[Q&A] Coupang=Delivery · Naver=Points, What Is Shinsegae's Core Competitiveness?

"Using Shinsegae Membership Well Can Increase Annual Salary by 5%"
Emphasizing Integrated Online and Offline Discounts as Core Competitiveness

"You will get back more than 10 times the membership fee you paid."

"If you use the Shinsegae Membership well, it will have the effect of increasing your annual salary by 5%."

Kang Hee-seok, co-CEO of Emart and SSG.com, emphasized these words on the 8th while introducing Shinsegae Group's integrated online and offline paid membership, the 'Shinsegae Universe Club.' Shinsegae Group highlighted the core competitiveness of the Shinsegae Universe Club as integrated online and offline discounts. The points that differentiate it from competitors' paid memberships are that 'upon joining, cash-equivalent benefits equal to the membership fee are provided,' and 'a 5% discount applies both online and offline' across Shinsegae's major online and offline channels.

The following is a Q&A with CEO Kang, Lee In-young, co-CEO of SSG.com, and Jeon Hang-il, CEO of Gmarket.

(From left) Lee In-young, Co-CEO of SSG.com, Kang Hee-seok, Co-CEO of E-Mart and SSG.com, and Jeon Hang-il, CEO of Gmarket, are taking a commemorative photo after the launch briefing session of Shinsegae Group's integrated online and offline paid membership 'Shinsegae Universe Club' on the 8th.
[Photo by Shinsegae Group].

▲Until now, in the e-commerce market, concentrating customers on a single platform was important. The Shinsegae Universe Club is integrated and distributed; is this a change in trend? E-commerce competition is fierce; does Shinsegae Universe have any weapons to strengthen e-commerce competitiveness?

=It is a new approach to form one membership across multiple platforms rather than a single platform. Regarding whether there is a change in perspective on e-commerce memberships, yes. As a distribution company with over 60 years of experience, we have deeply felt that customers have truly diverse needs. Even a single customer has various demands. We thought it was impossible to satisfy diverse needs on a single platform. In reality, customers do not shop that way either. Selling luxury goods or imported cheese at Emart is challenging because each platform has different expectations. After much consideration, we decided to assign unique roles to each of Shinsegae Group's various platforms and configure them so that customers receive the same benefits when using them. We completed this in the form of the Shinsegae Universe Club, which links multiple platforms into one. We will strive to continuously expand it. Some internal affiliates want to participate additionally. Moreover, strengthening partnerships with external parties is, from the customer's perspective, even more important.

=Regarding how to build e-commerce competitiveness through the Shinsegae Universe Club, we first need to see where e-commerce competitiveness comes from: first, product assortment; second, price; third, convenience; fourth, trust. Strengthening these four is crucial. The Shinsegae Universe Club opens multiple channels to enhance assortment, adds discounts to secure price competitiveness, and maximizes the trust that comes from Shinsegae Group. We will also ensure that other aspects such as delivery and pricing do not fall below market standards. We will make consistent efforts in various areas.

▲Coupang is known for delivery, Naver for points accumulation, each channel’s competitiveness can be described in one word. What is the core competitiveness of the Shinsegae Universe Club? What are the benefits linked with external partnerships? There were rumors about integrating membership with Naver amid talks of selling SSG Pay and Smile Pay.

=Among ourselves, we said, if you use our membership well, it has the effect of increasing your annual salary by about 5%. This is because customers can receive discount benefits on almost all products Shinsegae Group offers at the level that Shinsegae employees receive. Helping customers buy quality products at good prices is the core competitiveness of the membership.

=Regarding external partnerships, the brands we can disclose are Korean Air and KT. The method focuses on areas each company can handle, and from the user's perspective, point swaps or mileage usage are being discussed. Please watch with some anticipation. Besides these two, we are also talking with travel platforms and online video services (OTT). We will soon be able to show expanded benefits.

=Regarding SSG Pay and Smile Pay, rather than selling, we are in the process of finding partnership counterparts. We do not think Shinsegae Group must independently handle all financial services or new capabilities. The strategy is to find suitable partners who can do well and provide financial services preferred by customers with those partners.

▲There are no outstanding delivery benefits. Are there any separate delivery benefits? How specifically will you expand the B2B market? You said you will not expand Neo; how will you handle dawn delivery in the future?

=The core benefit of the Shinsegae Universe Club is discounts. The key is that participating companies share common discount benefits. Although delivery is not included in the membership, free delivery services (e.g., for purchases over 40,000 KRW) already exist. That part has not changed, so it is not included in this announcement. Basically, Gmarket operates mainly with third-party (3P) sellers, so the challenge has been to improve the delivery speed of participating sellers. From the second half of this year, we are preparing to provide benefits when 3P sellers deliver faster so that customers can receive orders quickly. From the customer's perspective, it is not always best to receive items as fast as possible. It is important to know clearly when they can receive them. We are also preparing a service in the second half of the year to clearly inform customers of the delivery time.

=Neo has up to three centers, and the rest can be sufficiently covered by Emart PP centers nationwide, so we are not currently expanding Neo. We are building a logistics center in Opo-eup, Gwangju, Gyeonggi Province. The logistics center expansion is not finished; it is ongoing. It is true that dawn delivery coverage is limited. However, we believe this does not cause inconvenience to customers. Unlike channels that only offer dawn delivery, we have reservation delivery (SSG Delivery), etc., allowing time-slot selection. The proportion choosing dawn delivery is not high. Although dawn delivery does not cover the entire country, we do not think this is a barrier.

