Luxury platform Balaan has applied for corporate rehabilitation procedures amid the delays in settlement that began on the 24th, raising concerns that a 'second Tiemep (Timon + Wemep) incident' may be repeated. Balaan's unsettled payments are reported to amount to hundreds of billions of won. The Tiemep incident refers to last year's case when e-commerce platforms Timon and Wemep caused 48,000 businesses to suffer after failing to pay 1.3 trillion won in sales proceeds due to financial difficulties.
Balaan, one of the representative luxury platforms in the country, has hit a growth limit due to excessive marketing expenses and a decline in luxury consumption. Balaan has suggested pursuing mergers and acquisitions (M&A) to overcome the crisis, but there are forecasts that it may be difficult to recover due to limitations in the profitability of its business model.
Balaan announced on the 31st that it has applied for corporate rehabilitation procedures (court management) at the Seoul Rehabilitation Court. Once the rehabilitation procedure begins, all of Balaan's debts will be temporarily frozen based on the court's decision, and creditors will receive repayments according to the rehabilitation plan. Choi Hyung-rok, CEO of Balaan, explained in a statement distributed that "some investment attraction planned for the first quarter of this year has been conducted, but contrary to expectations, securing additional funds has been delayed, resulting in a short-term liquidity crunch," adding that to stably repay partners' transaction claims and enhance the sustainability of the Balaan platform, they have applied for rehabilitation.
◇ Excessive marketing expenses and declining luxury consumption are a hindrance
Balaan has been embroiled in controversy over unsettled payments by repeatedly changing and failing to execute the settlement schedule for its partner companies. Despite recently attracting new investment of 15 billion won from the cosmetic distribution company SILICON2, Balaan halted settlements starting from the 24th. They originally promised to share the finalized settlement amount and payment schedule with their partner companies on the 28th, but it was ultimately not implemented, and the payment service was completely suspended on the same day.
Industry estimates suggest that Balaan's unsettled payment amount could reach 13 billion won. Considering the approximately 1,300 partner companies and an average monthly transaction volume of 30 billion won, the repercussions are expected to be significant. The unfolding of the current situation is similar to last year's Tiemep incident, increasing anxiety among partner sellers.
Balaan has stood out in the domestic luxury market since its establishment in 2015, showing rapid growth. In particular, in 2021, it recorded a monthly transaction volume of 57.2 billion won, 6 million monthly active users (MAUs), and 400,000 new app downloads, showcasing the fastest growth among retail service apps.
Reflecting its growth trend, Balaan launched massive advertising campaigns featuring actress Kim Hye-soo. It has been evaluated that this significantly contributed to the rise in Balaan's public recognition. However, spending excessive marketing expenses to counter rivals like Must It and Trendy eventually led to adverse results. Attempts to expand without substance have been a hindrance.
Balaan has engaged in aggressive marketing in the highly competitive luxury platform market. However, demand for luxury platforms has decreased due to the COVID-19 endemics. It also held drastic discount events, distributing 20-30% coupons due to performance issues, but this only boosted sales in the short term and contributed to long-term deficits. Even after the settlement delays began, Balaan continued to indiscriminately issue discount coupons.
Balaan spent approximately 19 billion won on advertising in 2021 and about 38.5 billion won in 2022, doubling its expenditure compared to the previous year. This excessive marketing investment has led to an increase in operating losses. Balaan has incurred losses from 2020 to 2023, with a cumulative deficit exceeding 70 billion won. When looking at the figures by year, the losses increased yearly, except for 2023, with 6.4 billion won in 2020, 18.6 billion won in 2021, 37.4 billion won in 2022, and 10 billion won in 2023. In this process, cash assets that were in the hundreds of billions have shrunk to several tens of billions.
◇ Clear limitations in profitability persist in the business model
The industry views Balaan's failure as predictable. Competitors Must It and Trendy have faced similar financial crises as the luxury market cools, changing their business models or undergoing massive restructuring for profitability. The industry leader, Must It, sold its headquarters in Apgujeong, Seoul, and implemented voluntary retirement. Trendy is attempting to change its business model to focus on second-hand luxury transactions.
In contrast, Balaan focused solely on attracting investment without changing its business model. The industry has reacted by saying that 'what was coming has arrived.' They point out that the online luxury transaction platform cannot succeed due to lack of profitability. Balaan operated on a model of sellers listed on the platform selling goods, receiving a brokerage fee. Aside from the commission fee, there was no other significant revenue model. As the COVID-19 pandemic ended and the growth of the luxury market began to decline, Balaan faced a direct hit.
Balaan aims to pursue corporate rehabilitation procedures and M&A simultaneously. CEO Choi has outlined goals for Balaan including ▲ attracting buyers before rehabilitation approval ▲ full repayment of unpaid claims ▲ restoring a stable settlement foundation and trading environment ▲ continuing transactions with partners and co-growth. However, achieving these objectives smoothly is not expected to be easy. According to the 2023 audit report, Balaan's revenue was 39.2 billion won, operating loss was 9.9 billion won, and total equity was minus 7.7 billion won, marking a complete depletion of capital.
◇ A complete depletion of capital leads to negative M&A outlook
A source in the related industry stated, "The so-called 'Murtbal (Must It, Trendy, Balaan)' luxury platforms have faced limitations as excessive marketing conducted to grow in size worsened profitability. Since they have not monopolized the market like Coupang, they have exhausted their investment funds," adding that "since there is no significant revenue model besides commissions, the atmosphere in the investment market is bound to deteriorate."
They also added, "It is questionable whether new buyers can be found, especially in a situation where shareholders of SILICON2, who have already invested in Balaan, are raising voices against the investment being a mistake."