E-commerce industry shackled in ballooning losses as competition stiffens

Published : Feb 14, 2017 - 15:48 Updated : Feb 14, 2017 - 15:48

Despite the ballooning volume of e-commerce, deficits for online shopping malls are also bloating with even a rough estimate pointing to over 1 trillion won ($876.88 million) last year, industry officials said Tuesday.

Industry records showed the country's three leading social commerce sites -- Coupang, Ticket Monster and WeMakePrice -- suffered combined losses of 834.6 billion won in 2015, with Coupang accounting for the largest at 547 billion won. Officials say their business last year has not improved much. Insiders at Coupang and Ticket Monster acknowledged it, both saying their deficits ran similar to 2015.

(Yonhap)

The losses by the three are compounded by other online shopping sites.

Officials said 11st Street, which commands the largest number of unique visitors, is believed to have fallen to more than 200 billion won in the red last year. "We launched aggressive marketing last year, including discount coupons, and made heavy investments in the IT side of the business. It's true that the scale of our deficit became somewhat bigger," an official at SK Planet, the operator of the site, said.

The only likely gainer is eBay Korea, officials of which said the company managed 80 billion won in operational profit in 2015 and close to it in 2016.

Such a market downturn betrays government statistics that show the voluminous growth of e-commerce. According to Statistics Korea, online shopping transactions in November last year reached 6.87 trillion won, a 23 percent increase from a year before. It was the first time for the monthly total to surpass 6 trillion won since record keeping began in 2001.

Industry officials say e-traders have become too competitive, often ending up hurting themselves.

"Everyone in the industry feels the desperation that unless they can gain a certain market share right now, they will never be able to recover later," one of the officials said. "That's why they wage price wars even if it means a money loss."

In order to stay competitive, the companies have to keep spending money, officials say. To retain loyal customers, the companies have to invest in fast delivery, a more convenient search system and in connecting online and offline services, they say.

Officials describe a vicious cycle in which companies in need of fresh investments have to show proof of company growth, which forces them to make themselves bigger by attracting more users through money-losing discounts and services, which in turn worsens their profitability.

"Right now, a majority of the companies are filling in their operational losses with what they make from transactional increase," an official said. "If market expansion reaches its limit and transaction volume hits a wall, then there will be companies who won't be able to survive."

Online commerce companies are due to announce their 2016 business performance sometime between end-March and early April. (Yonhap)