The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
SEOUL, South Korea — Twenty-one-year-old student Jeong Yerim has honed her online shopping strategy to a tee.
First, she searches for products through South Korea’s top search engine Naver, which returns a list of retailers and their prices for comparison (users collect cash points when shopping through the site). If she feels adventurous, Jeong explores local app Zigzag for a compilation and ranking of fashion e-commerce offerings from other platforms.
When placing an order, Jeong pays through Naver — existing users only need to input a six-digit password — and receives a confirmation through KakaoTalk, a local super-app not unlike China’s WeChat.
This process may sound complicated, but Jeong is hardly the only Korean consumer with savvy online shopping rituals. The country is home to some of the world's most sophisticated internet users: studies peg 99.6 percent of South Korean teenagers as digitally native.
Although many global tech and retail players are now focusing their e-commerce ambitions on high-growth Southeast Asian economies like Indonesia’s, South Korea is still placed within the top ten fastest-growing e-commerce markets in the world and in the top five countries for e-commerce sales, according to 2019 figures from eMarketer.
Not only would global retailers benefit from a greater understanding of this lucrative market, but the lessons they garner from South Korea’s advanced online consumers will likely help them innovate elsewhere.
Online Gatekeepers in a Crowded Market
Where China has Alibaba and Japan has Rakuten, South Korea has Coupang, a $9 billion e-commerce giant reportedly serving a user base almost half the size of the country's population. But within the fashion and beauty categories, the market lacks an equivalent to the Alibaba-owned Tmall, China's go-to partner for global brands from L'Oréal to Dior.
"Korea is much more fragmented across beauty and apparel — there's no clear winner," says Aimee Kim, a Seoul-based partner at McKinsey & Company, noting that most global brands will ink deals with established retailers like department store chain Shinsegae to distribute products across the latter's network of physical stores where e-commerce is often part of the package.
Korea is much more fragmented across beauty and apparel — there's no clear winner.
This hyper-fragmentation makes it critical for retailers to create unique and personalised experiences for consumers. For example, take W Concept, a portal for buzzy South Korean and global designers that operates locally and in the US. The site, which cashed in $172 million in sales across its global business in 2019, uses AI to tailor product recommendations to customer interests and automate text messages and app alerts to target groups according to their content.
W Concept has become a gatekeeper for local brands hoping to enter western markets and vice versa by conducting social media, influencer and celebrity marketing as a middleman. “The biggest challenge is how to make these brands publicly recognised among already well-known and growing labels,” says W Concept Korea’s Chief Marketing Officer Kim Hyosun.
The fusion of e-commerce and social media platforms can allow retailers to integrate purchases with shoppers’ everyday interactions. Jeong, for one, favours instant messaging app (and e-commerce marketplace) Kakao for gifting because of its public wish-list function, where she can send friends gift vouchers and beauty products.
Meanwhile, retail giants have also linked arms with brands to raise awareness in the South Korean market. Shinsegae, for one, inked a deal with local fashion accessories start-up Rawrow through its funding arm Shinsegae International (the trend is also taking off in China, where Tmall has partnered with global brands like Allbirds and L’Oréal to help them gain footholds in the Chinese market).
B2B start-up Linkshop, on the other hand, is connecting over 8,000 offline "Dongdaemun wholesalers" to retailers, who pay a membership fee to browse and place orders for more than a million items on its platform. By standardising (previously unlabelled and negotiable) prices and streamlining ordering, delivery and distribution processes, Linkshop is digitising Seoul’s wholesale hub.
In the past decade, Korea’s bustling wholesale industry (which can be experienced in Seoul’s Dongdaemun district) spawned an ecosystem of independent online businesses — as products sold are often similar, retailers differentiate themselves through creative direction and by exclusively working with social media-savvy models.
One well-known example is Stylenanda, whose founder and BoF 500 member Kim So-hee later launched a successful beauty arm, 3 Concept Eyes. Jeong, however, is a fan of Frombeginning, which has over 274,000 followers on Instagram. The account directs shoppers to its website, which also ships to the US and China.
But the pace and dynamism of the sector can have its drawbacks, suggests Sue Nguyen, co-founder at Korean tech news platform Seoulz. “Because there are so many [online stores], it’s hard to keep track and it’s hard for consumers to find the next big thing,” says Nguyen, noting that the e-commerce data can give retailers insights to track up-and-coming products, brands or categories.
Redefine the Content-Commerce Connection
"I can't imagine not being able to shop online," says Eunice Eo, a 29-year-old translator who frequents sites like beauty giant Olive Young (which last year launched its international online business), W Concept and SSG.com, Shinsegae's e-commerce site. But like Jeong, Eo uses Naver (the "internet homepage" for Korean web users) to compare prices to ensure she scores the best bargain.
