Meet Coupang: The Amazon of South Korea.

Hey everyone Harry here and Good Morning, Good Afternoon, or Good Evening everyone!

Welcome to Issue #2 of Deep Dive with Inquisition, we will go over the case - study of a Korean Conglomerate Coupang also known as the “Amazon of South Korea”.

Meet Coupang, a US/South Korea-based company founded by Bom Kim and backed by Softbank, Morgan Stanley, Sequoia Capital, and other prominent investors.

Early Days of Coupang:

Founded in 2010 by Bom Kim, Coupang initially operated as a social commerce company offering coupons to individuals. The name “Coupang” translates to “Being splashed with usable coupons” in Korean, derived from “Coupon PangPang”.

Overview of the South Korean Market (e.g., E-commerce, smartphones, etc)

South Korea is indeed one of the world’s biggest markets for E-commerce retails but also for consumer - spending.

1. E-commerce is still King: E-commerce is the biggest retail market in South Korea.

2. Internet Available Everywhere from Anywhere: According to the 2023 Ministry of Science and ICT report, 99.96% of Korean households had access to the Internet in 2022.

3. Smart Phones are a Must in South Korea: South Korea's smartphone population reached 93.4% of its total population in 2022.

4. Everything Online: Domestic online purchases reached $180.4 billion in 2022.

5. Online > IRL Shopping: Consumers in South Korea go to traditional retail markets for “window-shopping” but purchase online due to the best deals.

6. #1 in Consumer - Demand for Luxury - Items: South Koreans on average spend the most money in Luxury Items in the entire world.

When looking at the statistics - the e-commerce market is huge, and still growing and the supply of smartphones alongside the internet is at its peak.

Rise of Coupang - What and How Coupang dominated the South Korean E-Commerce Market:

Coupang successfully raised approximately $4.6 billion from investors to “build the future of commerce”.

During the early - days of Coupang, it was a social - commerce platform just like Groupon but a Korean - Version. In the early - days, Coupang was widely - popular among South Korean consumers for the website to get “best - deals” online however even after successfully generating strong and growing revenue and profit - founder Bom Kim decided to pivot its entire - business model into an E-Commerce shopping platform during 2014.

The pivot wasn’t enough, the company decided to start this new concept of delivery method for consumers known as “Rocket Delivery”. The concept was very simple: Same-day to one-day delivery after buying online directly from the Coupang website.

Another differentiator was that the company directly delivered to its customers instead of partnering up with a traditional logistic company such as CJ Logistics.

This concept was also applied to groceries where customers were introduced to another but for grocery and fresh items - “Rocket Fresh” service which is the same thing as “Rocket Delivery” but for fresh items that can be commonly found during grocery shopping.

After the introduction of the “Rocket Delivery” and “Rocket Fresh Delivery” services, Coupang surpassed over $2 Billion Transaction from the platform alone in 2014, which was an indication of a successful pivot.

Coupang heavily focused on two things: customer satisfaction and efficiency.

They placed a strong emphasis on providing the best possible experience for their customers. This led to the introduction of the “Rocket Delivery” concept. Furthermore, Bom Kim publicly acknowledged his focus on Amazon and its significant investments in infrastructure to enhance efficiency. To provide and complete the “Rocket Delivery” service, it requires a well-designed and organized infrastructure, including fulfillment centers around its main target customer areas.

Which led to Coupang building over 100 fulfillment centers within 7 miles of 70% of its customers.

Building the infrastructure isn't the only factor in making “Rocket Delivery” possible - the company leveraged AI and robotics to predict demand spikes and deploy products to the specific needed fulfillment centers. However, this model is also repeated by Amazon - the king of e-commerce. As much as Coupang is obsessed with its customers, Amazon is equally obsessed with its customers.

Both companies share not only similarities in their business models but also hold similar models when it comes to maximizing efficiency to provide maximum customer satisfaction. After building Coupang's loyal customer base through the “Rocket Delivery” service, the company launched the “Rocket WOW” service in 2021. This service offers a monthly membership where users pay around $3 per month for any time free Rocket Delivery, access to Coupang Play (an OTT platform like Amazon Prime), a 30-day 100% refund policy, and more.

Thanks to its efficient infrastructure system and obsession with customer satisfaction, Coupang not only became the #1 player in the $180.4 billion market within around 10 years but also successfully IPOed on the New York Stock Exchange (NYSE) in 2021.

“Amazon of South Korea”

How did Coupang surpass the traditional chaebols (a group of South Korean conglomerates) and become the #1 player in the world's sixth-largest e-commerce market?

Simply through benchmarking successful similar businesses like Amazon. The two companies operate within the same space (e-commerce) and share similar missions and values (customer first). Ultimately, they provide a very similar service to their customers.

Specifically, Coupang benchmarked the success formula from Amazon, focusing on implementing technology and creating fulfillment centers both inside and outside of South Korea to achieve ultimate efficiency, which leads to customer satisfaction.

They lowered the risk by implementing an already-proven business model in a big market (US e-commerce) and localized it to fit the local's taste.

Additionally, they implemented a membership model while providing other perks and benefits, such as Coupang Play which is now the #3 most - popular OTT platform in South Korea and commonly compared to Amazon Prime Video.

