- Coupang is the largest online-shopping platform in South Korea, with sales totaling nearly $5 billion.
- It has been called „the Amazon of South Korea“ for its dominant position in the country, but Coupang employs a different model from its US counterpart.
- The company canceled an initial public offering four years ago in order to pivot to a completely different business model, which has seen success today.
- It recently received an extra $2 billion in capital investment from SoftBank’s Vision Fund to expand that model.
- Even with all of its success, the company has racked up losses.
- CEO Bom Kim discussed how the company rose to its dominant position — and what comes next — in an interview with Business Insider.
Coupang was this close to an initial public offering in 2014.
„The printers were waiting for us, and we just decided to not go forward,“ CEO and founder Bom Kim told Business Insider. „We took a bold step to basically stop the IPO process and to go and invest heavily.“
Coupang was in fact profitable at the time, Kim said, by operating as a fairly standard online marketplace for other sellers. It was much like Amazon’s or Walmart’s marketplace, or how eBay operates now, as a platform that connects sellers and buyers.
But Kim realized that wasn’t what he wanted for the company.
„We don’t believe that a company should exist or that a company should be created to strive for a 5 or 10% better customer experience,“ he said. „It’s just a waste of our passion, our time, talents. Our vision, our goal, what we aspire to, is to create a customer experience that’s 100 times better.“
So, instead, Kim pulled the plug on the IPO and decided to pivot Coupang.
„I had this moment of clarity where [I asked myself], ‚Is this really living up to that mission?'“ Kim said. „The DNA, the company was so wrapped around this mission, and I couldn’t reconcile it. Because we were, essentially, not there. Not even close. We’re still a long ways away.“
A whole new world of online shopping
Kim said he decided to take Coupang down a completely different route, which put it on the path to become what is now the biggest online-shopping company in South Korea.
Coupang invested heavily in building a network of fulfillment centers and developing its own last-mile system. That included a fleet of trucks and personnel for a service called Rocket Delivery, which the company says is able to deliver millions of items — from fresh food to electronics — to almost the entire country of 51 million people within the same day of ordering.
Kim likes to call it an end-to-end delivery system, which he said gives Coupang complete control over the customer experience. The package never leaves Coupang’s hands until it arrives at a customer’s door.
The holistic logistics system allows the company to offer unique services that upstart competitors can’t match. One of its more recent initatives is a service the company calls „dawn delivery.“ Orders placed by midnight can be delivered to customers first thing in the morning.
Coupang’s model also allows for other services that even the most die-hard Amazon customer would be unfamiliar with. For example, many products aren’t delivered in traditional cardboard boxes. Instead, more than half of Coupang’s orders are hand-delivered in a bag to customers‘ doors by a Coupang employee. Doing so saves more space in the delivery truck than packing items in cardboard boxes would, and some of the company’s employees make deliveries only on foot.
Coupang delivery people can also cart away returns and do exchanges on the spot.
Spending money to make money
Kim said „millions“ of customers now order from the service at least 50 times a year, or nearly once every week. Coupang is now the largest retailer in South Korea for some items, like diapers. Kim says the company sells half of all diapers sold in the country — either online or off.
The company is now approaching $5 billion in annual revenue and is projecting 70% growth by the end of this year.
All of that innovation is expensive, though, and the changes are largely outpacing revenue growth. It has been fueled by investments from venture capital firms including Sequoia Capital, BlackRock, and SoftBank’s Vision Fund, which Kim says was pivotal in its growth. By 2015, Coupang was valued at $5 billion.
Though it was once profitable, the company posted a loss of up to $600 million in 2017, according to Bloomberg.
Kim doesn’t seem worried, however.
„Right now, we’re just so focused on building a foundation for the long term,“ Kim said. „I think the market, and the opportunity for customers‘ lives to be changed, is so huge right now … It’s just so early in that evolution, that our investors, and we are aligned, that this is the time for investment.“
It’s not uncommon for companies — especially e-commerce-centric ones — to post losses as it builds infrastructure. Amazon, for example, posted losses for years before its current stunning growth streak began.
Amazon does not have domestic operations in South Korea or in the vast majority of Asian countries, instead focusing on developing countries like India. Shoppers in South Korea still do order from Amazon’s worldwide website, however, and that trend is picking up steam. According to the US Department of Commerce, online sales of cross-border commerce from foreign companies reached $2 billion in South Korea in 2017, up from $1.6 billion in 2016. Amazon and Ebay led the way.
SoftBank has tripled down on its bet on Coupang with another $2 billion investment it announced in November, which a source told TechCrunch valued the company at a cool $9 billion. It has raised $3.4 billion in total to date.
It’s home for now
Coupang has grown ito the dominant position in South Korea. And that is projected to bear fruit. On the back of the country’s investment in infrastructure and the very high percentage of the population that both owns a smartphone and is willing to shop from it, e-commerce in South Korea is expected to reach 31% of all spending in the country by 2021, according a report by Euromonitor cited by the Wall Street Journal.
For comparison, US online spending is projected to reach about a third of that next year, according to EMarketer data.
But that doesn’t mean Coupang will never leave home.
„The home market for us is still very much the focus,“ Kim said. „The constraints that we are solving for: high penetration of smartphones, people living in vertical, dense cities. These are similar challenges that you would find in other emerging Asian economies as well. I think there are possibilities of the platforms that we’re building translating in other markets.“
As for another IPO on the horizon? We’ll have to wait and see.
„At some point, an IPO is in our future,“ Kim said. „I don’t think there’s any specific time table I can share right now.“
Source: Business insider