Korea’s biggest eCommerce retailer is on Wall Street, but Bom Suk Kim being the next Jeff Bezos or Jack Ma is still a bit too far fetched.
By Haanbi Kim
On March 11, 2021, Coupang launched its IPO on the New York Stock Exchange at an initial $35 per share, which shortly jumped to upwards of $49 per share by the end of the day (Choe & Hirsch, 2021). Even before Coupang’s listing, many have been excited at the prospect of an Korean-version of Amazon or Alibaba. However, to say that Coupang truly will become the next Amazon may be an exaggeration.
What is Coupang and what are its upsides?
Coupang is classified as an e-commerce firm that is headquartered in Seoul, South Korea and incorporated in Delaware. Utilizing innovative and aggressive business measures, Coupang has grown into one of South Korea’s largest online retailers. Predominantly backed by Japanese conglomerate SoftBank, Coupang has seen exponential growth in recognition and operations, holding onto almost a quarter of the South Korean market although only being a little over a decade old. Coupang’s main selling point is its lightning-quick delivery service, which the company calls their Rocket delivery service, where customers can find orders at their doorsteps in a matter of hours at any time of the day with relatively minimal shipping costs. Now, 70% of South Korea’s population lives within one of the hundreds of logistics centers, further underscoring Coupang’s influence in the country (Choe & Hirsch , 2021). Although starting out by selling more durable consumer products, Coupang has recently expanded into other sectors of online retail such as grocery and food delivery, named Rocket Fresh and Coupang Eats respectively. With an extreme comparative advantage in their highly developed delivery infrastructure, from Quarter 1 of 2018 to Quarter 4 of 2020 Coupang has seen its revenue rise from $0.9 billion to $3.8 billion, according to its SEC Registration Documents (Coupang, 2021).
Coupang has also been the only e-commerce firm in Korea recording “sizable gain” in market share over the course of the pandemic, growing from 18.1% to 24.6% during the last year (Choudhury, 2021). Given its paling competitive advantage, it is possible that it can continue to sustain and grow this dominance for at least the next few years. What is also noteworthy about Coupang is its status as a startup that has managed to grow into one of the largest, most ubiquitous retail firms in the country amidst an economy that has economically developed with the help of massive conglomerates. Retail in Korea has long been dominated by subsidiaries of large conglomerates such as Lotte, Shinsaegae, and Hyundai, but Coupang has brought a new dimension into the industry and South Korea’s economy as a whole. If Coupang is to be the start of a trend towards the democratization of dominant businesses in South Korea, then it can surely be considered a groundbreaking company.
What are its downsides?
Despite its miraculous growth, Coupang has several points of concern. One of the biggest points of controversy is its notorious labor practices. The reason for Coupang’s advanced shipping methods is not only due to widespread infrastructure, but also due to overworked workers. According to the South Korean government, eight workers and two subcontractors died from overwork (Song, 2021). To put this “labor malpractice” into perspective, workers have reported that shipping facilities are ill-equipped with proper heating equipment, along with one worker having claimed to have worked more than 60 hours per week (KBS News, 2021; Song, 2021). South Korea’s Labour ministry’s investigations from September of 2020 also revealed that “workers needed more breaks and more safety education” (Song, 2021). Instances of overwork are not rare amongst the Korean workforce, but in order to promote further long-term growth, this is an Achilles heel that Coupang must address, and the way it has constantly denied accusations of malpractice may come to bite back in the future (Kim, 2021). Coupang has doubled its workforce and warehouse facilities over the course of 2020, but the fact that deaths are still abundant are a reflection of its precarious business model that hinges on overworked labor. Labor unions have persistently protested against the startup giant’s malpractices, and if labor’s wishes are to be realized, that could significantly impact the company’s operations and erode its most important comparative advantage in the long-term.
Another criticism that should be made comes from one of Coupang’s upsides. Analysts have mentioned how Coupang’s stock price increased significantly from the initial price due to how it was the only e-commerce firm that managed to show positive growth during the COVID -19 pandemic. However, it is crucial to note that historical data may not be significant in that respect, as the past year has been nothing short of unprecedented. Although Coupang has experienced positive growth throughout the pandemic, whether that growth will improve over 2021 and beyond when the pandemic is over is doubtful due to the sheer unorthodox nature of the past business year. If consumption patterns are to revert to pre-pandemic patterns, then growth may not be as explosive, which could induce a shock to its valuation given its high expectations.
