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Strategy / Korea
9 June 2014
Amazon in Korea: what it means Online Shopping
• Amazon’s widely expected entry into Korea could reshape the
country’s e-commerce industry value chain
• Market leaders would likely benefit from the resulting shifts in
retail channels, consumer behaviour, and commerce platforms
• Main beneficiaries should be online retailers, integrated
payment gateways, and niche cloud-computing service providers
Cloud computing. With the should benefit from the ongoing
potential arrival of Amazon, we migration to online and mobile
expect its cloud services in Korea shopping and the growth in mobile
(Amazon Web Services [AWS]) to commerce as users’ shopping
expand their B2B customer base and experience improves. In our view,
Thomas Y. Kwon spur demand for IT outsourcing Amazon’s entry to Korea could
(82) 2 787 9181 services, backed by their cost accelerate this trend, but in a limited
yskwon@kr.daiwacm.com efficiency, global coverage, and way. GS Home Shopping
services such as data mining. (028150 KS, KRW237,800, Buy
Sang Hee Park [1]) looks well placed to tap
(82) 2 787 9165
sanghee.park@kr.daiwacm.com
Payment gateways (PG). Korean opportunities arising from the
consumers’ increased exposure to ongoing industry evolution.
Mike Oh overseas direct purchase shopping
(82) 2787 9179 online is likely to force domestic e- Korean companies are likely to ramp
mike.oh@kr.daiwacm.com retailers to introduce PG services up IT spending on cloud services
similar to Amazon’s 1-Click service, after experiencing AWS, and
and encourage the emergence of domestic telecoms operators and
■ Summary alternative PG platforms for mobile niche cloud-computing service
In this report, we look at the and online payments. providers should further monetise
implications of the potential entry of their captive enterprise customers
Amazon into Korea’s e-commerce Logistics. We believe Amazon’s by capitalising on their strong IT
market. We examine how the entry would have a limited impact infrastructure and well-customised
industry value chain is likely to on revenue and earnings in Korea’s B2B solutions. Hence, we expect KT
change, and discuss which parcel-delivery market, given price (030200 KS, KRW29,450,
companies would be the main competition among existing players, Outperform [2]) to benefit from
beneficiaries — and those that are sufficient capacity to absorb growth in its target markets.
likely to face stiffer competition. additional delivery demand, and the
likely arrival of new entrants. Despite continued price competition
■ Likely impact by segment in the domestic parcel-delivery
Retail. Korea’s department stores ■ Companies likely to be affected market, CJ Korex (000120 KS,
and electronic category killers are Department stores, vertical buying- KRW111,500, Underperform
already facing ASP pressure from service sites, and local e-book stores [4]) seems well placed to be a
the growth in sales by overseas could see ASPs come under further partner for Amazon’s 1-day delivery
shopping sites to Korean consumers, pressure as a result of increased service.
who are attracted by these services’ shopping on overseas sites, which
low prices. If Amazon (AMZN US, appeal for their low prices and large Meanwhile, small web-hosting
USD329.67, Outperform [2]) does product ranges. Hence, we remain companies for local IT outsourcing
enter Korea’s e-commerce market, cautious on Shinsegae (004170 and e-book stores offering a limited
as it is widely expected to do this KS, KRW205,000, Hold [3]) range of local content could face
year, we think the promise of faster and Lotte Shopping (023530 tough price competition and higher
deliveries and easier return policies KS, KRW291,000, Hold [3]). customer acquisition and retention
could accelerate Korean consumers’ costs. Yes24 (Not rated) and Gabia
use of such sites. Home-shopping companies and (Not rated) are among the
integrated PG service providers companies operating in this arena.
See important disclosures, including any required research certifications, beginning on page 44Online Shopping
9 June 2014
Executive summary
Amazon in Korea: what it means
With Korean consumers increasingly open to direct-purchase shopping via overseas-
based sites, Amazon’s entry into Korea could reshape the value chain of the country’s
commerce industry.
Investment thesis Amazon’s entry could
As Korean consumers become more accustomed to buying via overseas- accelerate the evolution of
based online sites, the country’s retailers and related infrastructure
companies are having to adapt to changing industry conditions. Amazon’s
Korea’s retail, PG, cloud
interest in the Korea market is widely known, and was reported on most computing and logistics
recently on 23 May by Business Korea. We believe that Amazon’s potential sectors
entry into Korea could accelerate the evolution of the retail, PG, cloud
computing and logistics industries. Pending clarity on the timing and form
of Amazon’s likely arrival in Korea, we have sought to identify the
domestic companies best placed for, and most vulnerable to, the US
giant’s potential entry.
Main findings
Competition between domestic retailers and global players is likely to
intensify as Korean consumers become more comfortable with shopping
on overseas sites, and we expect downward pressure on the ASPs of
apparel, electronic goods, and accessories, as there are large gaps between
domestic and overseas prices currently.
Meanwhile, we believe the leading online and mobile shopping sites stand
to benefit from the shift in commerce platforms and the enhanced user
experience resulting from more direct online purchases via overseas sites.
However, domestic e-book stores will likely run into tough competition
upon the entry of Amazon, which offers a popular e-reader device, strong
sourcing and distribution, and expertise in personalised marketing.
In cloud-computing services, we would expect Amazon’s cloud services
(AWS) to continue to add customers from the IT industry in Korea, backed
by its advanced solutions, global coverage, competitive fees, and
established IT infrastructure. And Amazon’s 1-Click payment service could
trigger rapid changes within the domestic PG segment, given the
streamlined shopping experience it provides.
In logistics, meanwhile, we believe Amazon’s potential entry into Korea
likely would not change the competitive landscape or provide upside to
revenue for domestic players, given ongoing price competition among the
leading players and the aggressive addition of capacity by recent entrants.
Stock implications
Our market research suggests the beneficiaries of the continued evolution We believe that home-
of the retail, PG, cloud computing and logistics industries, as a result of a
proliferation of overseas based online sites and the potential entry of
shopping companies, KT, KG
Amazon into Korea, would be: the Korea home-shopping companies, Inicis, Duzon Bizon, and CJ
KT, KG Inicis, Duzon Bizon, and CJ Korex. Express could benefit
However, we expect Shinsegae, Hyundai Department Store, Lotte
Shopping, Yes24, and Gabia to face greater competition.
