A storm of 'major restructuring' is sweeping through the domestic distribution market. As consumer stagnation prolongs and competition among corporations intensifies, cash-strapped online and offline corporations are collapsing under pressure.
Industry experts predict that the domestic distribution market is likely to reorganize around large corporate affiliates with financial soundness and capital-rich enterprises.
The restructuring of the distribution industry has been rapidly progressing since the collapse of e-commerce companies TMON and WeMakePrice (TIMAF) in July 2022. These companies were massive online shopping malls ranking 6th to 7th in the country with annual transaction volumes exceeding 7 trillion won. However, after years of capital erosion and deteriorating cash flow, they collapsed almost overnight.
At that time, the unpaid sales proceeds of the vendors that TIMAF had not settled reached 1.279 trillion won. The number of affected vendors totaled over 50,000.
This month, Homeplus, the second-largest large supermarket chain with annual sales of 7 trillion won, applied for corporate rehabilitation (court receivership). The liquidity crisis is cited as a decisive factor in the Homeplus situation.
Amid excessive borrowing, Homeplus's liability ratio surged, and as sales performance declined, it faced difficulties in paying suppliers.
Recently, the online luxury platform Balaan experienced issues with delayed settlements. Since its establishment in 2015, Balaan has never posted an operating profit. Ultimately, as of the end of 2023, its losses grew to 785 billion won, double its revenue of 392 billion won. Experts in the distribution industry evaluated that by 2023, Balaan had already fallen into a state of complete capital erosion, making bankruptcy at any moment a plausible scenario.
Cases of major distribution corporations collapsing in succession, whether online or offline, have been rare.
According to data from the Korea Chamber of Commerce and Industry and the National Statistical Office, the domestic retail market size (current value) increased by 34% from 382.3 trillion won in 2014 to 510.7 trillion won in 2023. Excluding the values that temporarily surged in 2021 due to the pandemic's base effect, the market generally recorded an annual growth rate of 2% to 4%.
However, last year's current value was 514.6 trillion won, showing only a 0.8% increase compared to the previous year. Notably, large supermarkets experienced a decline in market share from 8.7% in 2014 to 7.2% over the last ten years.
As the retail market significantly shrank, distribution companies engaged in cutthroat competition by investing excessive marketing costs into discount coupons and events to secure sales or transaction amounts. Experts assessed that this intensification of competition eventually led to financial instability.
It is anticipated that the restructuring of the distribution industry triggered by the TIMAF incident will occur even more rapidly in the future.
According to a survey by the Korea Chamber of Commerce and Industry on distribution industry outlook, the retail market growth rate this year is estimated to be around 0.4%. This is expected to be the lowest growth since the severe impact of COVID-19 in 2020.
As a result, the phenomenon of the market concentrating on relatively financially stable large corporate affiliates or large platforms is becoming more pronounced, while companies with weak transaction security are expected to naturally be weeded out.
Chinese e-commerce platforms such as AliExpress and Temu are also seen as threats, aggressively penetrating the market with strong capital power and ultra-low-priced products.