, "We appreciate customers who support 'No Delivery Day' in various ways," and expressed strong regret over some companies' behavior that disparages the voluntary efforts of the delivery industry by distorting facts. They also explained that general delivery workers have more opportunities to take holidays by cooperating with fellow drivers, in addition to Sundays, public holidays, and traditional holiday breaks.

Coupang previously had conflicts with LG Household & Health Care over supply prices. During supply negotiations, disagreements over supply prices deepened, and in April 2019, LG Household & Health Care abruptly stopped supplying to Coupang, escalating the conflict. As a result, LG Household & Health Care's household goods and Coca-Cola's 'Rocket Delivery' were suspended on Coupang.

The conflict between the two companies was brought under the KFTC's judgment after LG Household & Health Care reported Coupang to the commission in May 2019. LG Household & Health Care claimed, "Coupang repeatedly violated the Large-Scale Distribution Business Act by prohibiting product returns, demanding economic benefits, and forcing exclusive transactions," and "also violated the Fair Trade Act by canceling orders and terminating transactions using superior bargaining power."

After deliberation, the KFTC recognized Coupang's 'supplier bullying' in August 2021 and imposed corrective orders along with a fine of 3.297 billion KRW. Coupang filed an administrative lawsuit against the KFTC in February 2022, seeking to cancel the corrective orders and decisions. After two postponements, the verdict is scheduled for the 1st of next month. The two companies announced the resumption of direct product transactions after 4 years and 9 months on the 12th, signaling a reconciliation.

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The conflicts between platforms are largely a check on Coupang's dominant performance over the past few years amid signs of slowing growth in the e-commerce market. Coupang grew rapidly based on Rocket Delivery. Recently, it has expanded its service scope to fresh foods (Rocket Fresh), live commerce (Coupang Live), beauty (Rocket Luxury, etc.), and online video services (OTT Coupang Play). These are all major business areas of existing large distribution and entertainment companies. Korea Investment & Securities estimates Coupang's online market share this year at 25.2%, up 2 percentage points from the previous year. This means Coupang occupies a quarter of the online market. Its share of the total consumer market, including offline, is projected at 9.2% this year, up 1 percentage point from 2023.

Manufacturers are interpreted to have launched a full-scale battle with Coupang to gain control over supply prices. In fact, when large marts rapidly grew in 2008, E-Mart and CJ CheilJedang clashed over food price increases and private brand (PB) products. At that time, CJ CheilJedang, demanding a price increase for flour supplies, used the 'supply halt' card to pressure, and the conflict was resolved when E-Mart accepted it.

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Therefore, the industry is closely watching the outcome of the current Coupang situation. Especially, various interpretations are emerging regarding the background of LG Household & Health Care resuming product supplies to Coupang this time. Some in the industry say that Coupang extended a hand for reconciliation first, considering that LG Household & Health Care diversified its distribution platforms by opening a dedicated store on Naver Store and a Coca-Cola dedicated store on AliExpress after stopping supplies to Coupang.

There is also an interpretation that LG Household & Health Care, facing a decline in performance, found it difficult to ignore the 'distribution giant' Coupang. LG Household & Health Care's sales continued to rise even after the supply halt with Coupang in 2019 but started to decline from 2021. Sales, which reached 8.0915 trillion KRW in 2021, fell 11.2% to 7.1857 trillion KRW the following year. Operating profit dropped 45% from 1.2896 trillion KRW to 711.1 billion KRW during the same period. Securities firms forecast LG Household & Health Care's 2023 sales and operating profit at 6.9597 trillion KRW and 492.4 billion KRW, respectively, indicating a deepening performance decline. An industry insider said, "For Coca-Cola, which has many online orders, LG Household & Health Care probably found it hard to hold out," adding, "We need to see how long CJ can endure."

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