Shinsegae Group’s ambitious acquisition of the local unit of eBay is set to create a retail giant that will rival the existing top players. With its latest acquisition, Shinsegae is set to jump into the competition between Naver and Coupang which has dominated the local e-commerce market.
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Shinsegae’s offline discount chain E-mart signed an agreement to purchase 80 percent of eBay Korea’s shares for US$3.04 billion. Despite the higher-than-expected acquisition cost, Shinsegae is making a bold bet that the combination of its online and offline sales channels merging with eBay Korea’s open market platforms will translate into bolstered competitiveness. Neither Naver nor Coupang have an offline sales channel.
The latest deal is also set to result in the consolidation of top players and widen the gap with smaller players in the market.
With the acquisition, Shinsegae is expected to become the No. 2 player in the domestic e-commerce market after Naver. SSG.com, Shinsegae’s online commerce channel, currently accounts for 3 percent of total e-commerce transactions, while eBay Korea accounts for about 12 percent. The top players are Naver with an 18 percent share and Coupang with 13 percent.
Shinsegae’s acquisition of eBay Korea will boost its market position to second place with a share around 17 percent. Annual transactions are expected to jump to a combined UD$21.2 billion; eBay Korea’s annual transactions total US$17.6 billion and SSG.com US$3.5 billion. That will seriously challenge Naver’s annual transactions which total US$24.7 billion, according to market experts.
Naver is the dominant portal site through which most online shoppers search for items and serves as the platform that connects consumers with vendors on various open markets.
Naver and Coupang have different models. Naver’s portal site acts as a broker between vendors and consumers, while Coupang buys and ships most of its products directly.
Coupang is the strongest player when it comes to same-day and early-morning delivery services, which has become a key driver of its success. Under same-day delivery, items purchased in the morning are delivered by the evening of the same day.
E-mart also has strengths in is its online early-morning delivery service of groceries. But with the latest acquisition, Shinsegae’s core competitiveness will be the synergy created between its offline sales channels and e-commerce platform. Shinsegae has a competitive logistics system for fresh products ― E-mart has three state-of-the-art automated distribution centers and 160 offline stores. The group’s offline channels also include a competitive department store. Shinsegae has pledged to scale up additional investments into its logistics system.
eBay Korea currently operates open market platforms Gmarket, Auction and G9. The platforms connect online shoppers with vendors, and eBay is not involved in direct purchases. eBay Korea will be able to share the valuable database of customers and vendors it has accumulated over the last 20 years operating here.
“What will be key is whether the company acquiring eBay Korea will be able to create actual synergy with a substantial strategy,” said Oh Lina, an analyst at eBest Investment & Securities.
Shinsegae initially took part in the eBay Korea bid in a consortium with Naver, with plans for the latter covering about 20 percent of the acquisition costs. But Naver pulled out later due to differences over the acquisition price and how it would contribute to the deal.
Still, Shinsegae and Naver are set to continue working together, based on their existing partnership. The two entities swapped US$221 million in shares and have plans to work together in online and offline retail and sales.
Shinsegae’s retail rival Lotte also took part in the deal, but dropped its bid as it was not willing to pay as much for the deal. This casts uncertainties over Lotte’s strategy for its online shopping channel as its e-commerce unit Lotte ON has been struggling.
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eBay entered the local market in 2000. Last year, eBay Korea generated US$1.1 billion in annual sales and an operating profit of US$75.1 million from commissions collected from items sold on its open market platforms. eBay Korea’s performance has shown steady growth since 2015. Sales surpassed US$884 billion for the first time in 2019, up US$70 million compared to 2015.
(Source: Korea Times)