AliExpress’ Homeplus buyout rumors unnerve Korean rivals

AliExpress, the fast-growing e-commerce platform owned by Chinese tech giant Alibaba Group, is rumored to be considering buying Korean discount store chain Homeplus and its nationwide logistics network, making its Korean rivals nervous about the growing presence of Chinese retailers on their home turf.

According to industry sources on Monday, Alibaba Group held a meeting Friday with Kim Kwang-il, vice chairman of MBK Partners, the Seoul-based private equity fund and the current owner of Homeplus, along with officials from AliExpress’ Chinese headquarters, to discuss the potential acquisition of the supermarket chain.

AliExpress denied the rumor immediately, but speculation continues to grow about the potential impact within the nation’s retail industry, possibly reflecting fears about the greater threat from the powerful Chinese rival.

MBK acquired Homeplus for 7.2 trillion won ($ 5.2 billion) in 2013, but more recently it is reportedly seeking to sell its subunit Homeplus Express to recoup investments after years of operating losses.

As of May, Homeplus Express operates over 300 stores nationwide, including 235 in Seoul and the metropolitan area, while Homeplus has more than 130 logistics bases nationwide.

Some industry officials view AliExpress’ penetration into the offline market as highly plausible and potentially threatening, given their swift success in attracting online shoppers here.

"It may only be a matter of time before AliExpress enters the country with China's massive financial power," an industry official from the local e-commerce industry said on condition of anonymity. "The greater Seoul area may be the starting point, with potential expansion into other provinces, as Homeplus stores are strategically located across the country." The official also noted that the marketing of offline stores could help improve AliExpress' current negative perception relating to counterfeit products and items containing harmful substances.

However, others insist that acquiring Homeplus may be a misstep for AliExpress if it fails to understand the local market.

French retailer Carrefour and US retailer Walmart, for instance, were previously outcompeted by E-mart, the nation’s No. 1 discount store chain owned by Shinsegae Group, due to localization failures. Moreover, with the prolonged economic slowdown, warehouse stores like Costco and E-mart's Traders Wholesale Club are rebounding, which means the market is already too saturated for newcomers.

"Online consumers often look for cheap products due to the ease of comparison with just one click, but offline stores operate under different consumer sentiment mechanisms," said another industry official who also wished to remain anonymous. "Since Korean consumers already have a negative perception of Chinese stores, if the product quality turns out to be poor in offline markets as well, it will be very challenging to secure a market presence."

Meanwhile, AliExpress has announced an aggressive investment plan in Korea, vowing to inject 1.5 trillion won over the next three years. This year alone, the group plans to spend some 263.2 billion won to build a fulfillment center, covering a one-stop comprehensive logistics process from storage to delivery.

For AliExpress, the size and regional location of stores may be more critical than the sheer number of stores. To invigorate the fresh food and its K-venue sectors, which AliExpress has not yet actively explored, a base distribution center is essential for faster delivery, a role that Homeplus branches could fulfill, according to sources.