-2-Online Shopping
9 June 2014
Amazon’s entry in Korea: potential beneficiaries and companies likely to face
tougher competition
Retail/e-book Cloud Computing Payment gateway Logistics
Target market prospect
Competition environment
ASP and profitability outlook
Technology evolution
Regulation and infrastructure
Potential beneficiaries of GS Home Shopping KT, Duzon Bizon KG Inicis CJ Korex
changing industry dynamics
Companies likely to face Shinsegae, Lotte Shopping, Gabia
tough competition Hyundai Department Store,
Yes24
Source: Daiwa
Note: - Positive; - Neutral; - Negative
Sector stocks: key indicators
EPS (local curr.)
Rating Target price (local curr.) FY1 FY2
Company Name Stock code Share Price New Prev. New Prev. % chg New Prev. % chg New Prev. % chg
CJ O Shopping 035760 KS 346,800 Outperform Outperform 390,000 390,000 0.0% 26,888 26,888 0.0% 31,416 31,416 0.0%
GS Home Shopping 028150 KS 237,800 Buy Buy 330,000 330,000 0.0% 20,848 20,848 0.0% 22,061 22,061 0.0%
Hyundai Department Store 069960 KS 124,500 Buy Buy 180,000 180,000 0.0% 14,584 14,584 0.0% 16,141 16,141 0.0%
Hyundai Home Shopping Network 057050 KS 148,500 Outperform Outperform 185,000 185,000 0.0% 13,306 13,306 0.0% 14,695 14,695 0.0%
Lotte Shopping 023530 KS 291,000 Hold Hold 320,000 320,000 0.0% 27,919 27,919 0.0% 31,020 31,020 0.0%
Shinsegae 004170 KS 205,000 Hold Hold 235,000 235,000 0.0% 19,017 19,017 0.0% 20,248 20,248 0.0%
KT 030200 KS 29,450 Outperform Outperform 36,500 36,500 0.0% -1,795 -1,795 0.0% 2,888 2,888 0.0%
CJ Korea Express 000120 KS 111,500 Underperform Underperform 96,000 96,000 0.0% 3,506 3,506 0.0% 4,767 4,767 0.0%
Source: Daiwa forecasts; prices as of close on 5 June 2014
-3-Online Shopping
9 June 2014
Contents
Retail: embracing new ways to shop .............................................................................................. 5
Main findings .............................................................................................................................. 5
Implications for the industry ..................................................................................................... 12
Stock implications ...................................................................................................................... 15
Cloud computing: a beachhead for Amazon ................................................................................. 21
Main findings ............................................................................................................................. 21
Implications for the industry .................................................................................................... 22
Stock implications ..................................................................................................................... 24
Payment gateways: simple payment systems promise to shake up the industry........................ 26
Main findings ............................................................................................................................ 26
Implications for the industry .................................................................................................... 28
Stock implications ..................................................................................................................... 29
Logistics: set to remain a buyers’ market ..................................................................................... 31
Main findings ............................................................................................................................. 31
Implications for the industry ..................................................................................................... 31
The Amazon story in the Japan logistics industry ................................................................... 33
Stock implications ..................................................................................................................... 34
Amazon: where it stands today .................................................................................................... 36
Targeting to generate 50% of net sales in international markets ............................................ 36
-4-Online Shopping
9 June 2014
In 2013, Korean consumers spent USD938m via
overseas online shopping sites, up 46% YoY from
USD642mn in 2012. However, spending on direct
overseas online shopping has not reached even 1% of
the estimated USD210bn value of the Korea retail
Retail: embracing new market and is equivalent to only 5% of the market for
domestic Internet shopping.
ways to shop Strong sales growth momentum likely to
continue in 2014-16. In our view, rapid growth in
Ever more price-conscious, Korea’s Korean consumers’ spending via overseas online
shopping sites is likely to continue over the coming
consumers are increasingly looking years. We forecast Korean consumers’ spending on
overseas for value overseas online shopping to grow by 50% YoY to
USD1.5bn in 2014 and reach USD3bn by 2017,
equivalent to around 9% of the domestic Internet
Sang Hee Park
shopping market.
(822) 787 9165 (sanghee.park@kr.daiwacm.com)
Korea: dollar value and YoY growth of transactions by Korean
consumers using overseas online shopping sites
Main findings (USDm) (%)
3,000 80
1. Overseas online shopping sales growing 2,500
70
rapidly but still in early stages 60
2,000
Korean consumers’ spending via overseas 50
direct online shopping sites grew by 46% YoY 1,500 40
in 2013. Amid consumers’ growing awareness of the 1,000
30
large differences in prices for imported goods in Korea 20
500
compared with overseas, overseas online shopping has 10
become a popular trend among consumers in Korea. In 0 0
2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
fact, Korean consumers’ spending on overseas online
Amount of transactions (LHS) YoY growth (%) (RHS)
shopping sites has been growing rapidly since 2009.
Source: Korea Customs Service, Daiwa forecasts
Price comparison: goods available in Korea vs. via overseas
online shopping sites Korea: size of overseas Internet shopping relative to size of
Dyson total Internet shopping industry
Samsung vacuum Ralph Lauren
Item LG TV Electronics TV cleaner Jacket GNC glucosamine (%)
Overseas model no. 60LA6200 UN65F7100 DC44 Board track racer Mega Glucosamine 1000 10
Seller Amazon Amazon Amazon Ralph Lauren GNC 9
Shipper Malltail Malltail Malltail Malltail WeMakePrice 8
Price in USD (incl. delivery in
US) 1,284.98 2,097.99 299.98 329.99 24.97 7
Price in KRW (incl. delivery in 6
US) 1,349,229 2,202,890 314,979 346,490 26,219
5
Shipping agent cost in USD 190.00 230.00 50.00 20.00 15.24 4
Shipping agent cost in KRW 199,500 241,500 52,500 21,000 16,000
3
Price + agent cost in USD 1,474.98 2,327.99 349.98 349.99 40.21 2
Price + agent cost in KRW 1,548,729 2,444,390 367,479 367,490 42,219 1
Tariff + V.A.T. in KRW 253,655 414,143 59,216 84,197 -
All inclusive in KRW
0
1,802,384 2,858,533 426,695 451,686 42,219
2008 2009 2010 2011 2012 2013 2014E 2015E 2016E 2017E
Domestic model no. 60LA6230 UN65F8000AF DC45 Board track racer Mega Glucosamine 1000 Source: Statistics Korea, Korea Customs Service, Daiwa forecasts
Domestic price in KRW 2,849,980 4,597,590 560,000 1,160,000 85,600 Note: 1) Online-only retail channel for 2013 is based on preliminary figure, 2) For overseas
buy, we have assumed KRW:USD = 1,050:1 as the market size data is available only in
USD.
