[The Crisis of e-Commerce]⑩ Gmarket, the Pioneer of Open Markets, What Is the Solution to Escape Deficits?

341 Billion Loss Recorded This Year Again
C-Commerce Invasion... Open Market Competition

Gmarket, which pioneered the domestic open market, has found itself in a dilemma. While Coupang has dominated the e-commerce market through fast delivery via direct purchasing, the offensive from Chinese open market platforms including AliExpress has intensified. Since being acquired by the Shinsegae Group, Gmarket has experienced declines in both growth and profitability.

This year, Gmarket welcomed a financial expert from a competitor as its new CEO and is focusing all efforts on improving profitability. The plan is to escape losses and reignite growth engines through large-scale personnel restructuring and restructuring of underperforming businesses. However, the urgent challenge is the declining number of users amid increasingly fierce competition in the e-commerce market.

Gmarket's biggest annual discount event, Big Smile Day. Provided by Gmarket

Sudden CEO Replacement... Starting to Escape Deficit

According to Emart on the 18th, Gmarket posted an operating loss of 18 billion KRW in the third quarter of this year. This represents an increase in losses by 7.9 billion KRW compared to the same period last year. Sales also sharply dropped by 19.7% year-on-year to 225.7 billion KRW. Gmarket's cumulative operating loss this year has ballooned to 34.1 billion KRW, and sales during this period retreated by 16.4% to 733.5 billion KRW, with three consecutive years of negative growth and losses expected.

Last year, Gmarket recorded sales of 1.1967 trillion KRW and an operating loss of 32 billion KRW. Although the deficit was reduced by more than half compared to the previous year (65.4 billion KRW), external growth decreased by 12.25%.

Gmarket was created by spinning off the Interpark auction platform started in 1999. The CEO was Koo Young-bae, chairman of Qoo10 Group, who caused large-scale unsettled payment incidents at Tmon and Wemakeprice. Gmarket entered the open market in 2003 and grew in size, and in 2006 it was listed on the US Nasdaq, becoming known as the 'Koo Young-bae myth.' Subsequently, Gmarket achieved rapid growth as the domestic e-commerce market expanded, and in 2009, eBay UK, which operated Auction, acquired it for 550 billion KRW. At that time, Auction and Gmarket were considered the two major players in the domestic open market.

Gmarket's performance slump began after the Shinsegae Group acquired it in 2021. According to Shinsegae Group, Gmarket's sales surged from 863.4 billion KRW in 2016 to 1.2442 trillion KRW in 2020. Operating profit also reached 85 billion KRW in 2020. At the time of acquisition, Shinsegae Group stated that Gmarket was "the only top-tier e-commerce operator generating profits."

However, operating losses began the year after the acquisition. According to the audit report of Apollo Korea, which owns 100% of Gmarket shares, Gmarket's sales exceeded 1.3 trillion KRW in 2022, but it incurred an operating loss of 65.5 billion KRW. From September 23, 2021, when Shinsegae acquired it, to the end of that year, sales amounted to only 110 billion KRW, with an operating profit of 4.2 billion KRW.

After two consecutive years of losses following the acquisition, Shinsegae Group replaced CEO Jeon Hang-il, who had been leading Gmarket, in June this year and brought in Jeong Hyeong-gwon, former head of Alibaba Korea. The new CEO Jeong (Vice President) holds a master's and doctorate in economics from Brown University, worked at Goldman Sachs and Credit Suisse, served as a financial executive at Coupang from 2015, and in 2017 moved to Alibaba Korea as general manager and head of Alipay Europe, Middle East, and Korea.

Industry insiders expected that with Jeong, known as a financial expert, taking the helm, Gmarket would strongly drive profitability improvement efforts. However, the first quarter under CEO Jeong saw deterioration in both sales and profitability. A Gmarket official explained, "Operating losses increased due to investments in customer shopping convenience and support for marketplace sellers."

Worsening Financial Structure... High-Intensity Cost-Cutting Measures

Since last year, the so-called 'Altemsh' (Ali, Temu, Shien) C-commerce platforms have aggressively targeted the domestic open market, delivering a direct blow to Gmarket's performance.

According to mobile data analytics firm IGAWorks Mobile Index, Gmarket's monthly active users (MAU) dropped from 6.9 million in November last year to 4.5 million in June this year. In contrast, Ali's MAU surged from 4.2 million in September last year to 5.6 million in November of the same year, increasing by over 1 million in two months. Temu's MAU also more than doubled from 1.3 million to 2.6 million during this period. These C-commerce platforms' MAU grew to 7 million this year, although it slightly decreased due to controversies over the harmfulness of Chinese direct purchase products.

The decline in Gmarket users is also reflected in last year's financial statements. Gmarket's card payment sales-related commission fees decreased by 26.2 billion KRW to 483.3 billion KRW compared to the previous year.

Due to this performance deterioration, Gmarket reduced the scale of direct purchasing, where it buys products directly from manufacturers and sells them to consumers. The purchase amount dropped by 35% to 377 billion KRW from 580.8 billion KRW the previous year. Since direct purchasing involves the platform bearing inventory risk, Gmarket plans to expand the open market to secure stable profits.

In September this year, for the first time since joining the Shinsegae affiliate, Gmarket implemented voluntary retirement. This was a high-intensity cost-cutting effort to break the cycle of continuous poor performance and secure financial soundness. Gmarket stated, "In the difficult market environment that has continued for years, we conducted voluntary retirement to fundamentally improve our structure and secure sustainable competitiveness." They added, "While maintaining management efficiency, we will focus on efforts to provide customers with a better shopping experience," and "We will continue efforts to attract excellent sellers, which are the foundation of open market competitiveness."