Challenges for Coupang:

The core - challenges for Coupang can be broken down into a few areas:

1. Decrease in Revenue:

   • Coupang used to have over 20%+ in revenue growth per quarter inside the South Korean market until 2020 however starting from 2022 and beyond, the quarterly growth rate of revenue has dropped to less than 10% per quarter. This is a major - concern for Coupang since it was the icon of “growth”.

2. Continuous challenge from its local and global competitors:

   • Coupang is consistently being challenged by its local e-commerce and traditional retail competitors (e.g., Naver, Shinsaegae, Market Kurly, etc) alongside the official launch of Alibaba and Temu.

As the company is facing numerous challenges and slowed growth, it will be crucial for the company to find a way to improve growth locally and globally meanwhile protecting its #1 market share in one of the world’s biggest markets - South Korea. This is why the Future of Coupang will be dedicated to the solution to the problems it is facing and the globalization plan.

Future of Coupang:

Before we dive into the Future of Coupang, let’s take a look into the global luxury market to understand the relationship between the future of Coupang.

Globally, the market size for luxury goods (everything in general) is still growing despite the global macroeconomic conditions. According to the Bain & Company report, the overall luxury market has reached over 1.5 Trillion+ Euros and experienced 8 - 10% growth during 2023 compared to 2022 using current exchange rates. The growth for total - spending was consistent and 2022 had around an additional 160 Billion Euros across all luxury spending segments compared to the prior year which is a strong sign of continued growth for luxury brands across the world.

While the total luxury spending rises, the personal luxury goods also known as the “core of the luxury market” spending also rises. The market likely has reached 362 Billion Euros in 2023, which is a 4% increase compared to 2022 at the current exchange rate. During the recent couple of years, online luxury sales have been declining after the first outbreak of COVID-19 since the consumers want to have the luxury shopping “experience” however experts believe that the online luxury shopping e-commerce market will regain its status once the macro-economic conditions improve.

Furthermore, the world’s most consumption for luxury goods per capita is South Korea - the home of Coupang. So, during the short-run, the macroeconomic conditions are somewhat still affecting certain parts around the world regarding the demand for luxury goods however the long-run view for the demand for luxury - goods is strongly growing.

Coupang released the announcement of the Farfetch acquisition on December 18th, 2023, and completed the acquisition on January 31st, 2024. The two companies share similar values, both being tech-based e-commerce companies targeting general consumers. However, Coupang focuses on general e-commerce, while Farfetch focuses on luxury goods.

With the acquisition of Farfetch, Coupang can successfully enter the US market and indirectly compete with e-commerce giants such as Amazon and Walmart, focusing on luxury goods and beauty products rather than general e-commerce. The acquisition not only provides Coupang with an advantage and a golden ticket to enter the US market but also offers an entry into the global luxury item and beauty product market, as Farfetch ships worldwide. Although worldwide luxury spending experiences low growth inside the US market, it remains a huge market for a consumer-focused company like Coupang seeking overseas expansion simply due to its market size.

It is sensible for Coupang not to directly compete with e-commerce giants both within and outside the US, such as Amazon, Walmart, and Alibaba, as there would be no competitive advantage when it comes to doing general e-commerce. However, by shifting focus and maintaining an obsession with its customers, Coupang stands a strong chance of successfully turning around the fortunes of Farfetch and becoming the number one giant in the worldwide luxury item and beauty product e-commerce market, leveraging its successful experience in generating revenue, profit, growth, and logistics through its success story inside the South Korean market.

The future of Coupang will heavily depend on how fast it can dominate a market that is still untouched inside the global market (e.g., Luxury goods) while scaling its operations and logistics to continue to provide the best experience for existing and new customers.

Key - Takeaways from Coupang:

In conclusion, Coupang’s success comes from successfully benchmarking and implementing the strategies that were used by its global competitors meanwhile localizing them to the needs and wants of its local - consumer targets. (e.g., South Korea). After creating the local - version of its benchmarked global competitor (e.g., Amazon) and finding the needs and wants of the local market - Coupang was never hesitant to aggressively re-invest its capital back into the company. They just didn’t re-invest the capital back into the company but also successfully researched and identified the core - areas that need to be improved to reach the ultimate end goal:

Customer Satisfaction.

For Coupang, this was quite simple and it was working on its infrastructure (e.g., fulfillment centers, adoption of technology such as AI to predict the quantity of the most popular products, etc) to enable the “Rocket-Delivery” service which is the one day delivery service.

Here's how you can implement the benchmarking strategy that Coupang used for your own business:

1. Research and identify the successful market leaders outside of your local market and learn how to localize their strategies. (This is still possible since so many markets and regions are still “untapped” by the industry - giants)

2. Prioritize what customers need and want inside your local market before benchmarking. (Not all features/services are needed, and they strongly very - a good example of this is Grab which successfully beat Uber - the global ride-sharing giant)

3. Aggressively invest in areas that provide your company an advantage.

4. Make your product/service so good until the point where people cannot live without it.

The benchmarking tactic will always exist, and many companies in the past have successfully benchmarked and localized it (e.g., OYO Rooms, PayTM, Grab, Alibaba).

Thus, the key to success in developing market/untapped - industries will be effectively benchmarking successful companies from outside the specific market, evaluating their services, deciding which ones to implement, and, most importantly, localizing them to align with the preferences of the local market, which is crucial for success and continuing to provide the best possible experience for the customers will be crucial for any company inside any market and region.

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Thank you so much for reading and have a nice day!

-Harry