Even 'Jennie' Couldn't Stop It... Kurly's Growth Engine, a Perennial Deficit, Has Stalled [E-commerce in Crisis]②

100 Days After the Timef Incident: E-commerce Review
Curly's Sales Growth Rate Last Year 1%
Negative Growth Except for New Beauty Business

Kurly, which pioneered the domestic dawn delivery market, was directly hit by the fallout from the large-scale settlement delay incident involving Qoo10-affiliated 'Timemeff (Timon + Wemakeprice)'. Immediately after the Timemeff incident, rumors of Kurly CEO Kim Seul-ah's 'overseas escape' rapidly spread. As the unpaid damages from Timemeff grew exponentially, negative views spread throughout the e-commerce market, and crisis rumors began circulating among financially vulnerable e-commerce companies. Kurly's continuous deficits since its founding became the basis for these rumors.

Kurly aims to wipe out nearly 2.3 trillion won in accumulated deficits and achieve operating profit this year. However, with the transition to the COVID-19 endemic phase leading to a shift toward offline distribution and intensified competition in the e-commerce market, growth has slowed to single digits, casting doubt on sustained growth.

BLACKPINK Jennie [Image provided by Market Kurly]

Perennial Deficit Kurly... Despite New Beauty Business, Growth Rate at '1%'

According to the Financial Supervisory Service's electronic disclosure system on the 16th, Kurly has posted losses for nine consecutive years since its establishment on December 31, 2014. It recorded an operating loss of 8.4 billion won in the first half of this year.

Sales have essentially stagnated. Kurly's sales increased by only 40 billion won, from 2.0372 trillion won in 2022 to 2.0773 trillion won last year, a growth rate of 1.96%. According to Kurly's IR report released in March this year, the new beauty business, Beauty Kurly, launched in November 2022, achieved a cumulative transaction amount of 300 billion won over one year. Considering Beauty Kurly's transaction growth rate of 85% last year, the core food business was sluggish. Kurly held its first offline event, the 'Kurly Food Festa,' last year to boost food business marketing. The event attracted about 20,000 attendees and was a success, but it was insufficient to significantly increase sales.

Kurly stated, "Kurly has been selling beauty category products since 2017," adding, "(The 300 billion won) transaction amount does not directly translate to an increase in (Kurly's overall) sales." They explained that since beauty sales existed before the launch of Beauty Kurly, there was no base effect, which contradicts the beauty growth rate disclosed by Kurly.

Kurly experienced rapid growth after introducing Korea's first fresh food dawn delivery service in 2015. Sales, which were 2.9 billion won in the first year, recorded triple-digit growth rates annually. Especially during the COVID-19 pandemic, as online shopping became a consumer trend, sales surpassed 1 trillion won in 2020 and reached 2 trillion won the following year.

However, sales sharply slowed from last year, with a single-digit growth rate (6.08%) in the first half of this year. Kurly recently announced that beauty sales doubled over three years since launch, with transaction volume exceeding 500 billion won, but this also failed to drive overall performance.

Kurly Tightens Belt... Changes Settlement Cycle to Secure Cash

The deficit significantly decreased from the 2 trillion won level at the end of last year. Since last year, Kurly has focused on profitability by lowering costs and cutting various expenses.

In fact, Kurly reduced its cost of goods sold ratio to 68.3% in the first half of this year. The cost of goods sold ratio represents the proportion of the cost of goods sold to total sales. Kurly's ratio was 81.2% in 2020, then dropped to 72.43% the following year, and further to 70.27% last year. This indicates that Kurly lowered purchase prices for products it sells, securing higher margins.

Starting this year, Kurly changed the settlement cycle with suppliers to improve liquidity. This extended the cash holding period by delaying payment to suppliers, a cause cited for the large-scale settlement delay incident at Timemeff. As of the first half of this year, Kurly's cash equivalents stood at 172 billion won, an increase of over 30 billion won compared to the end of last year. Meanwhile, accounts payable to suppliers increased by 77 billion won during the same period, from 149.5 billion won to 226.5 billion won.

Kurly is squeezing suppliers to escape deficits. When sales surged in 2022, Kurly expanded the incentives that large distributors receive from suppliers to all suppliers, which led to corrective orders from the Fair Trade Commission.

Kurly plans to wipe out over 2 trillion won in accumulated deficits and secure financial soundness. To this end, it will hold an extraordinary general meeting on the 23rd to approve the 'Approval of Capital Surplus Deficit Compensation and Transfer to Retained Earnings' to offset the 2.2709 trillion won deficit as of the first half of this year with 2.3532 trillion won in capital surplus. This is to remove the label of a 'deficit company' caused by trillion-won deficits. Timon and Wemakeprice had deficits of 1.5221 trillion won and 755.9 billion won, respectively, due to continuous losses.

Pressure to Recoup Investment... Shrinking Corporate Value 'Dilemma'

Kurly has raised over 1 trillion won in investments to cover losses and expand its scale. However, it attempted an initial public offering (IPO) in 2021 to allow investors to recoup funds but withdrew amid controversy over overvaluation of loss-making companies.

Industry insiders believe Kurly is desperately focusing on improving profitability to relaunch its listing. In fact, Kurly promised to turn profitable after receiving an additional 120 billion won investment from private equity firms Anchor Equity Partners and Aspex Capital in May last year. If it failed to turn profitable, the preferred stock to common stock conversion ratio would be adjusted from 1:1 to 1:1.84. However, Kurly recorded operating losses last year as well, and CEO Kim Seul-ah's stake shrank to 5.69%.

Kurly declared an EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) profit in the first half of this year. EBITDA is operating profit excluding interest expenses, taxes, and accounting depreciation of tangible and intangible assets, serving as a profitability indicator reflecting cash-generating ability. EBITDA profit means the company has started generating earnings from its operations. However, the actual operating loss widened again from 1.8 billion won in Q1 to 8.2 billion won in Q2 this year.

Corporate value is also shrinking. On the unlisted stock trading platform Securities Plus Unlisted, Kurly's closing price yesterday was 10,200 won, estimating a market capitalization of 420 billion won. This is about one-tenth of the 4 trillion won valuation recognized at the end of 2021 during the pre-IPO round.