Coupang, the leading South Korean eCommerce operator, is expected to reveal mounting operating losses for 2015 as big investments in logistics capacity weighed on the financials of the startup company, industry sources said Thursday.
Coupang is expected to log over 400 billion won (US$326.9 million) in losses when it files its 2015 audit report in mid-April due to rising costs in building new logistics centres and hiring new staff, they say.
The online retailer’s sales were estimated to have jumped more than four-fold last year from 348.5 billion won in 2014 after its same-day delivery service helped attract more customers in online marketplaces.
While market watchers questioned the sustainability of its business model, Coupang said the deficit is an inevitable result of aggressive investment to get ahead in the highly competitive market.
“The operating deficit was already being expected because we are making big investments to establish a nationwide logistics network and hire more staff,” a spokesperson said.
“The investment is aimed at the long-term goal of making a strong foothold in the market. It is expected to take some time to make a turnaround as several projects are currently underway.”
In November, Coupang said it will invest 1.5 trillion won in expanding logistics capacity by 2017 to step up its same-day delivery service, just months after it won a US$1 billion investment from Japanese telecommunications giant Corp. Coupang launched an ultra-fast delivery service called “Rocket Delivery” in March 2014 by establishing its own logistics system and employing couriers, joining the global wave of delivery wars led by online retail behemoth Amazon.
Coupang said it will hire 4000 more staff in the delivery and logistics sector by next year, in addition to 3500 full-time delivery staff, and have 21 logistics centres across the nation. In addition to the same-day delivery competition, Coupang has recently launched a cut-throat price war, advertising that its diapers and powdered milk are the cheapest in South Korea.
As a result of aggressive marketing, Coupang’s market share in the local online market has steadily risen from 2.3 per cent in 2013 to 5.6 per cent in 2015. Mobile devices also accounted for 9.8 per cent of its transactions last year, according to industry data.
* Original reporting by Yonhap.