In Markets

How is the retail industry in Korea?

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With the growing number of one person households and working couples in Korea, changes in people’s spending patterns for almost every item ― from food to clothes ― has brought about a new paradigm in the market place.

SEE ALSO : Covid-19 changes consumption patterns in Korea

Customers no longer go to supermarkets or big discount stores to shop for fresh food to cook for dinner or prepare for breakfast.

“There is no time to shop for groceries or cook food at home. I just order fruit or easy-to-cook meals online and they are delivered to my door overnight. “Nowadays, people like me who live alone, or couples with both partners working, do not want or have time to go to stores. We would rather have our food items delivered and either rest or do something else with the time that would be spent shopping,” said 31-year-old office worker Kim Ye-ji, who lives alone in Pangyo, Gyeonggi Province.

Business for local retail giants E-Mart and Lotte Shopping peaked in 2010 and has been falling ever since. Lotte Shopping’s operating profit was 1.7 trillion won (US$1.42 billion) in 2011, but has been declining continuously to 427.9 billion won last year. Its revenue also plunged to 17.63 trillion won in 2019 from 29.12 trillion won five years ago.

The No. 1 domestic retailor E-Mart is in no different a position. Its operating profit dropped 67.4 percent to 150.7 billion won last year, a fifth of its highest-ever 735 billion won in 2013.

Meanwhile, leading e-commerce firm Coupang’s turnover last year is estimated at 12 trillion won, up from 9 trillion won in 2018, while its revenue grew by 65 percent to 4.4 trillion won.

Market Kurly, a fresh food delivery service, has witnessed its sales skyrocket 80 times over five years to record 400 billion won last year. The portion of online sales in the local retail market has increased from 30 percent to 41 percent over the same time period, and this year is expected to overtake that of bricks-and mortar stores.

When Coupang attracted foreign investment to expand its market share by offering a big discount promotion and an overnight delivery service, E-Mart and Lotte Shopping were skeptical of its challenge, saying Coupang would go out of business with heavy debts. They were complacent too when Market Kurly join the scene to compete against them.

Both E-Mart and Lotte Shopping have since adopted an “emergency management system” to carry out large-scale business restructuring.

Lotte Shopping announced in February that it would close 30 percent of 700 department stores, hypermarkets and supermarkets, starting with those making losses. This was the first time since the company’s foundation in 1979 that it decided to shut down what amounts to 200 stores nationwide.

E-Mart has decided to withdraw from several businesses that are unprofitable including its one-dollar-concept store “Pierrot Shopping” and the health and drug store “Boots.”

The country’s largest retailer said it will focus on its main business, while strengthening its online section to cope with growing demand.

However, Prof. Suh Yong-gu of the Business School at Sookmyung Women’s University forecast that E-Mart and Lotte Shopping will continue to be underdogs in the online retail scene.

“Think of it this way. It is like a swimmer playing soccer. E-Mart and Lotte Shopping will not be able to catch the front runners. This is a totally different business from running a street hypermarket,” the professor said.

“For retail giants’ online platforms like SSG.com and Lotte.com to catch up with Coupang, it will take five years just to invest in logistics. I’ve been to both warehouses of E-Mart and Lotte Mart, and their size cannot be compared to that of Coupang,” Suh said.

Local retail giants have been running their online stores for several years now but they are new to the dark store market concept.

A dark store is a concept where a large retail facility resembles a conventional supermarket and has daily necessities or groceries for consumers or delivery man to pick up after an order has been made online.

The country’s biggest delivery service player Baedal Minjok, or Baemin, launched its dark store brand “B Mart” last November.

It operates 16 distribution centers in Seoul for delivery men to collect food items from after a customer within 15 kilometers of the center has made an order through its mobile application.

The service’s advantage lies in its rapid delivery that sees groceries arrive within an hour for a minimum 5,000 won purchase.

This is much quicker than Coupang’s overnight delivery service or similar ones operated by other e-commerce firms.

Yogiyo said it will also launch a similar dark store concept brand in the second half of the year, although nothing has yet been decided on how it will operate

Lotte Shopping’s supermarket affiliate Lotte Mart has joined the war and will launch what it calls a “Fulfillment” store.

Previously, Lotte Mart’s online platform ran a delivery reservation service for customers within a 15-kilometer radius of its offline store to receive their orders at pre-set time.

However, the new Fulfillment store has shortened the area for orders to a 5-kilometer radius of its offline supermarkets. This has shortened the delivery time to less than an hour.

Customers can also opt to pick up their orders at the supermarket, or use a drive thru, or have them delivered.

Lotte Mart said it will open two Fulfillment stores in Junggye, northern Seoul and Gwanggyo, southern Gyeonggi Province, at the end of the month. The decision came as there are many young couples living in the town. Lotte Mart will increase its dark-store-concept supermarkets gradually.

E-Mart, on the other hand, said it will spend 260 billion won to focus on internal stability by improving the operations at its existing hypermarkets. It will also remodel them and introduce services that can only be offered at bricks-and mortar stores.

“We will expand grocery sections at our hypermarkets to strengthen our competitiveness and continue to stick with a super cheap price strategy,” an E-Mart official said.

The two retail giants, however, will enter the delivery service sector.

Lotte Group said last week that it will offer its “Lotte Eats” application starting March 10. Customers can order from Lotte GRS’s franchise brands Lotteria, Angelinus, Krispy Kreme and TGI Friday.

E-Mart has not revealed a concrete plan yet, but did participate in a reserve bid for Mesh Korea’s stake sale Feb. 9. Mesh Korea operates the online real-time same-day delivery platform “Vroong.”

Regarding the dark store market, Prof. Suh said it was too early to predict who will be the major player.

SEE ALSO : Industries in Korea are affected by Covid-19

“This business has just started here and we will have to see how big the market can grow, and who will be first to hit sales over 1 trillion won,” he noted.

(Source: Korea Times)

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