After its first day of trading on 11 March last year, shares in Coupang closed at US$69, giving it a market capitalisation of more than US$100 billion. Since then, the company’s revenue growth has continued to be robust and easily outpaced the e-commerce sector as a whole, which itself has been growing at a dizzying rate. By November last year, South Korea’s Ministry of Trade, Industry and Energy reported that sales of online retailers had exceeded those of Korea’s department stores and supermarkets for the first time.
For Coupang itself, year-on-year revenue growth leapt more than 90 per cent in 2020 on a constant currency basis, helped by coronavirus lockdowns that got more and more people into the habit of shopping from home. Through the first nine months of 2021, revenue increased by another 63 per cent and by the end of September, the number of active customers had increased at a 20 per cent year-on-year clip for 15 consecutive quarters.
How has Coupang managed to get out ahead of the pack in its home country?
Investment in logistics for fast delivery is a distinguishing feature of the company. It offers dawn delivery (order before midnight for delivery by 7am), same-day delivery (order before 10am for delivery that same day), and next day delivery, which guarantees one-day delivery on almost all orders. The company says that nearly 100 per cent of orders arrive the next day or faster.
Snappy delivery times have become a competitive must in a country where overnight delivery, to the door, of fresh groceries is now normal, with fierce competition among both e-commerce and omnichannel retailers.
Coupang has been able to accomplish its position as market leader in the speed-of-delivery department with a huge investment in distribution facilities, logistics technology, and drivers. The fact that South Korea is so densely populated helps a lot: the country ranks second in Asia behind Bangladesh for population density among countries with more than 100,000sqm of land area.
About 70 per cent of South Koreans live within 10 minutes of a Coupang distribution point. That percentage will increase, since the company has announced plans to open new fulfilment centres in 10 regions with an investment of about 1.5 trillion won ($1.7 billion), which it says will create 13,000 jobs in local communities.
To move the goods, Coupang employs more than 15,000 full-time (five days a week) drivers on full benefits and an additional 100,000 ‘Coupang Flex’ contracted drivers who make on-demand deliveries using their own vehicles.
Like Amazon, Coupang has a subscription program, called Rocket WOW, the price of which was recently increased to 4,990 won (about $4.20) a month. Member benefits include free delivery without any minimum order amount, discounts on Coupang products and access to videos on Coupang Play, the company’s streaming service. Members can also make free returns and they don’t even have to take the merchandise anywhere. They just go ‘tap-tap’ on the Coupang app and leave the merchandise outside to be picked up.
While Coupang boasts an impressive distribution network, it hasn’t been entirely successful tapping into some categories. For example, fashion has been an Achilles heel, just as it was for Amazon in its early days. Coupang has now opted to concentrate on the fashion mid-market and has invested heavily in the professional personnel to give it the next leg up. It is courting both emerging brands and established fashion favourites.
The company is also making a solid push into home goods and recently celebrated the exclusive launch in Korea of Nitori, a Japanese household goods and furniture brand.
Now the focus shifts to profit
The deepening of its merchandise categories, plus heavy investment in logistics and the costs of marketing for customer acquisition have all hit the bottom line hard. In fact, the company is yet to run a profit and was already more than a billion dollars in the red for the first nine months of 2021. That was on the heels of a loss of $475 million in 2020. Of course, it took Amazon seven years to realise its first quarterly profit but Coupang has been around, though initially only as a marketplace for other retailers, since 2010, and investors are becoming impatient. At market close on 25 February, its share price was US$25, giving it less than half the valuation it had when it launched.
In an attempt to staunch some of the red ink, Coupang has hiked up its fees, including a 70 per cent increase in the price of its Rocket WOW membership. And starting in February, restaurants in Seoul that use Coupang Eats (the company’s version of Uber Eats) as a delivery platform can choose commission rates ranging from 7.5 per cent to 27 per cent; a higher commission is associated with a lower delivery fee and vice versa. The delivery fee ranges from 1,764 to 5400 won ($1.50 to $4.50). Many restaurants suck up the fees and deal with it even if they are high, and for good reason: Coupang Eats was the most downloaded app for iOS and second most downloaded app for Android in Korea in 2021.
Coupang’s commissions on sales of third-party sellers in its Marketplace have caught the eye of Korea’s Fair Trade Commission (FTC). Of all the e-commerce sites it surveyed, the FTC found Coupang to be charging the highest commissions by far, at a lofty 31.2 per cent. A spokesperson for the FTC noted: “Coupang is levying especially high commissions on fashion items. Commissions are only collected from the 1 per cent not bought directly by Coupang, but we are keeping an eye on the company since the commission rate is too high and their sales are big as well.” The FTC is also investigating Coupang for allegedly abusing its search algorithms to get its own-brand products on top of the search pile on its website.
The other worry for investors that is weighing on the company’s share price is how it will continue to achieve growth as the Korean market becomes saturated. To do that, it is highly desirable to expand overseas, with a focus on markets that have a high population density, like Korea itself. Thus, its initial forays have been into Japan and Singapore, albeit with a more limited range of goods than in its domestic market.
Until it gets traction outside Korea, however, there is still some juicy market share to be gained in Korea itself. Some analysts believe that both Coupang Eats and Rocket Fresh can grab more share off rivals, and that profitability will be possible by 2024. Even for the most patient of Coupang’s investors, that isn’t a moment too soon.