[The Crisis of e-Commerce]⑪ Naver-Nurtured 'Unicorn' Cream... Complete Capital Impairment

Cream Valued Over 1 Trillion Won This Year
Surviving Through Investment and Fundraising Since Establishment
Accumulated Losses and Growing Interest Costs... Also Faces Counterfeit Risks

KREAM, a limited edition resale platform and a subsidiary of Naver, has become a 'unicorn company' (a privately held startup valued at over 1 trillion KRW) this year after securing trillion-won scale investments. However, during its global business expansion, it made large-scale equity investments, most of which have underperformed, resulting in significant deficits and preventing it from escaping complete capital erosion.

KREAM is expected to pursue an initial public offering (IPO) this year by capturing both external growth and profitability improvement. However, continued losses and the impact of the global economic downturn have severely hit the resale market, making a performance rebound difficult to anticipate.

Valued at 1 Trillion KRW... Launching a Global Fashion Platform

According to the Financial Supervisory Service's electronic disclosure system on the 25th, KREAM recently purchased 397 shares of the Indonesian limited edition commerce platform 'PT Karunia International Citra Kencana (Kick Avenue)' for 640 million KRW. After acquisition, its stake stands at 40.3%. KREAM has held Kick Avenue as an affiliate company and has been gradually acquiring shares for two years. KREAM stated that this share purchase aims to "strengthen overseas business capabilities and enhance competitiveness as a telecommunications sales intermediary."

KREAM was established in January 2021 through a physical division from Snow, Naver's app development subsidiary, as a platform for buying and selling personally owned limited edition and popular products. As of the end of last year, Snow holds a 39.04% stake in KREAM, making it the largest shareholder, while Naver holds 4.90%. In KREAM's founding year, Snow's stake was as high as 90%, but as institutional investments continued, the largest shareholder's stake significantly decreased.

In July this year, KREAM also issued convertible bonds and received an additional investment of 14 billion KRW from Mirae Asset Capital. Convertible bonds are bonds that can be converted into shares, with a conversion price of 3,864,922 KRW per share. Mirae Asset Capital valued KREAM at 1.2 trillion KRW during this investment process. Founded with a 500 million KRW investment from Naver, KREAM has risen to become a unicorn company boasting a valuation exceeding 1 trillion KRW this year.

Since its inception, KREAM has expanded its business through investment attraction and external funding. At the end of last year, it secured a 49.7% stake in the Japanese limited edition commerce platform 'SODA,' making it a subsidiary, and also invested in Thailand's limited edition commerce platform 'Sasom' (34.4%) and Malaysia's sneaker resale platform 'Shake Hands' (22.47%).

Overseas Resale Platforms with Equity Investments Suffer Losses... KREAM Faces Complete Capital Erosion

However, most of these equity-invested companies have underperformed. For example, SODA in Japan reported sales of 19.1 billion KRW and a net loss of 42.4 billion KRW last year. Although the loss decreased by about 10 billion KRW compared to the previous year, sales dropped by over 10 billion KRW from 32.9 billion KRW in 2022. During the same period, Fab, which operates the luxury secondhand trading platform Chic, saw sales surge 32-fold to 1.4 billion KRW, but its net loss widened from 4.6 billion KRW to 7.1 billion KRW.

This poor performance has led to KREAM's financial deterioration. As of last year, KREAM's total capital was -258 billion KRW, indicating a state of complete capital erosion. Since its establishment, it has never turned a profit, accumulating losses, and as it expanded its business by raising external funds, financial ratios soared. The deficit reached 341.4 billion KRW as of last year.

During this period, cash equivalents stood at 58 billion KRW, while current liabilities increased sixfold from 55.3 billion KRW the previous year to 313.5 billion KRW. This is due to financial liabilities measured at fair value through profit or loss amounting to 280 billion KRW. This is because redeemable convertible preferred shares are classified as debt, serving as a safety mechanism established by investors to secure principal protection.

Critical Focus on Profitability Improvement... Preparing for IPO

This year, KREAM is determined to turn its operating loss into profit. Last year, KREAM revised its terms of use to register parallel importers as 'store operators,' allowing them to sell products on KREAM, which improved sales and profits. The increase in sales commission, which had been around 1%, also contributed. Last year, KREAM's sales reached 122.2 billion KRW, about three times the previous year, and operating loss was halved from 86 billion KRW to 40 billion KRW.

Also, KREAM's monthly active users (MAU) increased from 1.306 million in October last year to between 1.4 million and 1.6 million this year. During this period, new app installations surged from 50,000 to 200,000.

KREAM aims to improve profitability this year through further commission increases. In June, KREAM set sales commissions by combining a basic fee with a tiered fee. KREAM classifies sellers into five tiers based on sales performance: the highest tier (tier 5) pays a basic fee of 5,000 KRW plus a 3.5% tier fee, while the lowest tier (tier 1) pays 5,000 KRW plus a 4% tier fee. Buyers pay a purchase commission of 3.3%.

KREAM's strategy is to expand its position as a comprehensive fashion platform by onboarding exclusive brands. For example, the 'Mu' line from the brand Under My Car is only available on KREAM and not on official malls. It also hosts sellers of secondhand luxury goods on the app, and recently held a pop-up store for 'Stand Oil,' a bag brand known in Indonesia. This is a new business supporting the overseas expansion of designer brands, selected by domestic distribution channels and fashion platforms. A fashion platform industry insider said, "As the economic downturn reduces buyers for high-priced resale products, KREAM is expanding its business areas in other directions. Eventually, it is expected to onboard more fashion brands and operate similarly to domestic fashion platforms."

Industry insiders expect KREAM to be the next IPO candidate following Naver Webtoon. KREAM also appointed Kim Young-gi as an inside director and chief financial officer (CFO) last year, signaling a full-scale IPO preparation. CFO Kim is an investment banking expert who has successfully completed major mergers and acquisitions and IPOs, including KB Financial Group's acquisition of Prudential Life and Kakao Pay's IPO.

Repeated Complaints about Inspection... Risk of Counterfeit Sales Controversy

However, KREAM faces significant challenges to achieve success in the resale platform market. Recently, posts complaining about KREAM's inspection system have been noticeable on internet communities. In particular, consumers increasingly express doubts about parallel imported products. Some consumers suspect products are counterfeit, while others, unaware that they might receive parallel imported products, have complained about inconvenience due to lack of after-sales service (A/S).

However, KREAM explains that all products have been verified as genuine, and parallel imports differ because they do not enter through official distribution channels. Therefore, consumers who suspect parallel imported products are counterfeit must find evidence themselves and submit it to KREAM.

Recently, KREAM received a request from 'Deckers Outdoor,' the owner of the UGG brand, to stop selling counterfeit products. Currently, KREAM only passes inspection for products that can prove they were traded through official distribution channels. A KREAM representative said, "For brands like Polo, which have many counterfeit products, we sometimes purchase directly from distributors to sell. For brands with many counterfeit products, we are considering various methods such as onboarding them directly or having the brand trade through KREAM."