In recent years, industry leaders have suggested that Google’s executives could take a page or two out of Naver’s book when it comes to the global search engine giant’s shopping and price comparison functions.
"[Korean consumers] take, on average, great pride in comparing prices, getting the best deals, finding needles in a haystack," says Kim. Though many younger shoppers are increasingly price sensitive, the practice is just as common among those with plenty of disposable income. "It's not motivated by financial need, it's just the behaviour."
The phenomenon has given rise to a cohort of start-ups like StyleShare, a mobile and desktop platform that provides consumers with real-time stories about trends, styling tips and shopping reviews. But to make the most out of its content, Styleshare also serves as an e-commerce destination for its 5.5 million registered users — in 2018, the company acquired a majority stake in fashion and lifestyle marketplace 29cm, which stocks over 2,000 brands on its site.
“These retailers don’t simply show you bestsellers, they show you daily, sometimes live rankings of products and brands that are becoming more or less popular,” says Seoulz’s Nguyen.
Another start-up, Codibook, allows users to create outfit boards (not unlike SSense-owned and now-shuttered Polyvore) and provides styling recommendations alongside operating its online store. Aforementioned app Zigzag (not to be confused with the London-based logistics start-up of the same name) has also built up an impressive following of over 10 million downloads by offering its users data-tailored recommendations in the form of weekly rankings, and has announced plans to expand beyond its homeland into other Asian markets.
High level connectivity between Korean customers is a challenge for e-commerce players.
“High level connectivity between Korean customers is a challenge for e-commerce players,” says Jun Jaeyoung, CEO of Seoul-based fashion AI data firm Omnious.ai. “[Consumers are] able to [shop for better bargains,] learn about products, what [they’re] made from, and the results of using them.”
Jun lists 19-year-old casualwear e-commerce unicorn Musinsa as an example of how to provide a different, elevated consumer experience. The platform uses data to better understand and anticipate demand for certain products and categories, but also repurposes it as content (in the form of reviews, rankings and trends) to help shoppers feel more confident with their choices.
“They provide not only products but also fashion trends, and sales rankings per categories about which customers would like to know,” says Jun. “Customers expect advanced customer experiences rather than traditional attributes like price.”
Beyond editorial content, retailers that lean into trends, data-powered recommendations and reviews could position themselves as authorities rather than mere marketplaces, of which shoppers have plenty to choose from. Fulfilling users’ desires for credible information will ultimately forge a stronger retailer-consumer relationship — bad reviews can discourage purchases, but are also valuable sources of data retailers can feed back to brand partners and monetise.
Pursue Next Level Convenience
It speaks volumes that Seoul is set on becoming a "free wifi city" — its metropolitan government plans on rolling out wireless internet across all public facilities, from markets to taxis, by 2022. "In Korean culture, people want everything right away," says Nguyen. But beyond wifi, Korean retailers are accustomed to going above and beyond so that shoppers can do less.
W Concept’s Kim lists same-day and early morning delivery, free returns and seamless exchange services as the local norm for fashion e-commerce. Nguyen notes that rather than returning unwanted items via post offices, shoppers can simply leave packed items outside their front doors to be collected and returned, hassle-free.
Customers expect advanced customer experiences rather than traditional attributes like price.
In a report, Euromonitor's Jade Lee noted the ample room for growth in South Korea's cross-border e-commerce space: since 2016, Alibaba has expanded its international delivery and customer services, while western high-end e-tailers Yoox and Mytheresa have opted to manage delivery directly rather than through a third-party operator.
Logistics can be daunting for retailers new to the market, but an experienced local partner (like Shinsegae) can ease this transition. “Using distribution channels [under] big enterprises in South Korea may be an entry[-stage] option,” says Jun. “They already have large [distribution channels and] capabilities.”
While convenience is key in any e-commerce market, South Koreans’ high expectations of the online experience raise the stakes. “There's a circulating list of clothing companies' names that have a late delivery arrival and a bad customer service,” says Jeong, adding that users leave reviews about quality and delivery time.
Beyond fashion, Nguyen points to the fact that Koreans can even place and receive orders for food in public spaces like parks, and have utensils and plates collected after.
Convenience is shaping disruption across traditional fashion segments. Seven years ago, start-up Stripes sensed a gap in the online market for office workers looking for tailor-made clothes (but lacking the time to find them offline). The company now offers data-driven fit-tech so users can obtain and re-order items in new fabrics to their personalised measurements.
With these and so many other South Korean players pushing the online experience to the limits, foreign firms would be wise to keep a closer eye on such pioneers. Not only do they have the collective clout to influence their much bigger Asian neighbours, they also own some of the platforms where popular Korean fashion and beauty products can be purchased.