As Coupang approaches its third year on the US stock market, the South Korean e-commerce behemoth is making headlines amid expectations of securing its first-ever profit. However, the anticipation of a milestone achievement is coupled with challenges, most notably the escalating competition from Chinese shopping platforms like AliExpress, raising concerns about the decelerating growth of the Korean e-commerce market.
In a strategic and unexpected move, Coupang has decided to revive its direct transactions with LG Household & Health Care and Rocket Delivery after a hiatus of 4 years and nine months. This surprising collaboration aims to fortify domestic distributors and manufacturers against the relentless competition from ultra-low-cost Chinese direct purchase services.
Consumers To Benefit from Renewed Partnership
Coupang consumers can now receive LG’s best-selling products, including Coca-Cola, Perio toothpaste, and tech detergent, through the efficient rocket delivery service. Furthermore, LG’s global luxury cosmetics brands – Ohui, Sum37, and The Who – are set to open stores at Coupang Rocket Luxury, signaling an expansion into new avenues.
The resurgence of collaboration between Coupang and LG has caught the distribution industry off guard, considering the suspension of their partnership in April 2019. The unexpected reconciliation is attributed to shared concerns over the increasing threat posed by Chinese direct purchase services and the growing anti-Coupang sentiment in the market. Insiders reveal that negotiations between Coupang and LG commenced in the second half of the previous year, demonstrating a proactive effort to bridge differences and revive the once-dormant partnership.
Diverse Challenges: Labour Disputes & Chinese Competition
Coupang faces multifaceted challenges. Despite actively expanding into new ventures such as Coupang Eats, Coupang Play, and ventures into Taiwan, these areas confront stiff competition from established players, necessitating continuous investments. The recent acquisition of the world’s largest luxury fashion platform, Farfetch, for a whopping $500 million, has raised questions about Coupang’s ability to sustain a supply of luxury products, particularly as top brands increasingly focus on direct online sales.
Moreover, Coupang’s ‘active customer count’ exceeding 20 million, is encountering a significant slowdown in the growth of the e-commerce market. The online retail market growth rate in South Korea plummeted from 20% in 2021 to single digits (8%) in the previous year’s third quarter. Chinese online shopping giants like AliExpress and Temu are swiftly gaining Korean customers with their attractively low prices, with data from WiseApp indicating that AliExpress and Temu were the top two apps experiencing the highest increase in Korean users last year.
Labour Disputes and Fee Conflicts
Beyond growth concerns, Coupang faces post-growth challenges, including labor disputes and fee conflicts with suppliers. The company’s stance remains resolute amid ongoing disputes with labor groups and controversies over worker deaths during night and early morning deliveries.
Controversy also surrounds Coupang’s commission rates from suppliers. A Fair Trade Commission survey from December revealed that the real commission rate for online shopping malls was 12.3%. However, Coupang’s rate stood out as the highest at 27.5%, more than double the industry average, despite including services like storage and direct delivery of supplier products.
In response to reports regarding its maximum commission rates, Coupang has recently taken legal action against a media outlet. The company has also encountered confrontations with manufacturers like CJ CheilJedang and LG Household & Health Care over the supply prices of key products, such as Hetbahn ready-to-eat rice.
As Coupang navigates through these complexities, the renewal of ties with LG reflects a strategic effort to secure a stronger foothold amidst fierce competition, both domestic and international, in the rapidly evolving South Korean e-commerce landscape.
Also Read,
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- Yanolja acquires Korea’s leading e-commerce player Interpark
- Kakao to acquire stake in leading Korean fashion e-commerce Zigzag app
- Korean Ministry selects venture fund managers worth $245 million to support startups & entrepreneurship
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