Busan Logistics Center Groundbreaking Ceremony Canceled
Could Cause Setbacks in 3 Trillion Won Investment
On the 13th, the Korea Fair Trade Commission (KFTC) imposed a fine of 140 billion won, the largest ever in the distribution industry, on Coupang, which strongly opposed the decision. Along with this, Coupang has canceled the groundbreaking ceremony for the Busan logistics center that was scheduled and appears to be reconsidering its future investment plans.
According to the distribution industry on the 13th, Coupang canceled the groundbreaking ceremony for the Busan Advanced Logistics Center, which was scheduled for the 20th, and reportedly notified Busan City and related organizations. The Busan Advanced Logistics Center was part of Coupang's mid- to long-term logistics investment expansion plan. However, due to the growing sense of crisis following the KFTC's sanctions, the groundbreaking ceremony was canceled. Consequently, the construction of logistics centers in Icheon, Gyeonggi Province, and Gimcheon, Gyeongbuk Province, which were scheduled for the future, is inevitably facing setbacks.
Coupang is strongly opposing the KFTC's decision. Coupang announced it would file an administrative lawsuit, arguing that the government's issue with 'product display' is unfair. In two statements released that day, Coupang said, "If we cannot freely recommend and sell Rocket Delivery products, it will be difficult for Coupang, which bears all inventory costs, to maintain the current Rocket Delivery service, which will lead to inconvenience and harm to consumers."
Coupang's remarks relate to future investments. In March, Coupang announced plans to invest 3 trillion won by 2026 to usher in an era of nationwide free delivery. This figure includes the expansion of new fulfillment centers (FCs), the introduction of advanced automation technology, and the advancement of the delivery network. Coupang plans to initiate new construction and equipment investments for new FC operations in more than eight locations, including Gimcheon, Gyeongbuk; Jecheon, Chungbuk; Busan; Icheon, Gyeonggi; Cheonan, Chungnam; Daejeon; Gwangju; and Ulsan by 2026.
Based on this, Coupang aims to sequentially expand Rocket Delivery areas nationwide and achieve virtually '100% free Rocket Delivery for the entire national population' by 2027. Coupang currently operates Rocket Delivery in 182 out of 260 cities, counties, and districts nationwide (70%).
Coupang stated, "If the KFTC prohibits product recommendation activities, all direct purchase services, including Rocket Delivery, will become difficult in Korea," adding, "The 3 trillion won logistics investment promised for 100% free delivery nationwide and the 22 trillion won investment for purchasing Rocket Delivery products will inevitably be halted." In the distribution industry, Coupang's issuance of such a statement and the postponement of the Busan Advanced Logistics Center groundbreaking ceremony are seen as indications that the company intends to comprehensively review its investment plans.
There are also criticisms that the 140 billion won fine is excessive. The 140 billion won corresponds to 23% of Coupang's annual operating profit last year (6.174 trillion won). This fine is the highest amount ever imposed on a distribution company. Additionally, excluding cartel cases, it is known to be the fifth-largest fine in history among single-company cases handled by the KFTC, following Qualcomm, Google, Samsung, and others.
The announced fine amount is a provisional figure calculated based on violations from February 2019 to July last year. Therefore, if fines from August last year to the present are added, the total could increase further. The distribution industry predicts that the final fine could exceed 200 billion won.
Coupang said, "We regret the KFTC's unfair measures, which are unprecedented worldwide in penalizing product display issues with excessive fines and criminal charges, and we will actively demonstrate the unfairness in court through administrative litigation."
Following a halving of operating profit in the first quarter of this year (53.1 billion won) and the KFTC sanctions, Coupang is considering follow-up responses such as reviewing its investment plans. If direct purchase and private brand (PB) product sales, which account for 70% of total transaction volume, shrink due to KFTC regulations, a comprehensive business review including profitability will be necessary. Additionally, as the practice of prioritizing direct purchase and PB products for exposure is sanctioned, there are expectations that Coupang's flagship brand, Rocket Delivery itself could be impacted. According to KFTC data, as of last year, the number of direct purchase products sold on Coupang reached 6 million, and PB products numbered about 15,000.
On the same day, the KFTC imposed corrective orders and a provisional fine of 140 billion won on Coupang for unfairly favoring PB products and manipulating search rankings by mobilizing employees, and decided to refer the corporation to the prosecution. CPLB, a 100% Coupang subsidiary responsible for supplying Coupang's PB products, was also referred to the prosecution. The fine is the largest ever in the distribution sector.
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