Western retailers are just now starting to see daylight at the end of a long winter of discounting discontent, and many standbys like Macy’s and JCPenney haven’t come out unscathed. It’s tempting to think that U.S. retail has had its eyes opened to the profoundly damaging effects of its discounting dependency, and the eternal optimist might even believe that since a few American companies were laid low by overaggressive promotions, the rest of the world will learn from its mistakes.
On the contrary, South Korean eCommerce and brick-and-mortar retailers seem to be stuck in much the same discounting death spiral as their American counterparts.
The Korea Herald has the story of the lowball pricing war going on between Coupang, one of the country’s fastest-growing online marketplaces, and E-mart, the oldest and largest in-store retailer in South Korea. Launched in 2010, Coupang has been making gains over local retailers by targeting the most commonplace, everyday items the average consumer might need; consumable home goods, like tissues and bottled water, comprise a good deal of sales, while diapers and baby formula offer the chance for steep discounts off of market prices. Add onto this the fact that Coupang offers free one-day delivery for all purchases over about $8 — an easy benchmark when buying baby products — and it’s clear as day why eCommerce companies in South Korea seem to find sales falling over.
An Oct. 2015 report by Statistics Korea, via eMarketer, found a striking disparity in growth between physical and online retail in South Korea last year. While overall retail activity rose just 0.5 percent in the country from July 2014 to July 2015, eCommerce sales alone increased 21.2 percent over the same period. Perhaps even more shocking is the fact that mobile-based eCommerce sales climbed by 63.9 percent in a year’s time.
South Korea’s B&M retailers aren’t taking this lying down, though, and E-mart’s aggressive pushback on Coupang is one of the clearest signs of a prolonged fight just taking shape. The Korea Herald explained that E-mart has claimed the “lowest prices among all local retailers” on much of the same products that Coupang has made its name on. This has caused Coupang to readjust prices as well, as both retailers find themselves in a race to the bottom. What’s more is that customers are hardly reaping the savings; both Coupang and E-mart have satisfied their respective claims to offer the “lowest prices among all local retailers” simply by undercutting the competitor’s prices by one South Korean won (about $0.00084 shiny American dollars).
“It’s essentially a chicken game over who will drop out of the race first,” one industry official told The Korea Herald. “Though they are sustaining huge losses, both Coupang and E-mart are reluctant to lose the ‘lowest price’ title in the market.”
So, South Korean retail is in the midst of a pricing war split along technological lines that’s no different than the divide faced by online and in-store retailers around the world? Big deal. However, Practical Ecommerce explained that there’s one seemingly contradictory element of retail in South Korea that could give Coupang a major advantage on E-mart and others: South Korean in-store retail isn’t known for stellar customer service.
Like any new business, Coupang has sensed this weakness and exploited it. In addition to delivering customers’ purchases, Practical Ecommerce noted that delivery workers for RocketDelivery, which is owned and operated by Coupang, often hand out free product samples to customers if they run into them at their homes, and it’s not uncommon for these couriers to handwrite thank you notes for customers while they’re on their routes. While physical retailers no doubt try to avoid negative customer experiences, they might not be able to compete with the effect of thanking customers for their patronage without ever asking them to get up from the couch.
If that seems like too big of an ace up Coupang’s sleeve, though, the retail world has a curious way of evening things out. According to The Korea Herald, Coupang is set to announce its highest-ever annual operating loss of about $335 million for the past fiscal year.