Price difference (%) (37) (38) (24) (61) (51)
Source: Compiled by Daiwa
Note: Assumes exchange rate of KRW:USD = 1,050:1
-5-Online Shopping
9 June 2014
Korea retail industry: sales breakdown by channel As shown in the chart below, the retail price of
(KRWtn) 2009 2010 2011 2012 2013 2014E imported goods is marked up as much as 9 times. This
Department stores 22 25 28 29 30 31
Hypermarket 35 38 42 44 45 46
is due to the multi-layer distribution channels and the
Supermarket 28 30 32 34 36 38 strong bargaining power of retailers.
Convenience store 7 8 9 11 12 13
Specialized stores 95 101 106 106 103 101 Korea: product price mark-up relative to the imported price
Retail sales not in stores 25 29 32 36 38 41 (December 2013 to January 2014)
Internet shopping (online-only) 14 17 19 22 25 27
Total retail sales 213 230 250 260 264 268 Lipstick 9.2
(YoY growth, %) Wine 4.8
Department stores 10.1 11.6 11.4 5.4 2.6 2.7 Hiking boots 4.4
Hypermarket 3.7 8.1 10.9 5.0 1.9 2.0
Supermarket 4.1 6.3 8.5 4.8 5.3 4.7 Vacuum cleaner 3.8
Convenience store 13.2 17.6 17.9 18.3 7.8 6.6
Stroller 3.6
Specialized stores 3.4 5.4 5.2 (0.0) (2.6) (2.0)
Retail sales not in stores 13.0 14.9 10.6 11.1 7.1 6.2 Mineral water 3.5
Internet shopping (online-only) 16.1 21.1 12.0 16.5 11.3 11.3
Total retail sales 5.6 8.1 8.4 4.2 1.5 1.7 Electric Iron 3
Tyre 2.9
(Proportion of total retail sales, %)
Department stores 10.4 10.7 11.0 11.2 11.3 11.4 Electric shaver 2.9
Hypermarket 16.5 16.5 16.9 17.0 17.1 17.1
0 2 4 6 8 10
Supermarket 13.2 13.0 13.0 13.1 13.6 14.0 (x)
Convenience store 3.1 3.4 3.7 4.2 4.4 4.7 Source: Korea Chamber of Commerce and Industry (KCCI)
Specialized stores 44.8 43.7 42.4 40.7 39.0 37.6 Note: Survey allowed the selection of multiple answers
Retail sales not in stores 11.9 12.7 12.9 13.8 14.6 15.2
Internet shopping (online-only) 6.6 7.4 7.6 8.5 9.3 10.2 In terms of products favoured by Korean consumers
Total retail sales 100 100 100 100 100 100
using overseas online shopping sites, 42% of survey
Source: Statistics Korea, Daiwa forecasts for 2014
Note: 1) "Retail sales not in stores" encompasses sales from catalogue shopping, TV home respondents said they had bought apparel and 41% said
shopping, Internet shopping and mobile shopping; 2) Internet shopping included in "Retail
sales not in stores" includes only those sales of goods from online-only stores, whereas
they had bought shoes and accessories. Other favoured
"Internet shopping (online-only)" includes sales of goods and services from online-only categories include health-enhancing foods, baby
stores, 3) Internet shopping (online-only) data for 2013 is based on preliminary figures
products, bags and wallets, and cosmetics.
According to the results of a survey by the Korea
Korean consumers: major product categories for overseas
Chamber of Commerce and Industry (KCCI) conducted online shopping (2013)
in 2013, only 24% of respondents had experience of
(% )
overseas online shopping, and 96% of those 45
respondents said they would continue buying from 40
35
overseas online shopping sites. 30
25
20
15
Among the reasons cited by consumers for their 10
preference for overseas online shopping sites were the 5
0
lower prices, followed by the wide range of brands and
accessories
Bags, wallets
Foods
Electronics
Cosmetics
Baby products,
Apparels
Health-enhancing
Shoes,
products.
clothings
foods
Korean consumers: reasons for purchasing via overseas
online shopping sites (2013)
(% ) Source: Korea Chamber of Commerce and Industry (KCCI)
80 Note: This survey allows for the selection of multiple answers
70
60 Lifting of regulatory measures should spur
50 interest in overseas Internet shopping. The
40 Korea government is preparing to implement a series
30 of regulatory measures that should further increase
20
domestic consumers’ acceptance of overseas online
10
shopping sites.
0
Identical product Brand not available in More product Higher quality
selling at lower price Korea selections
Source: Korea Chamber of Commerce and Industry (KCCI)
Note: The survey allowed multiple answers to a single question
-6-Online Shopping
9 June 2014
Among the planned measures are: One-way shipping/air-freight costs tend to be at least
USD10 depending on the parcel weight; the heavier the
• simplified customs clearance procedures (including
items, the greater the costs. Moreover, consumers who
a reduction in the time needed to clear goods to a
paid import duty on high-ticket items are not
quarter of a day, from 3 days previously)
permitted, under domestic law, to receive a refund for
• broadening in the range of products eligible for fast- such duty payments (the Korea government is looking
track customs clearance (as opposed to six categories at revising the regulations to permit such refunds).
currently, provided they are valued at less than
USD100 [less than USD200 if shipped from the Given the current market environment, an overseas
US]). online retailer that can offer a straightforward overseas
returns policy, at low cost to the consumer, could gain
• From July 2014, individual consumers will be able to
considerable market share in Korea’s online retail
submit directly to the Customs Service
industry. Given its track record of providing a
documentation for tax refunds on products that have
consumer-friendly return policy in other markets, we
been returned or refunded, ie, without having to file
believe that Amazon is well positioned in this regard.
the documentation through a licensed customs
agent, as is currently the case.
Long delivery lead times, high shipping costs
for fast delivery. At present, unless Korean
2. Players who can reduce the hassle factor consumers use a fast-delivery service provided by DHL
are likely to win out or FedEx to receive merchandise purchased online, the
delivery takes more than a week and can take more
According to the KCCI survey, one area for than a month during busy periods such as Black Friday
improvement was the process of exchanging goods and and Christmas. Consumers can save on delivery costs
receiving refunds, which respondents felt was overly by having items delivered through a third-party
complicated. Language barriers might be an issue for shipping agent, and as some overseas sites do not ship
Korean consumers. Respondents also expressed to Korea, consumers have to use a third-party delivery
concern about poor warranty services and long delivery agent anyway when making purchases from such sites.
lead times, among other issues.
