Country factsheet - June 2015
South Korea
Country factsheet I South Korea
South Korea well deserves its place in the 4 Asian Tigers and ranks among the top 10 e-commerce markets, as shown by the figures below: • More than 50 million inhabitants • A GDP with a growth rate of 3% in 2013 • A decreasing unemployment rate, which stands at only 3% • An Internet penetration rate of 84.8% • 29.2 million e-shoppers • 15.2 billion euros in e-commerce sales in 2013 • M-commerce has grown by 154% since 2011 • Imports made via e-commerce increased by 47% in 2013
1. The consumer The South Korean consumer is hyper-connected. In fact, 83% of the population lives in an urban zone, 84.8% of inhabitants are connected to the Internet and 95% of Internet users surf the web every week. It is not surprising therefore, that 7 out of 10 South Koreans have already made at least one online purchase. The population distribution also helps this hyper-connectivity as almost half (47.8%) of the population is aged between 25 and 54.
4
credit cards per home
A national addiction to credit cards The second trait that characterizes South Korean consumers is their addiction to credit cards. This method of payment has been extremely successful for years in South Korea. The country has more than 100 million cards, which means an average of four credit cards per home. The volume of credit card purchases each year amounts to 485 billion euros (off and online purchases combined), representing 76% of the volume of retail purchases. And when they use their credit card to make online purchases, what do South Korean consumers buy? They mainly purchase electronic devices and clothes, which are the top two categories in terms of expenditures made online, as shown in the illustration below.
Top 5 online purchases made by the South Koreans
02
1. 2. 3. 4. 5.
E lectronic devices and video games Clothes Media products Food Beauty and personal hygiene products
Country factsheet I South Korea
Greatly attracted by international sites South Korean consumers discovered very early on that online shopping gave them access to cheaper products if they ventured onto foreign sites. The imports associated with online purchases also increased by 47% in 2013. The volume of goods purchased on foreign sites rose to the record amount of more than 800 million euros. The greatest consumers of overseas goods are spending an average of €638. The two markets favored by South Korean e-shoppers to buy from are currently the United States and China. The purchases made on Chinese sites are increasing by almost 170%. South Korean consumers find the same products on these sites with up 20 to 30% discount. However, it are U.S. sites that are favored by the South Koreans with 74% versus 11%. Motivations of the South Korean e-shopper to purchase on foreign sites: 67%
Lower prices
35%
Larger selection Better quality
20,3%
The South Koreans are also so aware of the trends in the online U.S. economy. One example is, although they do not celebrate Thanksgiving, e-shoppers now closely monitor the promotions associated with this celebration during Black Friday and Cyber Monday. And this phenomenon has grown so considerably that it has forced local e-tailers to offer promotions during these special days of the year. The digital travels of South Korean e-shoppers also cause them to make frequent purchases from Japan and Germany. This attraction shows no sign of weakening, as the purchases made using credit cards on foreign sites increased by 15.4% in 2013 versus 3.2% for domestic online purchases.
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Country factsheet I South Korea
13%
of retail sales are made via e-commerce
2. The market The immediate addiction of the South Korean population to the Internet drove the e-commerce market to develop very early; in 2000, there were already almost 1,900 online stores. Today, 13% of retail sales in South Korea are made online. This is the highest proportion in the world.
National success stories and errors in international development In a country that has been living and breathing digital since it first came into existence, it’s not surprising that local advertisers have also found their way along the e-commerce path. The most famous of these is Coupang. Its South Korean founder had a true entrepreneurial vision when he launched the site in 2010 upon finishing his studies at Harvard Business School. And the welcome of his compatriots was fantastic as during the first week after the site launched, there were already over 7,000 registered members. The site worked along the lines of the famous Groupon model and with a name that is derived from “coupon” - it was created based on a system of discount coupons. Since then, their model has grown and is now more similar to that of Amazon and sales from discount coupons only account for 10% of the company’s turnover. All sorts of goods are currently on sale, as is the case with the largest market places. Coupang is home to everything from fresh cherries to the latest fashionable smartphones to secondhand cars. This diversification has proven beneficial for the local pure player, as Groupon had to close down its South Korean operations when it saw its market share drop by 90%. It is now focusing on developing the local player Ticket Monster, which it purchased (also known under the name TMON). Purchasing a local business was also eBay’s strategy when it bought Gmarket, another local giant, in 2009. Another aspect on which Coupang has been able to rely is mobile. It launched its first mobile application one year after its creation and has since then been first in terms of surfing on mobile applications as shown in the ranking below. 70% of traffic and half of sales are via this mobile application. Ranking of the e-commerce applications with the most users:
1
2
3
4
5
Coupang
Wemakeprice
11st
Ticketmonster
Gmarket
04
4
Country factsheet I South Korea
An analysis of the failures of external players and of local successes enables the following success factors to be established. Success factors for e-tailers in South Korea:
The diversity of the offering
The adaptation to m-commerce
Personalization
Attractive prices
Local e-tailers stuck when it comes to outbound potential Historically, South Korea is an export country. More than 50% of its GDP is associated with these exports. However, it seems that South Korean e-tailers are not managing to sustain this tradition. The South Korean digital trade balance has a deficit of more than 551 million euros. However, the country seems to be in a privileged situation, located at the entrance to the largest online market place in the world: China. But South Korean e-tailers still have a great deal of effort to make in terms of simplifying the payment process. Problems of browser compatibility as well as certification requirements often discourage foreign purchasers. But the government has started to take this problem in hand and changes should be made as the number of Chinese visitors on South Korean sites is constantly and significantly rising. By the end of 2013, there were more than 4.3 million.
05
5
Country factsheet I South Korea
98%
of 18 to 24 year olds has a smartphone
3. Trends The “trend-setters” of m-commerce In South Korea, this is already a reality. Smartphones are used more often than portable computers to make online purchases. The South Koreans are what we call the “trendsetters” of m-commerce. Purchases by messaging applications or code scanning via virtual shops are types of trends that first emerge in South Korea before spreading throughout the rest of the world. This is not surprising, given that 45 million people in South Korea have a mobile subscription and receive very good value packages for mobile data. And this trend is going to continue with the new generation as the smartphone penetration rate among 18 to 24-year olds has reached the breathtaking figure of 98%.
Ever more pronounced taste for luxury The tastes of South Korean consumers are becoming more and more refined and oriented toward luxury products, especially when these products come from abroad. From historical luxury brands and big names such as Louis Vuitton, Chanel, Gucci and Prada, there is now more of an evolution toward “super luxury” brands, in the 100% handmade sphere. In traditional sales, the large South Korean retailers are already significantly increasing the proportion of foreign brands and luxury items. And the government is also making additional efforts in this respect by introducing policies that aim to reduce the price of imported luxury goods.
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Sources:
R.E. : Dave Mays, bpost, Centre Monnaie, 1000 Brussels
http://www.l2inc.com http://www.ekosglobal.com https://www.techinasia.com http://www.luxurydaily.com http://mckinseyonmarketingandsales.com http://multichannelmerchant.com http://www.reuters.com http://www.prnewswire.com http://www.e-service-expert.com http://www.economist.com http://www.forbes.com http://www.bloomberg.com http://thediplomat.com http://www.digitalriverpayments.com Cross-border e-commerce Report, South Korea, 2014, The Paypers Note sur l’économie et le commerce de la South Korea, Ministère de l’Économie, de l’Innovation et des Exportations du Québec, septembre 2014
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