[The Crisis of e-Commerce]⑥ China's Alibaba 'Emergency Bailout'... 'Average Order Value' Holding Back Abley

Latecomer fashion platform started in 2018
Expanding from women's fashion to men's and lifestyle
Alibaba invests 100 billion KRW... Global expansion 'all-in'
Low average spending, intense competition pose challenges

Women’s fashion platform Abley has secured an investment worth approximately 100 billion KRW from Alibaba Group, China’s largest distribution company. Since its founding, Abley has accumulated deficits and has not escaped capital erosion, but attention is focused on whether this emergency capital injection will provide a foothold for a new leap forward.

Industry insiders note that although Abley has grown its sales through newly discovered revenue sources in recent years, there are doubts about whether this growth trend will continue. This is because its competitor, the “fashion giant platform” Musinsa, has secured a solid customer base, and Chinese e-commerce companies with massive capital are eyeing entry into the domestic fashion market.

Abley Tastes Its First Profit... Will It Escape Capital Erosion?

According to the Financial Supervisory Service’s electronic disclosure system on the 1st, Abley recorded a profit last year. Although operating losses increased from around 12 billion KRW in 2019 to 74.4 billion KRW in 2022, the company saw its first profit by strengthening profitability and reducing costs. Cutting advertising expenses by half was effective.

Last year, sales reached 260 billion KRW, a 46% increase compared to the previous year (178.5 billion KRW). Abley’s sales consist of product sales and service sales, where product sales typically represent the fashion segment, and service sales represent non-fashion sales. With category expansion into beauty, desserts, furniture, and more, service sales doubled from 66.8 billion KRW to 133.2 billion KRW last year.

Abley expects sales growth to continue this year as well. The company revealed that in the first half of the year, it surpassed 1 trillion KRW, about 70% of last year’s transaction amount (1.5 trillion KRW). Recently, it was reported that Abley signed an investment contract worth approximately 100 billion KRW with China’s Alibaba Group through a new investment round. Alibaba Group is expected to deposit the investment funds in three installments. This capital is likely to be used for new business investments such as Abley’s global mall.

Abley also appears confident about improving its financial soundness. The company stated, “Deficits can be sufficiently resolved through capital surplus and future profit improvements,” and added, “We are preparing to secure investment funds of at least 100 billion KRW.”

However, as of last year, Abley’s deficit stood at 204.2 billion KRW, with total capital at -54.3 billion KRW. Since starting external audits in 2019, Abley has been a company with complete capital erosion, having negative total capital through last year. Deficit refers to capital consumed by the business. The company is in a state requiring external borrowing; in fact, last year, Abley issued private bonds worth over 30 billion KRW at an interest rate in the 8% range, using CEO Kang Seok-hoon’s personal shares as collateral.

As a result, interest expenses jumped from around 300 million KRW to 5 billion KRW last year. Regarding this, an Abley official said, “We received venture loans last year and completed early repayment in March this year,” adding, “This year, we focused more on attracting global investment rather than additional loans, so interest expenses will be significantly reduced.”

The capital surplus that can cover the deficit is only about 150 billion KRW. The remaining 50 billion KRW means that net income must increase to convert the deficit into retained earnings. Current assets excluding inventory (accrued income, accounts receivable, cash equivalents, etc.) amount to 97.7 billion KRW. However, current liabilities due within one year reach 132 billion KRW. This means that sufficient funds have not been confirmed as much as Abley has declared.

Abley Aiming to Catch Musinsa, but Low Average Spending Per Customer Is a ‘Burden’

The problem is that the growth trend cannot be guaranteed. As of last month, Abley’s monthly unique visitors (MUV) were counted at 5.319 million, an increase of about 900,000 from 4.415 million in January this year. Considering the MUVs of women’s platforms such as Kakao Style’s Zigzag (4.287 million), Musinsa’s 29CM (2.84 million), and Shinsegae’s W Concept (1.349 million), it is estimated that Abley had the largest number of female customers using its app.

Abley entered the women’s fashion platform market late by changing its name from the women’s clothing mall “BanHalla” in 2018. Considering that W Concept started service in 2008, 29CM in 2011, and Zigzag in 2015, Abley’s start was relatively late. As a latecomer, Abley secured sellers offering clothing at various price points by initially implementing a zero commission policy. It developed its own AI recommendation service tailored to tastes, attracting teenage consumers who prefer personalized shopping. In fact, Abley’s customer distribution shows that 45.1% of its female customers are under 29 years old. Competing platforms have more customers in their late 20s to 30s. W Concept has the highest proportion of customers in their 30s at 41.7%, and 29CM’s 25-39 age group accounts for about half. Zigzag’s customers are concentrated among women in their early 20s to 30s.

Although the proportion of teenage consumers is significantly high, the average spending per customer (average purchase amount per person) is lower than other platforms. A low average spending per customer is a burden for companies in terms of long-term management efficiency because it limits sales growth. Even though Abley has overwhelmingly higher transaction counts, the estimated actual payment amount is lower or similar to others.

Abley’s average spending per customer is actually in the high 30,000 KRW to low 40,000 KRW range. Competitor Zigzag maintains an average spending of high 40,000 KRW to 50,000 KRW. 29CM and W Concept range between 100,000 KRW and the high 100,000 KRW level. Abley’s ventures into webtoons, web novels, furniture, dessert sales, men’s fashion, and global business are efforts to increase transaction counts and overcome this weakness. A fashion industry insider said, “Growth rates may appear high in the early stages of business, but once on a certain trajectory, growth rates inevitably slow down,” adding, “Many platforms are already heading global.”

Abley’s strength, the ‘AI-based recommendation service,’ is also a burden as competing platforms are aggressively investing in this area. Abley’s goal is to establish itself as a platform recommending products across the entire lifestyle spectrum. AI personalization services are one of the key investment areas for major fashion platforms recently. Musinsa announced plans to increase its tech workforce to 40% to strengthen AI-based recommendation services. It also hired experts with experience at big tech companies such as Google, Yogiyo, and Uber.