We show the current shipping process in the following
Korean consumers: areas for improvement in overseas online
shopping
chart.
Recommendations (%)
Simplify procedures for exchanges and refunds 68 Korea’s overseas online retail market: how the shipping
Improve warrantee services 68
service works
Shorten delivery-lead time 46 2. Find a shipping 3. Make a payment for
Provide authentication verification service 44 1. Find a product you agency and get your the product and local
Simplify order processes 28 want to buy from an identification number shipping fee to the
overseas online and a local shipping shopping mall, and
Provide enough details on products 25 shopping mall enter the agency's
address (agency's local
Provide delivery check service 23 distribution centre) address
Source: Korea Chamber of Commerce and Industry (KCCI)
Note: The survey allowed multiple answers to a single question
4. Request a shipping
We believe the following factors are the biggest hurdles 5. Local online
service to the shipping
to the growth of online shopping for products from 6. Make a payment for shopping mall ships the
agency by providing
your purchase
overseas in Korea: international shipping
and taxes to the agency
product to the
distribution centre of
information, including
order number, tracking
the agency
• Returns policy number, your domestic
address,etc.
• Long delivery lead time and expensive
shipping costs for fast delivery
7. Agency ships the
8. The product
• Billing system product from its local
successfully arrives at
distribution centre to
your door
• Language barrier your domestic address
Returns policy: complicated process. At present, Source: Compiled by Daiwa
the main risk Korean consumers face when buying
goods directly from overseas Internet shopping sites is Billing system: some overseas retail sites do
that the returns policy is cumbersome compared with not accept international credit cards. At present,
when shopping via domestic sites. quite a few overseas Internet shopping sites that are
available to Korean consumers do not accept
-7-Online Shopping
9 June 2014
international credit cards. In such cases, consumers Korea’s overseas online retail market: how the buying service
works
have to use a buying service from a third-party agent.
A buying service enables consumers to purchase goods 1. Find a product you
1-a. Find a product you
from overseas shopping sites that do not accept want to buy from an
want to buy from a
overseas online
international credit cards. Typically, consumers buying agency's website
shopping mall
provide a detailed description of the item they want to
purchase. Alternatively, consumers can choose the
items listed directly on the buying agency’s website,
though the selection tends to be limited. The buying 1-b. Request a buying
service from a buying
service purchases the selected products and ships them agency by giving details
to the customer’s home address. on the product of your
choice, price, and the
URL of the local online
mall
1-c. Buying agency
replies with total costs
for processing the
service, including the
price of the product
2. Make a payment for
the product, service
charges, local and
3. Agency places an
international shipping,
order for the product
and taxes to the buying
agency, and enter your
domestic address
5. Agency ships the 4. Local online shopping
product from the mall ships the product to
distribution centre to the distribution centre of
your domestic address the agency
6. The product
successfully arrives at
your door
Source: Compiled by Daiwa
Language barrier. Korean consumers who are not
conversant in foreign languages generally feel
uncomfortable shopping from a foreign-language site
and prefer to purchase the goods through a buying
agent service. However, we are seeing an increasing
number of players providing Korean language-based
Internet shopping sites, which should help boost
shopping on overseas sites. Notable examples of
international shopping sites that provide Korean
language services are Shopbop (an affiliate of Amazon)
and ASOS, a UK-based fashion Internet retailer.
-8-Online Shopping
9 June 2014
Comparisons of direct buying, shipping service, and buying service
Direct buying Shipping service Buying service
Key advantages · Shoppers do not have to pay other service · Allows shipments to Korea of products that · Easier than other methods for inexperienced
commissions otherwise could not be delivered or would overseas online shoppers
· Can provide free delivery depending on the command very high shipping rates · Allows payments using domestic credit cards
amount of items purchased even if overseas shopping sites do not accept
· Low risk of receiving faulty products as they are
· Allows consumers to buy limited-time "hot deal" checked upon repackaging these cards
items quickly · Consumers are protected under domestic law
· Low risk of receiving faulty products as they are
checked upon repackaging
Key disadvantages · Difficult to resolve disputes as transactions are · Difficult to resolve disputes as transactions are · High cost due to buying and shipping
not subject to domestic law not subject to domestic law commissions
· Consumers need to handle ordering, payment, · Consumers need to deal with refunds, · Products selling at deep discounts may sell out
delivery, and post-purchase issues themselves cancellations and other problems independently during the buying service process
· International shipping charges vary by shopping · Shipping service cost charged · Consumers may not be able to use the
site but are mostly expensive promotion or discount codes
Total cost Generally lower than for the other 2 methods as Between those of the other 2 methods, as there is Generally higher than for the other 2 methods as
no commissions are required a shipping service commission but no buying commissions are required for providing the buying
service commission service in addition to the shipment service
Degree of protection for consumers by law Not protected under domestic law Not protected under domestic law Protected under domestic law
Credit card payments Domestic credit cards are sometimes not Domestic credit cards are sometimes not Both domestic and international credit cards are
accepted accepted accepted
Refund policy/method Refund requests have to be made directly to Refund requests have to be made directly to the Refund requests may be made to the buying
overseas shopping site overseas shopping site service agency, provided the agency is
incorporated in Korea
Shipping method and costs* Shipping rates for direct shipping differ by Shipping cost to a PO box in the US depends on Shipping cost to a PO box in the US depends on
shopping site, for example: the website, but is USD7.45 on average + the shopping site, but is USD7.45 on average +
shipping cost to Korea of around USD10 + shipping cost to Korea around USD10 + domestic
· Company A: free shipping cost for items over domestic logistics costs are usually included logistics costs usually included + commission
USD100, cost of USD10 charged for items under fees vary by servicers, for example:
USD100
· Company B: USD30 per piece (no exact · Company A: no commission fees for items
shipping cost policy available) under USD100, 9% of price for items over
· Company C: USD32 per piece (no exact USD100
shipping cost policy available) · Company B: USD10 charged for items under
USD100, no commission fees for items over
USD100
· Company C: no commission fees
Average time from order to home delivery 5-7 days 1-2 weeks 1-2 weeks
URL sites · shopbop.com · post.malltail.com · amazon365.com
· shop.nordstorm.com · box.wemakeprice.com · usbay.co.kr
· saksfifthavenue.com · iporter.com · hoyausa.co.kr
· iherb.com
Source: Compiled by Daiwa
Note: *Shipping costs are calculated based on an item (1LBS) priced under $100
Shopbop highlights Amazon’s potential to Shopbop and ASOS (a UK-based fashion Internet
reduce the hassle factor shopping site) both focus on selling globally sourced
One of the most popular overseas shopping sites contemporary fashion brands at competitive prices
among young Korean consumers is Shopbop, which is relative to those in the physical store. We think it is fair
an affiliate of Amazon. The site offers free global to say that neither site is as well known to Korean
shipping, an easy refund process, and a storefront in consumers as a whole as Amazon. However, young
the Korean language. In our view, through Shopbop, fashion-oriented consumers in Korea have become
Amazon is gaining exposure to and experience of the active shoppers on these sites, which offer free global
Korea retail market, as well as an appreciation of how delivery services and a free returns policy.
