According to the Statistics Korea, the domestic retail market size last year was estimated to be about 514 trillion won, showing a growth of about 1% compared to the previous year. This year, low growth due to a complex crisis caused by the impeachment situation, the second term of the Trump administration in the U.S., entering a super-aged society, abnormal climate, and minimum wage increases is expected to be unavoidable. The Korea Chamber of Commerce and Industry has projected this year's retail market growth rate at 0.4%. CHOSUNBIZ examines what distribution fits the era of low growth and what opportunities our distribution industry should seize. [Editor’s note]
The world's largest e-commerce company, Amazon, introduced its low-cost shopping service "Amazon haul" last year. All products, including sneakers priced at $9.98 (about 14,580 won) and phone cases at $2.99 (about 4,368 won), are sold for under $20 (about 29,000 won).
The secret to these ultra-low prices is that most products are made in China. Since they are shipped directly from there, it takes 1-2 weeks to receive the products, but many customers respond positively to the "low prices." Amazon haul held a 50% discount event during last year's Black Friday period, and the number of bestsellers in the top 100 categories amounted to 2,700.
◇E-commerce market experiencing slow growth... “Borderless battleground”
Many analyses suggest that Amazon's move is in response to the competition from Chinese e-commerce represented by "Altershe (AliExpress, Temu, Shein)." Temu, which specializes in ultra-low prices, was the most downloaded free application in the U.S. last year.
On the actual Amazon haul sales page, an expression of "crazy low prices" appears, seemingly conscious of Temu's slogan "Shop like a billionaire." In addition to imitating the pricing competitiveness of C-commerce, Amazon tried to differentiate itself by offering "product quality guarantees" and "free returns within 15 days" to prevent the side effects they exhibited.
Amazon, the world's largest e-commerce company, targeting the ultra-low price market is indicative of the sense of crisis in an e-commerce market that has become a "global battleground." The same holds true domestically. After a phase of rapid expansion, the domestic e-commerce market has entered a maturity stage. The growth rate, which used to be in double digits, has slowed to single digits, and the online penetration rate of the domestic retail market reached about 45% as of 2023.
With the entry of Chinese ultra-low-price e-commerce and the decline in trust in the e-commerce system due to the unresolved issues of T-Money (Timon and WeMakePrice), the nervousness of the industry, excluding top platforms like Coupang and Naver, has increased. The market diagnosis indicates that the differentiation between good and bad players in the e-commerce industry has begun in earnest.
Jeong Yeon-seung, a professor at Dankook University, noted, "Most online shopping companies, except for Coupang and Naver, are operating at a loss and no longer have the stamina to withstand. (Mid-tier platforms) must either seek new paths through restructuring, such as mergers and acquisitions or partnerships, or they will struggle to survive unless they differentiate into specialized areas."
The recent partnership between Shinsegae Group and Alibaba, a representative of C-commerce, reflects the reality of the domestic e-commerce industry. After the performance of G-Market, which was acquired in 2021, declined, Shinsegae decided to establish a joint venture (JV) named "Grand Opus Holding (tentative)" with Alibaba International this year. Additionally, the logistics part has partnered with CJ Logistics to implement a "7-day delivery system." The industry evaluates that Shinsegae has chosen a safe exit strategy.
Alibaba, which had been keen to attract sellers to enter the country, has also resolved its mission with this joint venture. Following the announcement of the partnership with Shinsegae, AliExpress stated it would end its fee exemption for the K-Venue, a dedicated section for Korean products, starting from the 1st of next month. Professor Jeong stated, "Although C-commerce has grown after entering the domestic market, it is time for it to be evaluated soberly. If it cannot compete with Coupang or Naver, C-commerce will end up in a similar position as other platforms."
◇We should not be trapped in the domestic market... opportunities must be sought in "vertical and overseas"
Just because the ultra-low price trend is rising does not mean that everyone can only focus on the ultra-low price market, especially for small to mid-sized platforms with limited capital. Thus, the market is seeing vertical commerce as a new growth driver for targeting overseas markets.
Vertical commerce refers to e-commerce that sells specific products professionally. In the food sector, Kurly is leading, while in the fashion sector, Musinsa has made a name for itself. Peer-to-peer (C2C) secondhand trading platform Carrot and living platform Today's House have also succeeded in turning a profit, maintaining their lead in each field.
Offline companies are also making their presence felt in e-commerce by leveraging their strengths. CJ Olive Young, a health and beauty (H&B) store, is a representative example. Olive Young provides same-day delivery service "Today’s Dream" using its offline stores as logistics centers and growing its online sales. As of 2023, online sales accounted for 27% of total revenue.
Lotte Shopping plans to release a grocery-focused mobile application named "Lotte Mart Zeta" in the first half of this year, combining Lotte Mart and Super's fresh food know-how with the logistics capabilities of U.K. retail tech firm Ocado. As the online penetration of fresh food remains slow, the goal is to leverage the expertise of large marts to gain market advantage.
As global interest in Korean products, such as K-beauty and K-food, increases, reverse-buying platforms that sell products directly overseas are also expected to have high growth potential. Market research firm Statista forecasts that the global cross-border e-commerce market, which sells products to customers worldwide based on online platforms, will grow from $785 billion (about 1,147 trillion won) in 2021 to $7.938 trillion (about 1,159.7 trillion won) in 2023.
Silicon2, which sells K-beauty products to 180 countries worldwide through a platform called "Style Korean," saw its sales surge from 99 billion won in 2020 to about 710 billion won last year, marking more than a sevenfold increase. In the third quarter of last year, sales were dominated by the U.S. (25%), Poland (Europe, 13%), and the United Arab Emirates (UAE, 5.4%). Currently, more than 550 domestic indie cosmetic brands are on board, and it is expanding categories into food, K-pop, and more.
Through the joint venture between G-Market and Alibaba, Shinsegae Group hopes to help sellers explore overseas markets. By utilizing Alibaba's global network, it aims to establish a foothold for G-Market sellers to expand globally, ultimately strengthening G-Market's competitiveness.
Kim Sook-hee, author of "Ali Shock," forecasted that the time for "global transactions" that transcend borders will arrive. Although Altershe has primarily been engaged in low-cost imports of Chinese products into Korea, it is expected to expand into reverse sales of Korean products overseas in the future.
Kim pointed out, "Although a period of infinite competition that breaks down borders is approaching, domestic retailers are still immersed only in the domestic market competition," and advised, "Now is the time to break out of the confines of the domestic market and demonstrate competitiveness in foreign markets through overseas consumer data, global distribution systems, and product supply chain construction."