[Altesh Shock] Korea Swallowed by Ultra-Low Price Strategy... Father Faces Risk of Losing Job

①C-Commerce Driving South Korea into an 'Ultra-Low Price' Era
Risk of Continuing Ultra-Low Price Strategy Until Dominating the Korean Market

Trying to Respond by Changing Price and Delivery Strategies
K-Commerce Collapsing with Just a Few Clicks

#Office worker A in their 20s sets alarms twice a day, in the morning and afternoon, to check their phone. This is to 'join' the super special time deals held at 10 a.m. and 10 p.m. daily on AliExpress, a Chinese direct purchase application (app). Since last month, Ali has been conducting first-come, first-served special discount sales mainly on groceries such as rice, pork belly, and instant foods.

Chinese e-commerce (C-commerce) companies like Ali, Temu, and Shein, which emphasize ultra-low prices, are intensifying their invasion of the domestic distribution market. Consumers can now purchase Chinese products cheaply with just a few clicks through direct purchase platforms, and C-commerce companies are actively securing customers with special sales offering dramatic price benefits. Due to their ultra-low price onslaught, native e-commerce companies face the risk of losing market share. Although large supermarkets hold monthly discount events to counter this, they are struggling.

Since the 18th of last month, Ali has been running the 100 Billion Festa, a discount event commemorating its 14th anniversary. Twice daily, it offers time deals selling food items like eggs, sweet potatoes, oranges, frozen foods, and daily necessities for as low as 1,000 won. This price is below the product cost and even shipping fees. Because of this, the super special discount products have gained popularity through word of mouth on online communities and blogs, often selling out within 10 seconds of the sale starting.

Ali's special discount events are interpreted as efforts to secure domestic customers in earnest. They considered that attracting customers with large-scale, generous discount events, even at the cost of significant investment, is the first step to dominating the Korean market. The name "100 Billion Festa" also implies providing benefits worth 100 billion won to Korean consumers. Ali plans to increase domestic investment as well. Alibaba, Ali's parent company, submitted a business plan to the Korean government to invest $1.1 billion (about 1.4471 trillion won) over three years to expand its Korean business. This includes investing $200 million (about 263.2 billion won) to build an integrated logistics center (fulfillment center) of 180,000 square meters (about 54,450 pyeong) in Korea within this year.

Another C-commerce company, Temu, is also rapidly expanding its presence in the Korean market. Temu, which started domestic service in July last year, is increasing its user base through cash coupons and multi-level friend invitations for new customer recruitment. Temu spares no marketing expenses to approach Korean consumers, as evidenced by its product placement (PPL) in popular variety shows.

The domestic distribution industry is truly on 'emergency' due to this onslaught. Since C-commerce sells all kinds of products made in China, known as the 'world's factory,' directly to Korea via direct purchase, they have overwhelming price competitiveness. Even for the same Chinese products, if imported by domestic distributors, additional costs such as logistics, customs duties, and KC certification fees inevitably raise prices.

Ali's 100 Billion Festa time deal sales and Temu's cash coupon distribution are strategies to instill the perception among Korean consumers that using C-commerce allows them to buy goods cheaply, thereby securing loyal customers, even at great cost. This is similar to the approach that previously alarmed the domestic distribution industry, as seen with Coupang. A distribution industry official said, "Ali and Temu's strategy is to enter overseas markets and, through massive investment, launch ultra-low price offensives to stifle local distribution markets," adding, "They are expected to continue ultra-low price policies until they dominate the Korean market."

In fact, this ultra-low price strategy is proving effective. Data shows that Korean consumers are seeking cheaper products on Ali and Temu. According to IGAWorks' Marketing Cloud, the monthly active users (MAU) of Ali and Temu in March were approximately 6.94 million and 6.36 million, respectively. These figures surpass familiar domestic platforms like 11st and Gmarket.

K-commerce Responds... From Price Competition to Fast Delivery

[Image source=Yonhap News]

Domestic e-commerce companies facing the C-commerce onslaught have different response strategies, but all reflect a sense of crisis that the market could be lost if they are careless. Some are increasing investment in logistics networks to target C-commerce's relative weakness of slower delivery, while others counter with regular discount events.

Korea's largest e-commerce company, Coupang, is visibly tense about the C-commerce invasion. Two weeks after news broke that Ali plans to invest 1.5 trillion won in Korea, Coupang announced at the end of last month that it plans to invest over 3 trillion won over three years. This amount is twice the size of Ali's known investment.

Other e-commerce companies are also strengthening fast delivery services to compete. Since most products sold on C-commerce platforms are shipped from China, delivery times are inevitably longer, creating a 'gap' that domestic companies aim to exploit. Although C-commerce companies have reduced delivery times to about a week through local fulfillment centers, they are still slower compared to major domestic e-commerce platforms.

Naver is also expanding its fast delivery services. Since the 15th, Naver has started same-day delivery guaranteeing arrival by the end of the day for orders placed by 11 a.m. on certain products. It also launched Sunday delivery, allowing orders placed on Saturday to be received on Sunday. Naver's same-day and Sunday delivery services mainly cover daily necessities and fashion categories, targeting products tagged with 'Naver Arrival Guarantee.'

Coupang plans to use its investment funds to expand new fulfillment centers, introduce advanced automation technologies, and enhance its delivery network to expand Rocket Delivery areas. Coupang's Rocket Delivery employs all logistics infrastructure and delivery personnel directly, enabling same-day, dawn, and next-day delivery year-round without holidays. Other platforms like SSG.com (SSG Delivery), 11st (Shooting Delivery), and Gmarket/Auction (Smile Delivery) also operate fast delivery services.

However, if C-commerce continues its ultra-low price strategy, domestic e-commerce companies, which cannot afford similar discount policies, may no longer withstand the competition. This is due to the e-commerce market's stagnation and years of losses caused by emerging players like Coupang. Last year, Shinsegae Group's e-commerce platform SSG.com and Gmarket recorded combined operating losses of about 130 billion won, and 11st faced forced sale after its parent company SK Square gave up exercising a call option due to accumulated deficits. 11st is currently undergoing restructuring, including offering voluntary retirement programs.

C-commerce also poses a threat to offline distribution sectors like large supermarkets. Since the introduction of mandatory holiday closures for large supermarkets in 2012, which restricts holiday operations twice a month, and the rise of Coupang's same-day and dawn delivery, their performance has been declining. The emergence of C-commerce is expected to accelerate this decline. Indeed, E-Mart, considered a major player in offline retail, recorded a loss for the first time last year and began accepting voluntary retirement applications for the first time in its history at the end of last month.

Series Outline

① Ultra-low price strategy swallowing Korea... Fathers face job loss crisis
② Ali's 'zero commission' policy saves entrepreneurs
③ "Embrace China" - Ali attracts talent... What about job creation effects?
④ Even if Chinese-made, if cheap, consumers buy... Changing consumption trends
⑤ Busy preparing countermeasures only after losing home ground to China