- Although the social commerce industry in Korea is showing rapid growth, massive losses remain widespread, a reminder to keep optimism in check. (Image : Yonhap)
SEJONG, Dec.17 (Korea Bizwire) – Although the social commerce industry in Korea is showing rapid growth, massive losses remain widespread, a reminder to keep optimism in check.
Social commerce refers to electronic commerce using social network services (SNS) such as Facebook and Twitter as platforms. Products are sold at steeply discounted prices when a certain number of people commit to making a purchase. Coupang, Tmon and We Make Price are Korean examples of the phenomenon.
According to a report entitled ‘Social Commerce, Growth and Contrast’, issued by the Korea Institute for Industrial Economics and Technology (KIET), the social commerce market showed an average growth of 360 percent per year between 2010 and 2014. In 2014, the industry reached 5.5 trillion won in sales, but losses are growing.
The report issued by the KIET quotes a report from the Financial Supervisory Service indicating that Coupang, the company with the biggest share of the market, recorded business losses exceeding 100 billion won. Tmon and We Make Price were also in the red with losses coming in at more than 20 billion won.
The report blames excessive marketing costs for a share of the losses, noting that companies are desperate to boost market share and establish themselves in the nascent market.
Another contributing factor was large investments to build logistics and distribution infrastructure. The costs and manpower needed to manage the new facilities exceed the costs of operating an open market, which concentrates on brokerage.
The report states that in order to activate the social commerce market, large companies have to make efforts to coexist with smaller companies, which take up 70 percent of the total sales. It also suggests that the government should monitor the market continuously, as consumer inconveniences are increasing.
By M.H.Lee (mhlee@koreabizwire.com)