Korean consumers perceive overseas online sites. Furthermore, ASOS has improved its technology
Shopbop already provides a free global shipping platform in recent months and now offers Korean-
service, including to Korea, via the US freight- language services, making shopping more
forwarding company UPS. straightforward for Koreans. Shopbop, meanwhile, has
provided Korean-language services since 2011.
-9-Online Shopping
9 June 2014
Shopbop: service available in Korean language store in 2000, and launched Amazon Web Service and
an apparel and accessories online store in 2002. This
was followed by online sports and outdoor stores and
health and personal care stores in 2003, an online
grocery store in 2006, and online jewellery and watch
stores in 2007.
In Japan, meanwhile, Amazon started with an online
bookstore in 2000 and a few months later started to
expand its merchandise on offer to include music,
DVDs, games, and videos. It was not until 2003 that
Amazon expanded its product categories further to
include online electronics, home and kitchen stores. It
opened an online sports store in 2005, an online health
and beauty store in 2006, an online footwear and
apparel store in 2007, online jewellery and car stores in
2009, and an online MP3/music store in 2010.
Based on our discussions with participants in the Korea
book industry, they believe Amazon is likely to have
lower ambitions in Korea’s book market compared to
other countries. As such, we believe Amazon might not
replicate its strategy adopted in the US and Japan if it
enters Korea, based on the following considerations:
• Korea’s overall book market revenue is
stagnant
• Korea’s online book market is highly
competitive
• Its e-book market is still small and may not
see the same growth as in developed
countries
• Its publishing industry is fragmented
Source: Compiled by Daiwa
Korea’s book market is seeing stagnant sales.
Exact figures on the revenue generated by ASOS and The size of Korea’s book market by revenue was
Shopbop in Korea are not available. However, KRW2.6tn for 2012, according to the Korean
according to ASOS’s annual report for 2013, its total Publishers’ Association, and its annual revenue growth
international sales increased by 44% YoY and its has been slowing since 2005. In fact, monthly average
number of active customers rose by 56% YoY. We expenditure on books per household was KRW18,690
believe that only a fraction of its sales growth came in 2013, down by 1.8% from KRW19,026 in 2012,
from Korea but that its sales growth in Korea should be according to Statistics Korea.
of a similar magnitude.
3. Amazon’s potential roll-out of online
books in Korea could be limited
Amazon’s strategy in many of its operating markets has
been to start with an online book store and then
broaden its retail platform to include other products.
In the US market, Amazon started its online business
with an Internet bookstore in 1995, and in 1998 it
expanded its product range to include DVDs, CDs, MP3
players and computer software. Amazon opened an
online consumer electronics store in 1999, a kitchen
- 10 -Online Shopping
9 June 2014
Korea book market: revenue growth trend (YoY) Agency of Korea. Unlike the country’s offline and
(% ) online book markets, where there are already dominant
30 market players, there are no dominant players yet in
25 the e-book market.
20
15
The offline-based bookstores used to lead Korea’s e-
10
5
book market. However, distribution channels that have
0 emerged in recent years — such as Naver Books
(5) (operated by Naver), T-store and Kakao Page
(10) (smartphone-based bookstores) and Ridibooks (an e-
(15) book exclusive store) — now lead the market. Given the
2006 2007 2008 2009 2010 2011 2012
digital nature of e-books, these new distribution
Total book market Internet book market channels, backed by consumer-friendly search
Source: Korean Publishers’ Association functions and convenience, are becoming increasingly
popular among e-book readers. In Japan, for example,
Online bookstore market is highly competitive NTT Docomo, a major telecom-services provider, is
Based on data from the Korea Publishers’ Association, seeing a high sales contribution from e-books,
we estimate that revenue generated by online book supported by its move to embed its e-book reader
stores comprised 40% of Korea’s overall book market applications into its mobile devices.
for 2013, up from 16.7% in 2005. There are 4 major
players in Korea’s online book market: Yes 24, The participants we have spoken to in Korea’s book
Interpark INT, Kyobo Books and Aladdin, which industry expect e-book sales to remain a small part of
together account for more than 80% of online book the country’s book market in the near term, for the
revenue, on our estimates. With the exception of Kyobo following reasons:
Books, the major online book stores do not have offline
retail outlets. • Korean publishers have been slow to convert
paper books to e-books due to consumers’
Although online bookstores’ increased their revenue ongoing preference for paper books.
share of Korea’s total market to an estimated 40% in • Korean readers tend to focus on the visual
2013, from 28% in 2008, competition is intense when aspects, whereas overseas readers are more
it comes to pricing and promotions. As a result, Korea’s concerned about the content. Publishers in
online booksellers are not highly profitable. For 2013, Korea tend to place a high emphasis on the quality of
Yes 24 had an operating-profit margin of only 1%, the paper and graphics, reflecting Korean
while Interpark’s book division had an operating loss of consumers’ preferences. Korean readers have a
KRW0.7bn. tendency to select books based on the writer’s
reputation and the publisher, rather than on the
Sales and operating profit for 2 of Korea’s online booksellers
(KRWbn) 2009 2010 2011 2012 2013
merits of an individual title.
