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Coupang’s luxury leap: Farfetch acquisition fuels retail dominance

Coupang, a major player in South Korea’s e-commerce landscape, has shown exceptional growth in the country and aims to fulfil its aspiration for global penetration.

The recent acquisition of the European fashion and luxury e-commerce platform Farfetch is a key strategic move by the Korean e-commerce giant to expand its reach beyond its domestic market, and transform from a retailer primarily focused on household essentials to a more comprehensive platform that offers luxury items.

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Coupang defeats South Korea e-commerce, gearing up for the global stage

Coupang sets its major operations within South Korea, where several dominant players capture the majority of the e-commerce landscape. Coupang has demonstrated outstanding market share growth, surging from 5.8% in 2017 to 22.5% in 2022.

Coupang’s “Rocket Deliver” service, offering next-day delivery (or same-day if ordered early), has become an everyday norm for South Koreans, facilitating convenient purchases of essential items such as groceries and a wide variety of consumer goods from a pair of socks to major home appliances such as fridges.

Coupang previously made an attempt to explore overseas markets but without significant success. Following its initial public offering on the New York Stock Exchange back in 2021, the company chose Japan as its first attempt to expand overseas.

Despite its unsuccessful venture in Japanese retail, leading to a business withdrawal in 2023, Coupang is still committed to extending its reach to other countries, including Taiwan and Singapore, through strategic investment and acquisitions. To craft its capabilities for global expansion, Coupang is strengthening its logistics network in various regions.

Unlocking growth potential in South Korean luxury e-commerce

Despite high e-commerce penetration in South Korea, consumers purchasing luxury items are skewed to offline stores such as department stores.

Coupang introduced a “Rocket Luxury” service in 2023, where consumers can receive super premium beauty products within 24 hours, but it is facing challenges in competing with Kakao Gift, where small luxury items, including beauty and personal care and home care products, are popularly sold through the country’s leading messenger application, Kakao Talk.

Despite this, the fact that there is currently no dominant platform that covers all luxury categories makes Coupang an excellent candidate as a future luxury e-commerce leader, as it aims to expand its range of luxury categories, including apparel and footwear, leather goods, and personal accessories, through the Farfetch acquisition.

South Korean consumers prefer department stores for the channel’s exclusive services, customer promotion and verified authentication. However, growing credibility and the convenience of e-commerce platforms can diminish the barrier in luxury e-commerce.

Furthermore, restrictions on the total number of stores for luxury brands, aimed at preserving image and maintaining exclusivity, lead many brands to resist expanding their outlets. This limitation results in a concentrated presence, primarily in major cities, compelling consumers from other areas to travel for luxury purchases.

Coupang’s luxury business model expects to address this gap, attracting consumers from rural areas and helping luxury retail to transform from offline-centric to having more of an online presence.

Coupang’s anticipated global opportunities and challenges ahead

Coupang will navigate in the future to seek its way into new markets outside of South Korea. To distinguish itself from retail giants such as Amazon, Alibaba and JD.com, Coupang aims to transform into a retailer catering for a broader range of products beyond household essentials and groceries, to luxury items.

However, it will be crucial for Coupang to consider how to handle return issues. Coupang’s unconditional returns policy may be exploited by consumers for luxury goods. If this happens, Coupang could face significant profit losses, and the image of luxury brands could be affected.

Another challenge for Coupang will be how to integrate Farfetch’s high-end offering with its existing platform, which is fairly casual and focused on everyday items. Improving the platform to cater for consumers who seek premium experience and luxury goods will be essential.

Coupang has several offices located in China, including Beijing, Shanghai, and Shenzhen, implicating its ambition to penetrate this market. Farfetch has had partnerships with JD.com and Alibaba in the past to target Chinese consumers and this experience is expected to aid Coupang’s future entry into the Chinese market.

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In regions with high luxury e-commerce penetration, such as North America and Western Europe, Coupang can leverage Farfetch’s local knowledge and boost up with Coupang’s expertise in fast delivery, and the latter can benefit from Coupang’s expertise in fast delivery.

Farfetch is a platform that is highly trusted by young consumers, and this offers an optimistic outlook with regards to future generations. Farfetch’s strength lies in its extensive list of brands, a challenge even for department stores to secure and negotiate. With this new leverage on hand, Coupang will have a stronger chance of paving the way as a new influencer and disruptor in the global e-commerce landscape.

(Source: Euromonitor)