Coupang’s additional but not imminent weakness is the infeasibility of its business model in countries outside of South Korea. A predominant factor in Coupang’s success is South Korea’s high population density and small surface area, and if Coupang were to consider expanding overseas, it would be self-destructive to expand in less densely populated countries, which only leaves it with a handful of countries suitable to expand into. Another factor to consider with overseas expansion is Amazon’s dominance over much of the global ecommerce industry, which will be difficult to dismantle. The startup’s secondary worries can also be traced on the balance sheet. Despite being in business for over a decade, Coupang has still failed to turn a profit and although its losses have been consistently falling over the years, it is also still running negative free cash flows, which totaled -$182.5 million last year (“Coupang: Comparisons”, 2021). Venturing into risky, equally hypercompetitive sub-sectors of ecommerce like grocery and food delivery, Coupang’s future is doubtful if its experiments with these sub-sector expansions happen to go sour.
Perhaps one of the most critical points to make about Coupang is its ability to retain its market dominance over the long-run. Coupang retains a quarter of Korea’s online ecommerce market, but competition is still abundant in the ecommerce industry, and the delivery/retail industry as a whole. According to Korea’s Industry Ministry, there are thirteen ecommerce firms in the country, and the food delivery sector also has an abundance of competitors, most of which were founded long before Coupang decided to supply food delivery services (Kim, 2021). More concerningly, with Amazon partnering with another ecommerce competitor, it is possible that consumers can leave Coupang just as quickly as they started using it.
Looking at the more empirical issues, Coupang has issues of varying imminence that put its long-term prospects in doubt. One final, more philosophical issue to consider is Coupang’s role for the industry as a whole. The Financial Times poses an interesting statement in one of its articles:
Amazon changed the way in which Americans shop. Coupang has not. Why then is Coupang valued at a five times multiple of trailing sales — higher than that of Amazon? The comparison is a flawed one.(“Coupang: Comparisons”, 2021)
Amazon has permanently shifted the US from shopping at Walmart to ordering next-day delivery on Amazon Prime. Prior to Coupang, remote forms of shopping were already commonplace in Korea such as home-shopping channels and other online shopping websites. What Coupang has really done is accelerate the remote aspect of shopping through its innovative delivery policies. To say, then, that Coupang is as revolutionary as its foreign counterpart, may be an incompatible comparison. □
- Image source
- Choe, S. H., & Lauren, H. (2021, March 11). South Korea’s Answer to Amazon Debuts on Wall Street. New York Times. https://www.nytimes.com/2021/03/11/business/korea-coupang-ipo.html
- Choudhury, Saheli Roy. (2021, March 11). Coupang Is Set to Make Its Trading Debut on the NYSE. Here’s What One Strategist Is Telling Clients. CNBC. http://www.cnbc.com/2021/03/11/coupang-ipo-strategist-says-investors-should-consider-profit-outlook.html (Choe & Lauren, 2021)
- Coupang: Comparisons with Amazon Have Been Greatly Exaggerated. (2021, March 11). Financial Times. http://www.ft.com/content/d1e4c304-9a50-431d-b0ff-0d3ffe9b3fad.
- Coupang, Inc. (2021, February 12). Form S-1 Registration Statement. http://www.sec.gov/Archives/edgar/data/1834584/000162828021001984/coupang-sx1.htm.
- KBS News. (2021, January 19). 쿠팡 50대 노동자 사망…한파에 ‘핫팩’ 하나로 버텼다 / KBS [Video]. YouTube. https://www.youtube.com/watch?v=oDG9cCpubKE&ab_channel=KBSNews.
- Song, Jung-a. (2021, March 8). Coupang’s New York Listing Clouded by Worker Deaths. Financial Times. http://www.ft.com/content/a90749a2-5f5d-4789-8215-fd4168a50813.
- Kim, Jaewon. (2021, March 12). After Coupang Soars in US IPO, Can It Deliver for the Long Term?. Nikkei Asia. asia.nikkei.com/Business/Business-Spotlight/After-Coupang-soars-in-US-IPO-can-it-deliver-for-the-long-term.Park, S. U. (2017, October 26). [벼랑 끝 이커머스]①유통공룡 韓습격에…’적자생존’ 기로.” 이데일리. http://www.edaily.co.kr/news/read?newsId=01259526616097184&mediaCodeNo=257.