Book business of Interpark INT • Korea’s publishing industry is fragmented
Sales n.a. 285 239 215 222
YoY growth (%) n.a. n.m. -16 -10 3
and many companies face financial
Operating profit n.a. -7.9 -0.9 0.6 -0.7 difficulties. According to the Publication Industry
YoY growth (%) n.a. n.m. n.m. n.m. n.m. Promotion Agency of Korea, there are around
Margin (%) n.a. -2.8 -0.4 0.3 -0.3 46,000 publishing companies in Korea, of which
only 9% generate meaningful revenue. Of their total
Yes 24
Sales 309 335 355 340 330 publications produced in 2013, 61% were
YoY growth (%) 20.5 8.5 6.1 -4.3 -2.8 educational books for students and only 20% were
Operating profit 11 5 5 7 3 single-volume books. Due to intense price
YoY growth (%) 4.0 -50.2 -1.9 38.5 -55.1 competition and a lack of operating scale, many of
Margin (%) 3.5 1.6 1.5 2.1 1.0
the country’s publishing companies do not have the
Source: Companies
financial means to invest in their businesses. The
Korea’s e-book market: small and may not see industry experts we have talked to believe this tends
the same growth as in developed countries to lead to a lack of quality books on the market.
Korea’s e-book market is small, with its revenue for • Smartphones are commonly used to read e-
2013 totalling KRW116bn, up 45% YoY but accounting books and other e-book reading devices are
for less than 5% of the total book market that year, also available in Korea. Many of Korea’s online
according to the Publication Industry Promotion book stores have already introduced e-book reading
- 11 -Online Shopping
9 June 2014
devices. As a result, Amazon’s Kindle Fire e-reader With G-Market’s 35% market share and Auction’s 28%
may not be viewed as a game-changer by Korean market share in Korea, eBay’s cumulative market share
consumers. in Korea amounted to 63% at the end of 2013. Among
the domestic players, 11st Street ranks second in Korea’s
Korea e-book market: size and growth (2012-17E) open marketplace space, with a 30% market share.
(KRWbn) (% )
700 65 Failed case: Yahoo! Korea exited after failing to
600 topple the leading domestic search engines
60
500 Yahoo! Korea entered Korea in 1997 and soon ranked
400 55 number 1 in the search-engine field. However, it lost
market share to the leading domestic search engines,
300 50
such as Naver and Daum. By 2012, its market share was
200
45 down to 1%. We attribute Yahoo’s decline in the market
100
share to its failure to track rapidly changing trends in the
0 40 local Internet industry. In addition, we believe its
2012 2013 2014E 2015E 2016E 2017E
adherence to a global strategy did not play out well in
Revenue (LHS) YoY growth (RHS)
Korea, where there is strong demand from consumers
Source: Publication Industry Promotion Agency of Korea
for localised content and services. In order to focus on
growing markets where competition was less intense,
Yahoo withdrew from Korea in December 2012.
Implications for the industry
Amazon may aim to position itself as the
International online companies’ interest in leading reliable overseas direct shopping
Korea is nothing new channel
Over the past 10 years, a few international Internet
If Amazon were to enter the Korea retail industry by
companies have entered the Korea market, given the
establishing a Korean-language site, we believe it
business-growth potential resulting from the country’s
would target segments that are less well-established, do
high Internet penetration rate and tech-savvy
not have a dominant online player, but have the
consumers.
potential for strong market growth. We would
therefore expect Amazon to position itself in Korea as
Some have had success while others have exited the
the leading player in overseas direct Internet shopping.
market. The companies that continue to have a
presence in Korea are those that have gained market
We believe Amazon would see opportunities in the
share through the acquisition of a leading domestic
Korea retail market as a result of:
player. We believe that Korea is generally a difficult
market for international players to penetrate, due to • gaining exposure to the fast-growing online retail
the lack of access to the distribution channels, a lack of channel,
localisation, and low market entry barriers.
• offering differentiated merchandise compared with
the existing online retailers, and
Success story: eBay leads the open-marketplace
space, helped by G-Market acquisition • providing reliable and convenient services (ie, a
eBay is perhaps the most successful online company in returns policy, and shipping services).
Korea. The company gained a presence in the country’s
open-marketplace space by acquiring domestic Online retail channels: still the fastest-growing
companies. In 2001, it acquired Auction, which was retail format in Korea
established in 1997 as an open marketplace auction site Of the existing retail channels in Korea, online retail is
for buyers and sellers of second-hand products. In by far the fastest growing. We forecast online retail-
early 2000, Auction started up a B2C platform. In channel sales to increase by 10-12% pa over 2014-16 due
2009, eBay then acquired a local open marketplace to convenience and price competitiveness. Such growth
Internet shopping site, G-Market, the leading open rates are far higher than the overall retail industry
marketplace site in Korea. eBay kept Auction and G- growth rate we expect of 2-3% pa over the same period
Market as separate brands. and those of the offline retailers, such as department
stores and hypermarkets, and even convenience stores.
In the Korea retail industry, the online-only shopping
channel, which was worth KRW250tn for 2013,
accounts for 9% of total retail sales.
- 12 -Online Shopping
9 June 2014
Korea: online-only retail-channel sales growth vs. overall retail Costco Korea: financial comparison vs. E-Mart and Lotte Mart
industry sales growth (2012-13)
(%) Costco Korea E-Mart Lotte Mart
25 (KRWbn) 2012 2013 2012 2013 2012 2013
Sales 2,290 2,537 12,685 13,035 8,955 8,836
20 YoY change (%) 9.8 10.8 19.0 2.8 5.7 (1.3)
Operating profit 137 137 736 735 320 220
15 YoY change (%) 4.3 0.4 (14.5) (0.1) (6.8) (31.0)
Margin (%) 6.0 5.4 5.8 5.6 3.6 2.5
10 Net profit 110 111 436 476 63 109)
YoY change (%) 6.5 1.0 (19.9) 9.3 (26.3) n.m.
5 Margin (%) 4.8 4.4 3.4 3.7 0.7 (1.2)
Source: Companies
0 Note: Costco Korea’s financial year starts on September 1 and ends on August 31
2007 2008 2009 2010 2011 2012 2013 2014E
Overall retail industry Online-only retail channel We believe that Costco’s success in Korea, despite some
Source: Statistics Korea, Daiwa forecasts for 2014
inconveniences (ie, it is difficult to park, an annual
Note: 1) Overall retail industry excludes auto and fuel retailers, 2) online-only retail
channel includes online-only retailers (retailers that operate both online and offline stores membership fee is required, it has a warehouse-style
are excluded), 3) Online-only retail channel growth rate for 2013 based on preliminary
figure
store format, and only cash or Samsung Card are
accepted), are due to the following.
