Retail Industry Scaling Back Fast Delivery... "Growth Rate Slows Due to Reopening"

SSG.com Reduces PP Centers from 24 to 12
Lotte On Cuts Same-Day Delivery Stores
More Companies Halt Dawn Delivery Services

[Asia Economy Reporter Lim Chun-han] SSG.com and Lotte ON are scaling back their same-day delivery services. Although demand for fast online delivery services surged explosively after the COVID-19 pandemic, growth rates have slowed in the reopening (resumption of economic activities) era. Each company is now compelled to improve logistics efficiency to enhance profitability.

According to SSG.com on the 24th, from the second half of this year, they are consolidating delivery zones or switching to parcel delivery services in regions with low online order volumes. Initially, they planned to expand the large picking and packing centers (PP centers) functioning as logistics centers to 24 by the end of the year, but the target was adjusted to 12. Recently, SSG Delivery provided at the Gyeongbuk E-Mart Yeongcheon branch was switched to parcel delivery, and the warehouse discount store Traders also stopped SSG Delivery in some areas of Seoul from the end of this month.

The main reason for SSG.com's reduction in same-day delivery services is a decline in performance. E-Mart recorded an operating loss of 12.3 billion KRW in the second quarter. In particular, SSG.com's operating loss widened to 40.5 billion KRW compared to 26.5 billion KRW last year. An SSG.com official explained, “Traders Mall SSG Delivery currently focuses on short-distance delivery around the store locations, and for long-distance areas, it was switched to parcel delivery to improve logistics efficiency.”

Lotte ON is also reducing its immediate delivery services. The number of stores operating immediate delivery decreased from about 30 at the beginning of this year to around 20. Immediate delivery is a service where, once a customer places an order, products are delivered within two hours from Lotte Mart or Lotte Super to the customer's doorstep. Even when using offline stores as delivery hubs, additional input of delivery vehicles and personnel is inevitable. To offset these costs, a sufficient order volume must be secured, but due to insufficient demand in some areas, the service has been discontinued.

An SSG.com model is introducing SSG Delivery. (Photo by SSG.com)

Companies discontinuing dawn delivery services are also increasing. In April, Lotte ON; in May, Hello Nature operated by BGF; and in July, GS Fresh Mall and meal kit specialist Freshigi ended their dawn delivery services. Dawn delivery began in May 2015 when Market Kurly launched “Saetbyeol Delivery,” and many companies competitively entered the market. However, due to high fixed costs such as logistics and labor and intensified cutthroat competition, securing profitability immediately has become difficult.

An industry insider said, “Until last year, double-digit growth rates were seen, but the trend changed after social distancing measures were lifted. Previously, even if losses were incurred, massive logistics investments were made, but now inefficient parts are being consolidated.”

Ultimately, there are concerns that if only a few companies survive in the fast delivery market, price increases will be inevitable. Professor Lee Young-ae of the Department of Consumer Studies at Incheon National University stated, “Currently, companies face rising fixed costs and the difficulty of continuously bearing losses, so they appear to be readjusting their businesses. In the future, if the fast delivery market becomes monopolistic or oligopolistic, entry barriers will rise, affecting service prices.”