Picture this: it’s 11:59 p.m. You order a rice cooker online, go to sleep, and wake up the next day to the sound of the doorbell buzzing. Your new gadget is being delivered to your apartment door, but you are too lazy to answer, so the delivery man snaps a picture of the box and sends you proof of delivery.
Welcome to the wonderful world of online shopping in South Korea.
Living in Seoul for over 6 years, I have always been fascinated, if not bewildered, by the sheer array of products and by the speed and efficiency of services on offer online.
This is South Korea after all, a country where just about everything works online. As one of the world’s most connected and tech-savvy societies where consumers are king, it is possible to buy almost anything you could imagine online.
I for one am guilty of avoiding offline shops for all items including bags of rice, toilet paper, refrigerator, shoe racks, bubble wrap, mosquito net tape to seal water holes under windows, smoked chicken breasts, sweet potatoes, underwear, contact lenses…you name it.
One of the characteristics of e-commerce websites and apps in South Korea is that they offer one-stop solutions through integrated platforms — we’re talking everything from electronics to flights under one e-roof — at prices often cheaper than at brick-and-mortar stores, coupled with efficient delivery time of only a day or two, and a high level of customer service even after purchase.
At times, there is simply no reason to leave your home — or a single company’s website, for that matter.
Not surprisingly, these conveniences are spurring heady growth of the industry: In South Korea, 64.9 trillion ($60 billion) worth of online shopping transactions were recorded in 2016, a 20.5 percent increase over the previous year. Of that, mobile purchases accounted for 53.5 percent in terms of transactional value.
Besides Coupang, there are approximately a dozen heavyweight integrated shopping sites — Gmarket and Auction (both owned by eBay Korea), 11st, Interpark, WeMakePrice and Ticket Monster (TMON) to name a few. But with so many similar websites to choose from, the industry is facing severe pressure from excessive price competition, with market saturation leading competitors to undercut each other.
For e-retailers, this is war. For the customer, the conflict translates into bargains and serious attempts to retain your loyalty.
Perhaps one of the biggest reasons e-commerce works so well is South Korea’s advanced logistics infrastructure (and low cost of labor), which enables a cheap, fast and efficient delivery system. In a territory the size of the U.S. state of Indiana, it is easy to ship an item from one side of the country to the other overnight, usually for free or a fixed rate of 2,500 won ($2.30).
In fact, some companies have even developed their own delivery systems whereby products can be shipped out directly by the company instead of a third party. In 2014, Coupang introduced the ‘Rocket Delivery’ service allowing for ultra-speedy-by-next-day delivery, on orders taken by midnight the previous day.
Meanwhile, the likes of TMON have ventured into offering same-day delivery for everyday household products and groceries — be it soap, diapers, mineral water, and of course, kimchi.
If that wasn’t enough, Coupang recently began offering goods from abroad — mostly the U.S. — delivered for free straight to South Korea within three working days when purchases amount to 29,800 won ($26) or more.
For consumers, this finally means being able to buy foreign food items on the cheap. Until now consumers were often limited to shopping at overpriced supermarkets in Seoul’s foreign district of Itaewon or food sections of high-end department stores.
Think Amazon Meets Expedia, and More
South Korean e-commerce sites are each like Amazon, and sometimes even more comprehensive than the giant U.S. e-tailer.
South Korean consumers consider it a given to be able to search, compare and purchase flights, on top of looking up holiday packages and last-minute deals all the while doing your grocery shopping on the same website.
But offering similar services is not enough to survive in this dog-eat-dog world. In recent years, e-commerce giants have been making big investments and changes to their strategies to distinguish themselves from competitors.
Take TMON: The company acquired a startup called FLTGraph that allows flight searches with unusual route combinations such as not flying through the same airport twice. It is a trick that substantially lowers flight prices.
Coupang, too, embarked on various schemes such as offering specialist shopping platforms for niche customer interests, including what the company claims is the “biggest e-commerce knife shop in South Korea” and an eco-friendly beauty section.
Amid the fierce market competition, WeMakePrice added webtoons/webnovels to its app in order to create a more enthralling shopping experience and retain consumer interest.
Not So Sunny
This is not to say e-shopping in South Korea does not have its pitfalls, notably the payment system.
One of the biggest grievances among consumers is South Korea’s notorious over-reliance on Internet Explorer and archaic ActiveX plugins, which involves having to install and activate security files separately for almost every website browsed. It is also often incompatible with Mac.
To get around this never-ending problem, shopping sites are rolling out their own payment systems using credit card details registered in advance and completing purchases simply by entering a pin.
But the explosive growth of e-commerce does not necessarily translate into profits: Most online shopping sites are in the red.
In 2016, Coupang posted a combined operating loss of 560 billion won ($520 million), despite an increase of 67.6 percent in revenue to 1.9 trillion won ($1.76 billion).
These have in part been attributed to the shopping giants playing a so-called ‘chicken game’ — making massive investments in expansion and dishing out discounts, even while operating at a loss, to see who will pull out the game first. The trend is expected to continue for the 2017 financial year, with estimates predicting another year of big losses for all online shopping sites except those owned by eBay Korea.
The main difference is that Gmarket and Auction allow individuals and small businesses to sell products on the GMarket/Auction marketplace, with the platform itself taking no responsibility for the final transaction.
Sites like Coupang and TMON, on the other hand — considered ‘social commerce sites’ — have heavily invested in their own warehouses, delivery systems, and discount schemes — all of which are nibbling away at profits.
In such a saturated business landscape, it is no wonder that South Korea’s e-commerce companies are looking to lure foreign customers. Coupang is currently ramping up its recruitment of workers outside South Korea, including the U.S. and China, while Gmarket and 11st have both branched out, opening English and Chinese versions of their websites. They still leave a lot to be desired: navigating them can sometimes entail complications, including product descriptions in Korean language, and popups and payment pages in Korean for customers using South Korean credit cards.
Will the overseas expansion be the holy grail for the beleaguered online retailers? If the conveniences of online shopping in South Korea can be transplanted abroad, perhaps. If foreigners don’t have to use Internet Explorer, possibly. If they prevail against other Asian e-commerce giants (like Alibaba), hopefully.
And so the competition for online domination continues.
Read more on e-commerce in South Korea:
- South Korea’s E-Commerce System Sucks; Moon Jae-in Agrees
- Can Moon Jae-in Really Save S Koreans from ActiveX Hell?