Offering differentiated merchandise from the • Price competitiveness on the back of the wholesale
existing online retailers format.
There are numerous online shopping sites in Korea
involved in B2C and B2B retail due to the low entry • It has differentiated imported merchandise
barriers and low capex requirements. In order to be compared with the offline retailers and prices on
competitive, we believe that Amazon would have to imported goods are competitive. About 70% of
offer differentiated merchandise, rather than rely on Costco Korea’s sales are from imported goods, which
domestic merchandise. it sources directly.
• It has a 100% return policy on products. If a
We see Costco Korea, which has been in Korea for 18 customer is not happy with a product, he/she can
years, as a good example of how a foreign retail return it within 1 month of purchase and receive a
company can gain a competitive edge in the country’s full refund.
highly competitive retail market. We note that
international players Wal-Mart and Carrefour exited Costco’s pricing competitiveness vs. the other retailers for
Korea due to the intense competition in 2006. imported goods and domestic products
E-Mart Price diff.
(KRW) Costco (incl. Traders) Lotte Mart (%)
The hypermarket industry saw 2% YoY sales growth for
Imported brands
2013 as a result of the industry’s maturity and stores Downy (5.03 litre) 12,990 19,880 20,000 -35
having to close 2 days a month. The sales of the leading (for 3.96 litres)
domestic players, such as E-Mart and Lotte Mart, Philadelphia cream cheese 9,790 15,396 16,110 -36
(200g * 3)
achieved respective 2013 sales growth of 3% YoY and a Martinelli's apple juice 23,990 49,000 N.A. -51
sales decline of 1% YoY, while their respective (296ml * 24)
operating-profit margins contracted by 0.2pp YoY to Tabasco (355ml) 6,990 7,380 N.A. -5
5.6% and 1.1pp to 2.5%. Although Costco Korea has a
Domestic brands
wholesale business model, and so it may differ slightly Petitzel fruity vinegar 8,990 9,900 9,900 -9
to the hypermarket model, the company faces the same (2 bottles)
regulatory environment as the hypermarket industry. Shinil Fan 55,990 63,800 N.A. -12
Despite this, it achieved sales growth of 11% YoY for Source: Compiled by Daiwa
Note: Price difference is based on the price available at Costco and the lowest price
2013 and an operating-profit margin of 5.4%. available at local retailers
- 13 -Online Shopping
9 June 2014
Acquisition strategy likely to be one way of shipping companies in China at the time, Amazon also
winning share in the domestic B2C market bought a local company with a COD system and an
If Amazon aims to gain a presence in Korea also by efficient nationwide distribution system.
selling domestic products to consumers, we believe that
an acquisition strategy is likely to be the best solution, Some of the factors behind Amazon’s
rather than starting the business from scratch. This is success are already in play in Korea
because the company does not have a first-to-market Given the well-established B2C Internet shopping
advantage and competition is intense. In the B2C and market in Korea, we believe that Amazon will have
C2C online channels, there are already large retailers difficulties being competitive if it offers the same
with a solid presence in the Korea market. product categories as the existing dominant players.
Korea: top players in B2C and C2C Internet shopping Indeed, we believe that some of the factors that
B2C C2C contributed to Amazon’s success in Internet shopping
Interpark G-Market
GS Shop (GS Home Shopping) Auction
sites in other markets may not be applicable to Korea.
CJ Mall (CJ O Shopping) 11st Street • Quick delivery service. One of the services
Hyundai H Mall
Ellotte (Lotte Shopping)
offered as part of an Amazon Prime subscription is
Shinsegae free 2-day shipping in the US. However, consumers
AK Mall in Korea are already used to 1-2 day delivery services,
Source: Compiled by Daiwa as many shopping sites tend to compete on delivery.
We believe the main goal for Amazon in the • One-click payment. When a first-time user orders
acquisitions it has made globally is to gain a a product and enters his/her payment and delivery
competitive edge in technology or to expand its market information, the one-click payment system is
presence. For more than 2 decades, the company has enabled automatically so that the customer can
expanded its online retail presence through aggressive simply click the “Buy now with 1-Click” button to
acquisitions, mostly in the US, but it has also bypass the convoluted purchasing process.
undertaken sizable deals in Europe and China. Currently, this approach is legally prohibited in
Korea, though a planned relaxation of the
Acquisitions to expand product categories. government’s regulatory measures should ultimately
Some US acquisitions targeting special categories drive Korea online shopping-site companies to offer
include Pets.com, Homegrocer.com, Tool Crib, and services similar to the one provided by Amazon.
Ashford.com, a luxury goods retailer, all in 1999. In • Strong search-engine function and abundant
2006, Amazon acquired Shopbop, a retailer of designer consumer review database. Having a presence
clothing and accessories; in 2008, Reflexive in the online business for nearly 20 years, Amazon
Entertainment, a game developer and a distributor; in has also amassed a huge product-review database,
2009, Zappos, an online shoe and apparel retailer; and which helps customers have greater confidence
Double Helix Games in early 2014. when making a purchasing decision. As the Internet
environment is advanced in Korea, there are already
Acquisitions to gain competitiveness in leading dominant players in many Internet
technology. Amazon has also acquired companies shopping-site categories. Naver, in the search-engine
that can enhance its operational infrastructure. In field; Aladdin and Yes 24 dominate the Internet
2012, it acquired Kiva Systems, a manufacturer of book-store. In the open marketplace space, G-
warehouse robots, in response to the rising labour costs Market and Internet Auction are the leaders.
at its fulfilment centres.
Opportunities exist for Amazon as an
Acquisitions to help international expansion. integrated digital-content provider
The company has been gaining a presence in overseas On the digital-content front, we believe that Amazon’s
markets through acquisitions. In 1998, it acquired interests would lie in e-books, music, and movie
Bookpages (an online bookstores in the UK), Telebook distribution.
(an online book store in Germany), and Internet Movie
Database (IMDB) (an online information database on However, the company would have to compete with
films and TV programmes ) to facilitate its expansion existing players, such as Naver, T-World, and Ridi-
in Europe. In 2004, Amazon entered the China market books. Without differentiated services, it would be
by acquiring Joyo, the country’s largest online retailer difficult for Amazon to attract customer traffic, in our
of books, music, and videos. Given the wide use of cash view.
on delivery (COD) payments and a lack of reliable
- 14 -Online Shopping
9 June 2014
In order for the company to provide a differentiated department stores could continue to see a declining
service to consumers, we believe that it may attempt to ASP trend for imported branded apparel, shoes and
become an integrated digital-content provider, ie, accessories.
provide a service bundling e-books, music, and movies.
