Growing in Size Fashion Platform... W Concept, the Background of Sales Decline [E-commerce in Crisis] ⑤

W Concept's Sales in First Half of This Year Down 17% YoY
Contrasting with Competitors like Musinsa's Soaring Sales
Improving Financial Structure by Reducing Direct Purchases and PB, Increasing Consignment

SSG.com 'W Concept Specialty Store'. [Image provided by W Concept]

Shinsegae Group's fashion platform W Concept, acquired with an investment of 270 billion KRW, is facing negative growth. This is due to a sharp decline in user numbers as it falls behind in the increasingly fierce competition in the fashion e-commerce market. Shinsegae's focus on profitability across all its affiliates this year suggests that a turnaround opportunity will not come easily.

According to Emart's semi-annual report on the 28th, W Concept's sales in the first half of this year amounted to 56.04 billion KRW. This represents a 17.7% decrease compared to 68.5 billion KRW in the same period last year. Annual sales growth has also significantly slowed. W Concept's sales last year were 145.5 billion KRW, marking only a 6.4% increase. Operating profit last year was 5.8 million KRW, a sharp decline from 3.1 billion KRW the previous year.

Rapid Growth of Fashion Platforms like Musinsa

W Concept started in 2006 as 'Wizwid,' a new business division of SK Networks. At its launch, it primarily provided so-called 'direct purchase' services, acting as an agent for importing overseas fashion brand products. Later, W Concept was established with the aim of discovering domestic designers' fashion brands and introducing them to the global market, achieving rapid growth by showcasing emerging designer brands targeting women in their 20s and 30s as the main customer base.

In April 2021, W Concept became an affiliate of Shinsegae when Shinsegae's e-commerce subsidiary SSG.com acquired it for 270 billion KRW. At the time of the acquisition, major retail conglomerates such as Lotte Shopping, CJ, and SK-affiliated 11st were also candidates, reflecting its high valuation. Musinsa, the leading fashion platform, also participated in the bidding for W Concept but lost out to Shinsegae.

At the time of the acquisition by Shinsegae, W Concept held the number one position among domestic women's fashion specialty malls. Even when expanded to the entire fashion platform market, it was the second-largest player after Musinsa. This was a key reason why Shinsegae pursued the acquisition of W Concept.

However, recent performance contrasts with competitors like Musinsa, Ably, and Zigzag, which have grown despite the fashion industry's downturn. Musinsa's consolidated sales last year reached 993.1 billion KRW, with a growth rate of 40.2%. During the same period, Ably Corporation recorded sales of 259.5 billion KRW, showing 45% growth, and Kakao Style, which operates Zigzag, posted sales of 165 billion KRW, a 62% increase. These platforms disclose their annual performance.

W Concept Ranks 7th in Fashion Platform User Numbers

Competition remains tough this year as well. According to IGAWorks' Mobile Index, W Concept's monthly active users (MAU) in the first half of this year were approximately 780,000. This places it 7th among fashion platforms based on Mobile Index data. This is only about 15% of Musinsa's MAU of approximately 5.28 million during the same period. It also lags significantly behind competing women's fashion platforms such as Ably (4.89 million) and Zigzag (2.96 million).

W Concept states that, as a shopping mall targeting women in their 20s and 30s with purchasing power, it sells designer brand products with an average price of around 300,000 KRW, which explains the relatively smaller user base. A W Concept representative explained, "Compared to competitors, our target customer base is narrower, which results in differences in user numbers. Due to the price range of the products we sell, platforms with cheaper products that encourage repeated purchases tend to have higher user numbers."

However, compared to Musinsa's nearly 1 trillion KRW in sales last year, W Concept's negative growth in the first half of this year is a painful point. W Concept explains that this sales decline is the result of reducing direct purchasing and private brand (PB) operations and focusing more on product brokerage. A W Concept representative said, "From this year, direct purchasing and PB sales have decreased, leading to a slight drop in half-year sales, but this is part of a strategy to increase the proportion of consignment sales to improve financial soundness." The representative emphasized that W Concept's transaction volume in the first half of this year grew 13% year-on-year to 266.2 billion KRW, and operating profit also reached 1 billion KRW.

This appears to be due to Shinsegae's group-wide shift toward profitability-focused management. Shinsegae is currently conducting intensive management efficiency measures, including replacing the head of SSG.com, W Concept's parent company. As part of cost-cutting efforts, SSG.com plans to relocate its office from Centerfield in Gangnam to KB Yeongdeungpo Tower in Yeongdeungpo in February next year. W Concept, which shares the office with SSG.com, will also move to Yeongdeungpo.

W Concept explains that it has increased the proportion of consignment sales and reduced direct purchasing and PB to strengthen financial soundness. Direct purchasing and PB involve the platform buying products directly, which carries significant inventory risk and financial burden. In contrast, consignment sales contribute less to revenue but impose much less financial burden. Currently, W Concept's consignment sales proportion is higher than that of direct purchasing and PB.

However, cash and retained earnings have been increasing annually. As of last year, W Concept held 21.35 billion KRW in cash and cash equivalents, about 57% higher than 13.6 billion KRW the previous year. Retained earnings accumulated through operating activities have also grown each year. W Concept's retained earnings last year were 19.2 billion KRW, all classified as undistributed retained earnings. Undistributed retained earnings refer to profits held by the company without being paid out as dividends or bonuses.

Accounts payable arising from product purchases stood at 40.2 billion KRW last year, slightly down from 42.3 billion KRW in 2023. As W Concept reduces direct purchasing and increases consignment sales this year, accounts payable are expected to gradually decrease.