It is hard for consumers to live without online and mobile shopping, and for retailers already struggling with a slump in store traffic and the subsequent fall in direct to consumer sales, living up to the trend may be pronounced in the face of cutthroat competition with a slew of cash-armed e-commerce operators.
South Korean retail giants, albeit belatedly, are increasingly turning their eyes to the e-commerce business, with heavy spending on IT infrastructure and fast delivery, which already has been done by archrivals, such as Coupang Inc. and other major e-commerce operators in South Korea.
Although South Korea’s retail behemoths did open online malls, mobile platforms and applications to catch up in the latest trend, it was only recently they truly realized that online stores can breathe new life into their nearly obsolete brick-and-mortar shops and create multi-channel shopping experiences to boost growth, which online-only channels can not do.
“Traditional retail giants will inevitably continue to suffer losses if they do not come up with differentiated strategy that can win back customers and boost sales,” said Kim Myung-joo, an analyst at Mirae Asset Daewoo Co.
In a bid to dovetail with the rising online shopping trend, South Korea’s two industry leaders — Shinsegae Group and Lotte Shopping Co. — have mapped out plans to strengthen their e-commerce platforms to boost dwindling profits.
A few years ago, Shinsegae, South Korea’s leading retailer, began the online initiative by launching its own website, SSG.COM, to stay ahead of other retail rivals by showcasing millions of products ranging from premium brands to its private-label brand (PB) products.
In March, Emart Inc., South Korea’s largest hypermarket chain operated by Shinsegae, also merged its online channels into SSG.COM, an integrated company of two online shopping stores — the Shinsegae mall and the Emart mall.
To differentiate itself from other rivals, Shinsegae also started selling high-end fashion brands online through SSG.COM in May, providing differentiated services from e-commerce leader Coupang Inc., which mostly handles relatively cheaper products, such as daily supplies and baby products.
“What sets SSG.COM apart from others is that we satisfy customers by providing budget products and premium brands,” said Kim Ye-cheol, a Shinsegae Group official in charge of the e-commerce business.
Shinsegae said it aims to bring in 3.1 trillion won (US$2.6 billion) in sales from the online shopping business this year, up 29 percent more than what it earned last year, and to achieve 10 trillion won in sales by 2023, through aggressive marketing, especially by raising the efficiency of delivery services so that its items can arrive at the door the next morning.
The retail behemoth’s online push and drive to diversify its products came as it struggled with disappointing first-quarter business results and the subsequent ratings downgrade, with no recovery in sight.
Emart’s operating profit plunged 51.6 percent to 74.3 billion won in the first quarter, which cut its share price nearly in half in just one year, despite Shinsegae Group Vice Chairman Chung Yong-jin’s purchase of 140,000 shares worth 24 billion won in April.
Lotte Shopping also delivered a weaker-than-expected performance for the January-March period. Its operating profit fell 7.1 percent on-year to 205.3 billion in the first three months of the year, which also has Lotte Shopping facing downgrades for the first time since 2000.
In a bid to boost its growth, Lotte Shopping, considerably a latecomer, is also on a move to strengthen its online business. It set up a new e-commerce business division last August to integrate online businesses that were separately run by Lotte affiliates.
The new division is in charge of Lotte’s eight affiliates, including Lotte Department Store’s online website, El Lotte, the electronics unit Himart, Lotte Home Shopping and Lotte Duty Free, according to the company.
Lotte also said it will launch an integrated mobile application by early 2020 that will have a total of 38 million members who can shop for some 20 million items from some 11,000 offline channels.
“We already have a loyal customer base for the offline market across the country that could have a synergy effect when all of our businesses are integrated through one online channel ” said Lee Sun-dae, a Lotte Shopping official.
The company said it will invest 3 trillion won into its e-commerce sector, with the aim of achieving 20 trillion won in sales by 2022. The investment will focus on developing artificial intelligence and other requirements for its mobile payment, logistics and delivery systems.
Industry watchers say the retail giants will find it hard to make a turnaround this year due to fierce price competition with e-commerce players at a time of slowing growth but striking the right cord with customers with an increasing focus on online channels would pay off in the mid and long term.
“Operating losses for this year are inevitable amid never-seen-before heated competition in the online market, coupled with less demand in the offline market,” Yu Jeong-hyun, an analyst from Daishin Securities, said.
“Their faith will probably be determined sometime next year depending on whether their new strategy fails or succeeds,” he continued.
(Source: Yonhap News)