One of the main reasons for the large price gap
In order to provide e-book content on its website, it between imported goods and products directly sourced
would need to sign individual contracts with each of from overseas markets is the high commission rates
the existing publishers, which we believe is unrealistic collected by the leading retailers in Korea, as illustrated
as the publication industry is very fragmented in Korea. below.
Therefore, if Amazon were to enter Korea’s e-book
market, we believe it would be likely to: 1) seek an Example of cost breakdown for an imported women’s
alliance with an opportunity to acquire a distributor of contemporary apparel brand
e-book content, and/or 2) acquire an existing online (Index)
100
book-store operator. 90
29
80
However, the total size of the e-book market is not 70
15
meaningfully large in Korea, in our view. 60
50 100 8
40 18
Stock implications 30
20
6
10 24
Whether Amazon decides to enter Korea or not, we are 0
Retail price COGS Various tax SG&A Ven dor's margin Sale lad ies Retailers
already seeing a paradigm shift in the Korea retail (in cl. of (marketing, comm issions comm ission
manufa cture r's logistics, e tc)
industry, whereby a growing number of consumers are margin)
willing to shop online for products from overseas (Manufacturer's cost) (Vendor's costs) (Retailer's costs)
suppliers, in turn reflecting how Korean consumers are Source: Fair Trade Commission
becoming more price-conscious and recognising that
goods purchased from overseas suppliers can often be Korea’s department stores enjoy high commission rates
cheaper than those purchased locally. We believe that due to the industry structure in the country, whereby
should Amazon decide to enter Korea, this could the leading 3 players enjoy close to 90% market share,
trigger a further acceleration in the growth in online as compared with less than 50% in many other
shopping for goods from overseas. developed countries. In addition, as the department
stores operate on a consignment basis, the stores do
We believe the following trends could develop within not have an inventory burden and hence retailers have
Korea’s retail industry: less need for large discounts to reduce inventory.
• ASPs could come down further for certain imported
consumer goods which consumers do not feel
comfortable about purchasing on-line, and those ASPs could continue to fall for branded
consumer goods supplied by domestic retailers imported apparel, cosmetics, shoes and
whose prices are inflated compared with similar accessories sold in department stores
products available from overseas retailers. Despite steady growth in customer traffic to Korea’s
department stores over the past 2 years, the average
• Domestic consumer brands that compete directly transaction price per customer at department stores
with imported consumer brands could see their has declined by 2-3% per annum over the period (as
retail prices come down. the next chart shows).
• Amazon could provide a platform for local vendors
to gain exposure to overseas markets by setting up This is a reflection of a combination of consumers
their own online stores on Amazon’s overseas trading down in a period of overall consumer spending
websites. weakness in Korea, along with rising competition from
lower prices offered by parallel imports and consumers’
Negative impact on department-store ASPs growing interest in buying from overseas shopping
Price gap between the imported brands and sites.
products from the overseas exists due to the
retail commission structure
If Amazon were to enter Korea’s online shopping-site
segment as an overseas retailer, we believe domestic
- 15 -Online Shopping
9 June 2014
Korea department stores: average transaction price per Price-cutting has also been evident in Korea’s
customer vs. customer traffic and SSS growth (YoY)
cosmetics segment over the past year. Fresh, a perfume
(% ) and cosmetics brand under the LVMH umbrella,
10
lowered its prices for 19 items sold in Korea’s
5 department stores by 20% on average in early 2013.
Also, Stila, another imported cosmetics brand, reduced
0 its prices for more than half of its products (ie, for 120
items) by 10% in early 2013.
(5)
(10) In addition, given the government’s goal of
Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 implementing deregulatory measures aimed at
3MMA average transaction price YoY lowering the prices of imported consumer goods by 10-
3MMA average customer traffic flow YoY 20% from current levels, we expect a steady fall in the
3MMA SSS growth YoY
consumer prices of imported goods over the next 2-3
Source: Ministry of Trade, Industry and Energy
years unless there is a strong pick-up in consumer
Divergence between private consumption growth and spending and until the prices of imported consumer
department same store sales growth brands sold by department stores fall to levels
(%) SSS growth lower than competitive with those available online.
16 private consumption
growth due to
14 consumer spending
Gap emerges Among the department stores’ product categories, we
from
12 decline on luxury goods lowering ASP would expect contemporary apparel brands, shoes,
10 following overspending on imported
goods
accessories and cosmetics, which can be easily
from the prior two
8
years
purchased through overseas on-line sites, to be
6 negatively affected. These categories make up a quarter
4 of an average department store’s total sales. Assuming
2 these products see a 20% price cut over time, we expect
0 the average transaction price to decline by around 5%
(2) over the next 2 years (a 2-3% decline per annum).
(4)
(6)
We believe that consumers are willing to shop at
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
4Q10
1Q11
2Q11
3Q11
4Q11
1Q12
2Q12
3Q12
4Q12
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
domestic department stores, rather than overseas
Private consumption YoY growth Department store YoY growth direct Internet shopping, if the price gap for imported
goods is no more than 30%, given the costs related to
Source: Statistics Korea, Ministry of Trade, Industry and Energy, compiled by Daiwa
customs tax, shipping, and the risks involved with
return policies.
Some imported consumer brands that are not priced
competitively vis-à-vis those available from overseas
As it stands, we believe that consumers tend to favour
online retailers lose market share within department
overseas Internet shopping for items that sell at a 50%-
stores, and as a counter-measure some brands have
plus discount to the merchandise price available in
lowered their prices in the past 2 years.
Korea. Therefore, we believe that an additional 20-30%
price cut for directly comparable products would make
For instance, Polo Children, an imported children’s
the existing department store channel more
wear brand saw its sales decline by 3% YoY in 2012. As
competitive in terms of pricing.
consumers can purchase identical items from online
overseas sites at much lower prices, and hypermarket
stores in Korea sell parallel imports of Polo Children
products at prices that are 20-30% below those sold by
department stores, consumers have been shying away
from buying such products from official Polo Children
retailers. In response, it cut its product prices by up to
40% in July 2013.
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