=There was controversy about whether delivery could be made outside offline store hours, but it has recently become clear that if there is market demand, dawn delivery can be done through Emart stores as much as needed. This does not mean we do not value dawn delivery; if there is demand, it can be expanded not only through Neo but also through Emart PP centers. From a logistics cost efficiency perspective, the automated logistics center being built in Opo-eup is effectively internalizing the capability to cover dawn delivery, so we believe it is a scale that can sufficiently respond to market demand.

=The small and medium-sized B2B market means about 500,000 small businesses nationwide. These include schools, hospitals, small offices, kindergartens, etc. Gmarket has grown this market over the past 10 years by providing these customers with an easy way to purchase necessary items like copy paper, bottled water, and tissue through Gmarket. The current market size is about . After Gmarket became part of Shinsegae Group and we considered synergy, there were many ways to utilize the group's assets. For example, connecting the logistics network and products from Emart, Traders, and Emart Everyday as food ingredients, expanding corporate bulk promotions, etc. We selected this as one of the next-generation core businesses. We are gathering the infrastructure and networks of affiliates to pursue a more aggressive business in the B2B market.

▲Amazon Prime, the representative paid membership, has doubts about whether it benefits consumer convenience. There are evaluations that it induces unnecessary and excessive consumption, causing people to spend more money. This criticism could apply to Shinsegae Membership as well. What do you think?

=That is an interesting point. I do not think such concerns are significant. Regarding whether it induces excessive consumption, we have confirmed through countless large discount events that consumers are very wise. They know well what and how much they need and adjust their purchase cycles accordingly. It will not lead to overconsumption. We see this in the grocery area. For non-grocery, premium, and luxury segments, consumers who spend a lot already receive discounts in some form. This membership rather strongly enhances accessibility to good products Shinsegae Group has. We do not worry about encouraging overconsumption. This is the first time I hear such an evaluation about Amazon Prime. We will keep the overconsumption issue in mind as we proceed.

▲What is Gmarket's role, position, and how will you create synergy?

=The Shinsegae Universe Club does not start from zero but begins by converting 3 million Smile Club members that Gmarket has built over seven years. Gmarket's goal is for our members to receive more benefits from Shinsegae Group affiliates and feel greater membership value. Through this, Gmarket supports offline affiliates, and conversely, Gmarket members' loyalty strengthens, creating a win-win effect. Gmarket can lead the expansion of Shinsegae Group's various offline assets, products, and services online. In May, we had great success with 'Big Smile Day,' and one of the standout product categories was department store products. We can amplify sales of various affiliate products through Gmarket. Gmarket can lead the expansion into the new digital market. Gmarket is developing the jukebox solution, which is the foundation of retail media services, and there are many fulfillment centers owned by Emart and SSG.com. While SSG has fulfillment competitiveness based on grocery shopping services, Gmarket has competitiveness in delivering general boxed products from B2B and B2C sellers to customers. We will expand services that utilize affiliate infrastructure, provide better products to customers through online and offline data expansion, and offer insights to brand partners. Progress is moving quickly.

▲What are Emart's strengths as an offline distribution channel? How do you think the integrated membership will positively affect Emart's recently sluggish sales and operating profit?

=In the 1990s, when large discount stores became wildly popular, people said small merchants would all die, but that did not happen. Ultimately, distribution is not about one format taking everything. It evolves into a diversified structure according to customer demands. I believe Emart's offline role will remain meaningfully present in customers' lives. We focus on the experiences customers can have inside the store when they visit. Actually, demand for food and beverage (F&B), eating, drinking, and enjoying has increased. In the past, selling goods was the main focus, and tenants were secondary, but now it is the opposite. Tenants occupy prime locations. Customers visit with time to shop. From an operational perspective, Emart serves as a logistics forward base and plays a hub role in procurement. When talking about 1P and 3P, Gmarket or GGS.com may handle 1P, but we can utilize Emart's procurement capabilities without heavy investment. It is cost-effective and efficient. Emart's role is strengthened internally in these aspects.

=Regarding whether membership will help Emart's sluggishness, yes. Directionally, it will definitely have a positive effect. Recently, Emart has seen a difference between macro and micro trends. The number of customers at large events has increased significantly. Since the economy is tough and purchasing power has decreased, the average spending per customer has dropped. Seeing this trend, if we can supply daily necessities at lower prices, it would greatly help most households in Korea whose income levels are not very high. Even during the chaotic times of COVID-19, Emart's mission amid income polarization is to clearly communicate that it offers a reasonable alternative for everyone, including those below the median income, at least regarding food and clothing. The discounts through this membership will benefit customers and positively impact Emart. From the partner's perspective, there is no need to think only about business with Emart. Through the partnership structure, if they trade with Emart, they also open transactions with SSG.com, Gmarket, and other affiliates. The membership and partnership structures will help expand the partner base and assortment.

▲What is the basis for setting the annual fee at 30,000 KRW?

=Regardless of how much the membership fee is or whether it is monthly or yearly, from the customer's perspective, it means no cost. Many Koreans buy Starbucks coffee, visit department stores, Emart, or other channels, and shop. From that perspective, immediately returning the 30,000 KRW annual fee in the form of actual points is equivalent to a zero membership fee for customers. What matters more than the fee amount is what benefits customers receive after joining and how much they can upgrade their lives. That is the important part of membership.