Coupang, South Korea’s Answer to Amazon, Debuts in I.P.O.

SEOUL, South Korea – The little white vans drive through the streets of South Korea. The uniformed workers send photos of safely delivered packages to impatient customers. Workers can move as fast as the employer promises that the service is called “missile delivery”.

The trucks and operations are owned by Coupang, a start-up founded by a Harvard Business School dropout that rocked shopping in South Korea, an industry long dominated by giant button-down conglomerates. In a country where people are obsessed with “ppalli ppalli” or get things done quickly, Coupang has become a household name by offering next day and even same day and dawn grocery delivery and millions of other items without Surcharge.

The company, sometimes referred to as the Amazon of South Korea, received huge support from Wall Street on Thursday. The company’s shares rose 41 percent from a market price of $ 35 to $ 49.25. The IPO raised $ 4.6 billion and valued the company at around $ 85 billion. This is the second largest American balance sheet for an Asian company after the Alibaba Group of China in 2014.

Coupang may need the money. South Korea’s large conglomerates called Chaebol and others are building their own delivery networks as Coupang plans to expand. There are other issues as well, such as growing concerns about working conditions following the deaths of several warehouse and delivery workers in Coupang, who blamed some relatives and labor activists for overwork and poor work practices.

Coupang is currently South Korea’s largest e-commerce retailer. Its status is further cemented by people stuck at home during the pandemic and people in the country craving for faster delivery.

“I’m not going to go so far as to say that I can’t live without Coupang because there are so many other online shopping opportunities here that are fiercely competitive, and some of them can be as fast as Coupang or cheaper.” said Kim Su-kyeong, a coupang buyer and mother in Seoul. “But Coupang has branded itself so well that the name comes to mind when I think of shopping online.”

Bom Suk Kim, who founded Coupang in 2010, likes to say: “Our mission is to create a world in which customers ask themselves: How have I ever lived without Coupang?”

Kim, 42, ran an unofficial and short-lived Harvard alumni magazine in the United States before returning to his native land to revolutionize the e-commerce industry. Coupang’s rapid growth was driven by a combination of daring entrepreneurship and branding. This includes spending a lot on infrastructure to limit the inconvenience typically associated with online ordering and returns such as cardboard boxes. Rocket Wow Membership Program customers can return a Coupang product by leaving it outside the door with no box or return label.

“It’s not just free – it’s a stress-free experience,” said Mr Kim in an interview on Thursday. “We really tried to get to the extremes that have a really high bar, not to do something incrementally different, but to think about how we can just change the actual framework – the framework.”

The company’s name is a mixture of the English word “coupon” and “pang”, the Korean sound for the jackpot. In an industry where most delivery drivers drive around in nondescript trucks with drab jackets, Coupang’s fleet of full-time drivers – known as Coupang Men but recently renamed Coupang Friends – wear bright uniforms and drive around in branded vehicles exhibited by companies.

“Coupang has grown rapidly by meeting two key customer needs: affordable pricing and fast delivery,” said Ju Yoon-hwang, professor of sales management at Jangan University. “Coupang also offers more goods than its competitors, so consumers believe they can find everything on Coupang.”

Few startups – like Naver, South Korea’s dominant web portal and search engine, and Kakao, the leading messaging app and online bank – have been as successful as Coupang. But Naver and Cocoa are both listed in South Korea. Mr Kim brought Coupang to Wall Street to attract larger investors and a higher valuation that would allow his company to outperform its home rivals.

South Korea is one of the fastest growing e-commerce markets in the world and is expected to be the third largest in the world this year, after only China and the US. According to a market research firm Euromonitor International, the volume, which was valued at $ 128 billion last year, is projected to reach $ 206 billion by 2024.

And it’s great for e-commerce. Around 52 million people live in rural areas, the vast majority of them in densely populated cities. Almost every home has high-speed internet, and people pay taxes and gas bills with smartphones.

South Korea had a vibrant delivery culture long before the arrival of e-commerce. Families called to have their food delivered around the clock. Dry cleaning workers climbed stairs in residential buildings to deliver freshly pressed clothing. Motorcycle couriers brought documents, flowers and so on from one district to another.

Coupang’s first competitors were eBay-style marketplaces where customers found sellers. The deliveries were made by logistics companies that had contracts with independent couriers. Deliveries can take several days.

When Coupang started its “rocket delivery service” in 2014, it sparked a price and delivery war. Since then, the company has built up its own network of logistics centers. According to the company, 70 percent of the population live within seven miles of a Coupang logistics center. The company uses machine learning to predict demand and store goods in warehouses. It also operates its own fleet of 15,000 full-time Coupang Friend couriers.

In 2020, the company doubled its workforce to 50,000, making it South Korea’s third largest employer in the private sector. 50,000 more jobs are to be created by 2025.

Analysts said Coupang borrowed from Amazon’s Playbook in trying to become a dominant market power before turning a profit. The company’s revenue nearly doubled to $ 12 billion last year. However, the huge investments in the logistics network made possible by funding from foreign investors such as the Japanese SoftBank and the Vision Fund have continued to be in the red. Annual net loss rose to $ 1 billion in 2018, before decreasing to $ 475 million last year.

“The picture is pretty clear about the strength of the business,” said Mr. Kim. Although the company has not given a timeline for when it could turn a profit, he said Coupang will “continue to be able to finance itself” and “be aggressive about reinvestments”.

Coupang Eats, a food delivery service, and Coupang Play, a video streaming app, were recently launched. However, unlike Amazon, Coupang doesn’t have other companies like cloud computing that can easily generate the money needed for big expansions. And rivals are tough.

Some of the chaebol, the family-run conglomerates that dominate the economy, are expanding their e-commerce businesses, particularly Lotte and Shinsegae, which run the largest department store and mall chains in the country. So does Naver, who is already an e-commerce giant.

As competition intensifies, super-fast delivery is quickly becoming the new norm, which weakens the novelty of the Coupang missile delivery service.

Coupang has also undergone a review of its labor practices. Former coupang workers and labor activists accuse the company of exploiting its warehouse workers in a frenzied rush to process orders as quickly as possible.

As the number of workers doubled, the number of people suffering from work-related injuries or illnesses in Coupang and its camps rose from 515 in 2019 to 982 in 2020, according to government figures.

“Coupang is an inhumane company that treats its workers like slaves or machine parts and squeezes them to the last drop,” said Park Mi-sook, whose son Jang Deok-joon died of a heart attack shortly after returning in October from a night shift in a coupang warehouse. His death was deemed a work-related incident and Coupang has since apologized.

Coupang has denied mistreating its workers. In the past year alone, the company invested $ 443 million in automating its warehouse and increased the number of warehouse workers by 78 percent to 28,400 to make employees more efficient and reduce workload.

“What made Coupang’s missile delivery possible was its massive employment and investment,” the company said in a statement.

And it’s still an indispensable service for busy South Koreans.

In a letter to prospective investors, Mr. Kim shared an example of a typical Coupang shopper: a working mom who realizes late at night that she forgot to go shopping and then places an order online through Coupang.

“When she opens her eyes, it’s like Christmas morning,” wrote Mr. Kim. “The order is waiting at your doorstep.”

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