[Big Tech, Big Change] KakaoTalk Wears Prada Too... Distribution and Portals 'Sleeping with the Enemy'

Last Year Naver Payments Surpassed 20 Trillion Won, Overtaking Coupang and Gmarket
Smart Store Adds 30,000 Monthly... KakaoTalk 'Gift' Also Hits 3 Trillion
Offline Industry Joins Forces with Portals to Enter Live Commerce

[Asia Economy Reporters Bu Aeri and Lee Seungjin] As ICT companies Naver and Kakao, based on internet platforms, expand their e-commerce territories, a seismic shift is occurring in the distribution market. Offline retail companies such as Lotte and Shinsegae, which operate department stores and marts, are accelerating their digital transformation after the COVID-19 pandemic, but there is growing concern that they may lose the market entirely as they fail to keep up with the platform competitiveness of Naver and Kakao.

◆ Naver and Kakao Swallowing Shopping = On the 21st, a senior official in the distribution industry said, "We thought Coupang and Market Kurly were the most dangerous competitors, but now Naver and Kakao are in a more threatening position," adding, "There is widespread anxiety that the two companies, which dominate search and mobile platforms, could completely take over the leadership of the distribution market."

Naver has rapidly risen to become the industry's strongest player just two years after reorganizing its shopping sector with the 'Smart Store.' According to mobile market research firm WiseApp, Naver's payment amount last year was 20.9249 trillion won, easily surpassing major e-commerce companies such as Coupang (17.0771 trillion won), Auction and Gmarket (16.9772 trillion won), and 11st (9.8356 trillion won). In the first half of this year, Naver's payment amount reached a record high of 12.5 trillion won. Although Naver's payment amount includes not only online shopping but also content purchases, the industry views Naver as having solidified its status as a 'giant' in online shopping.

The two pillars of Naver Shopping, 'Smart Store' and 'Brand Store,' are growing so rapidly that they are changing the shopping ecosystem. According to Naver, the number of Smart Stores increased from 320,000 at the end of last year to 400,000 currently, with an average of 30,000 new stores opening each month. Smart Stores attract many businesses because there is no registration fee for entry, and if sellers wish, a 2% commission on sales is charged through shopping search exposure. The Brand Store, which positions itself as a department store, launched earlier this year and has attracted 75 brands within four months. It is a service that operates a separate exhibition space within Naver Shopping where large companies such as Samsung Electronics and Gucci Korea can promote and sell their products.

Kakao, based on KakaoTalk with 50 million users, is also a dark horse in the distribution industry by providing 'Gift' and 'Shopping' services. Kakao Commerce recorded sales of 296.1 billion won and operating profit of 75.7 billion won last year, emerging as a valuable subsidiary of Kakao. Kakao Gift's transaction amount nearly reached 3 trillion won last year. Based on the 'TokDeal' service, the transaction amount for Shopping in the first quarter of this year exceeded 100 billion won. The two-person group purchase service TokDeal, which offers discounts when just two people gather, sold 110,000 products within a year of its launch, with transaction volume increasing 28-fold.

◆ Distribution Giants Losing Online Platforms = As portals target the distribution market, traditional distribution giants Lotte and Shinsegae have become followers instead. A representative example is the rapidly growing live commerce business after COVID-19. Live commerce is a broadcast that sells products through real-time streaming on mobile applications or the internet. Lotte On launched the live commerce service 'On Live,' and Shinsegae established 'Mindmark,' a commerce-specialized content production company. However, when Naver, which dominates the search platform, entered the live commerce business, the related market tilted instantly.

Hyundai Department Store, for example, shifted its plan to provide live commerce through its own app and decided to partner with Naver to operate 'Department Store Window Live,' which shows department store products through online real-time videos. SSG.com previously conducted live commerce through Jam Live, a Naver subsidiary. Recently, Kakao also entered live commerce. Kakao Commerce started beta service for 'Kakao Shopping Live' in May. Considering that live commerce is similar to home shopping, it is expected that home shopping companies' market share will also shrink significantly in the long term.

◆ Offline Giants Enhancing Logistics Competitiveness = SSG.com's dawn delivery service achieved 41 million cumulative ordered products, 720,000 cumulative customers, and a 60% repurchase rate within one year. The number of products handled for dawn delivery increased from 10,000 last year to 28,000 this year. Shinsegae Group plans to invest 1.7 trillion won by 2023 to build seven more online-exclusive logistics centers called Neo. They are accelerating investment, with most of the 1.3 trillion won planned for the next three years to be spent on logistics centers.

Lotte On is pursuing a strategy to differentiate itself by strengthening connections with existing offline stores such as department stores and marts. Lotte On is implementing a service that delivers ordered items within two hours, focusing on Lotte Mart Junggye and Gwanggyo stores. They plan to expand the 'Immediate Delivery' service to 18 stores within this year. Mid-month, they will also enter the dawn delivery market. After launching dawn delivery services in Seoul and the southwestern region through the Gimpo Online Center, they plan to expand to southern Gyeonggi and Busan by October. Lotte On aims to achieve 20 trillion won in transaction volume by 2023 through this strategy.

Professor Oh Sejo, Emeritus Professor at Yonsei University, said, "E-commerce companies are fiercely competing as they evolve into omnichannel businesses," adding, "Naver is gaining a competitive edge in customer analysis based on vast customer and product information." He continued, "The online market is changing faster than expected due to the COVID-19 crisis," and assessed, "Unlike traditional distribution giants who are restructuring offline and considering the online market simultaneously, Naver, which is lighter in size, has an opportunity to reshape the market and holds an important position."

Experts advise that distribution companies like Lotte and Shinsegae should focus on 'convergence' and 'innovation' to survive the competition. Professor Oh said, "Those without competitiveness will inevitably collapse," adding, "Offline stores must find ways to access the online market while abandoning a family-oriented attitude of protecting their own turf and adopt an open-minded approach to merge with advanced business models like startups."