Many analyses suggest that Shinsegae Group's partnership with China's Alibaba Group is a strategic choice to survive the fierce competition in the e-commerce market. Alibaba Group, listed on the New York Stock Exchange, is recognized as the world's largest e-commerce company, with quarterly revenues approaching 40 trillion won.
On the 26th, Shinsegae Group announced plans to establish a joint venture, 'Grand Opus Holding', with Alibaba's subsidiary, Alibaba International, next year. The investment ratio will be 50-50. Shinsegae will participate by contributing Gmarket as a tangible asset. The joint venture will include Shinsegae's Gmarket and Alibaba's e-commerce platform, AliExpress Korea, which will continue to operate independently as they do now.
Shinsegae noted, 'This is aimed at creating synergies by establishing a cooperative ecosystem with global platforms and enhancing our competitiveness in the domestic e-commerce market.'
To target the rapidly growing e-commerce market during the COVID-19 pandemic, Shinsegae Group acquired an 80.01% stake in Gmarket from eBay for 3.44 trillion won in 2021. This acquisition was noted as the largest merger and acquisition (M&A) in Shinsegae Group's history.
It is reported that Chung Yong-jin, Chairman of Shinsegae Group (then Vice Chairman), played a significant role in the M&A at that time. In his New Year's address the following year, Chairman Chung emphasized, 'If the offline infrastructure, which is Shinsegae Group's strength, merges with digital capabilities to create synergy, we can establish a unique online-offline complete universe that competitors could only dream of,’ and noted, '2022 will be the year Shinsegae Group pivots to digital.'
However, the results of the Gmarket acquisition did not meet expectations. Before the acquisition by Shinsegae Group, Gmarket had maintained continuous profitability for about 15 years, but experienced accumulated losses of around 100 billion won over the past two years, from 2022 to last year. In the first to third quarters of this year, it also recorded an accumulated deficit of 47.4 billion won.
To escape its sluggishness, Gmarket embarked on severe cost-cutting in the first half of this year and implemented its first voluntary retirement program in September after the acquisition. Prior to this, in June, it appointed Jeong Hyung-kwon as the new CEO of Gmarket, who previously served as the head of Alibaba Korea. CEO Jeong has held positions at Alibaba Korea, as well as at Goldman Sachs and Credit Suisse, and also worked as a financial executive at Coupang.
Industry analysts suggest that the hiring of CEO Jeong was a strategic move for the alliance with Alibaba. They argue that the two companies formed this partnership to compete against the dominant duo of Coupang, leading with direct purchases and rocket delivery, and Naver, which has secured the open market.
The establishment of the joint venture between the two companies is expected to cause seismic shifts in South Korea's e-commerce landscape. It is anticipated that the combination of Shinsegae's distribution network and Alibaba's financial strength could exert a significant influence that threatens the current duopoly. According to app analysis firms WiseApp, Retail, and Goods, AliExpress's monthly active users (MAU) in November of this year reached 9,676,267, ranking second in the e-commerce app sector. The gap compared to the first-place Coupang (32,199,655 users) is substantial. Gmarket, with 5,623,947 users, ranks fifth, following 11st and Temu.
Shinsegae Group is paying attention to Alibaba Group's extensive overseas sales network. There are predictions that more than 600,000 sellers trading on Gmarket will benefit from entering markets such as China, the United States, Europe, South America, and Southeast Asia based on the sales channels held by Alibaba in over 200 countries. To facilitate this, Shinsegae plans to improve the system to make it easier for Gmarket sellers to enter Alibaba International's global platform.
The two companies also plan to actively invest in technology, such as information technology (IT), as well as in products and pricing to provide Korean consumers with a world-class customer experience in e-commerce.
A Shinsegae Group official stated, 'Building a strategic partnership with Alibaba will establish a foothold for domestic sellers to expand worldwide, while also significantly contributing to the development of distribution channels and broader reach for K-products.' The official added, 'We will actively engage in creating a new distribution ecosystem to innovate Gmarket's differentiated customer experience.'
Some in the industry speculate that how to address issues arising from the harmful controversy surrounding Alibaba’s AliExpress and its overseas direct purchase products, if they enter Gmarket, will be a critical challenge for the joint venture. Previously, AliExpress faced persistent criticism for subpar safety standards regarding certain direct purchase products after its entry into the domestic market.