Turbulent South Korea is falling into Temu's price war trap

Temu, which is booming around the world, has brought the low-price war to the Korean market, which is close to home. A smokeless e-commerce reshuffle is quietly unfolding in this land.

Recently, GlobalData, a global market research company, released a research report on the Korean e-commerce market. The research shows that the Korean e-commerce market is showing a rapid growth trend, and the market size is expected to increase by 10.2% year-on-year to US$118 billion this year.

It is expected that the Korean e-commerce market will grow at an average annual rate of 7.8% between 2024 and 2028. By 2028, the market size is expected to further increase to US$151.3 billion.

For a long time, this "neighbor" has been regarded as a "small but beautiful" treasure market in the eyes of many people going overseas, with favorable conditions for gold-digging, such as a developed economy, high Internet penetration rate, and close geographical location.

Although at the same time, the long-term monopoly of local e-commerce in the Korean market has deterred many cross-border sellers, with the strong entry of Chinese platforms such as Temu, the Korean e-commerce market is experiencing an accelerated reshuffle.

Last July, Temu entered the Korean market with its low-priced nuclear weapon. In just a few months, it quickly captured the favor of a group of Korean consumers with its price-cutting strike.

However, at the beginning of its entry, Temu was also questioned by many parties. First, AliExpress was a good example, and second, the local three giants had a strong monopoly, and the local e-commerce market had a certain degree of exclusivity for "foreign species". Whether Temu's perfect low-price model could successfully attract local consumers was full of uncertainty.

Now, more than a year has passed, and Temu seems to be getting stronger and stronger in the Korean market.

According to foreign media reports recently, according to data from data service provider IGAWorks, Temu became the application with the highest number of new downloads by Korean adults in the first 11 months of this year.

Research shows that Temu ranks first with 18.04 million downloads, far exceeding the second-ranked TikTok Lite (10.22 million times).

Not only that, Temu's monthly active users in South Korea have also seen explosive growth, reaching 4.2619 million in November alone, a surge of 3.9511 million from January.

This series of data directly shows that Temu's penetration rate in the Korean market has continued to increase, successfully achieving a leap from 0 to 1 and then to 100. In just one year, it has gained popularity with its extremely low-price strategy and has won the hearts of young Koreans despite the siege of local e-commerce platforms.

While Temu is conquering the Korean market with great force, many cross-border sellers are using the bridge it has built to sell batches of cost-effective Chinese products to the local market, competing with local companies for a share of the market.

At the same time, the reshuffle of the Korean e-commerce industry has intensified, competition has continued to escalate, and some local platforms have fallen into operational challenges due to attacks from all sides. It is learned that Tmon and Wemakeprice, two major online shopping platforms in Korea, have delayed payments due to a cash flow crisis, which has led to a series of chain reactions.

Since the delay in payment in early July this year, the two major e-commerce platforms have caused 6,164 stores to close, a year-on-year increase of 30.5%. According to the latest data from the Ministry of Public Administration and Security of South Korea, as of November this year, 79,696 online stores in South Korea have closed, exceeding the record of 78,580 in the whole of last year. At the current rate, the number of online stores closed in South Korea in 2024 will exceed 80,000, setting a record high.

One of the important reasons for the surge in store closures is the accelerated expansion of Chinese platforms led by Temu, which has significantly captured local market share, leading to doubling of competitive pressure on local e-commerce companies.

As Temu and other platforms entered the Korean market, they were also followed by low-price models. Under the relentless pursuit of Chinese platforms, a large number of local platforms have entered the market, and the price war in the Korean e-commerce market is intensifying.

South Korea is currently experiencing turmoil, and the consumer market environment is shrouded in a fog.

In recent years, South Korea's domestic economy has continued to be weak and inflationary pressure has continued to be high. Under this environment, consumers have tightened their wallets and turned to pursue high-cost-effective consumption. In particular, the recent outbreak of political events such as the presidential impeachment case has further hit consumer confidence, causing many small and medium-sized enterprises to double their operating pressure.

In this situation, Temu entered the market with cheap goods priced as low as a few yuan, and a series of promotional strategies such as giving out large coupons and providing free shipping services, accurately grabbing the attention of Korean consumers.

Under the dual siege of macroeconomic factors and Temu's low-price offensive, a number of Korean local platforms had to bow their heads and were passively involved in this fierce price war.

During the just-passed November shopping season, Gmarket and 11 Street used their company strength to improve the price competitiveness of their products and launched an offensive and defensive battle with Chinese platforms such as Temu.

Gmarket has made major changes to its annual Big Smile Day event, which is held from November 1 to 10. With the goal of offering the lowest prices on the entire network, Gmarket has specially selected sellers with strong price competitiveness to participate in the event. In order to further promote sales, Gmarket will also fully cover the cost of discount coupons previously shared with sellers.

Another e-commerce platform, 11Street, has launched ultra-low-cost products priced below 10,000 won (about US$7.31), while implementing stricter price monitoring to ensure that sellers do not arbitrarily raise event prices (the average price three weeks before and after the event). Violators will first be required to adjust prices, otherwise they will be punished by limiting their exposure.

Chinese e-commerce platforms, led by Temu, are closing in step with their cheap supply chain advantages. Under pressure from their market share being eroded and their performance declining, more and more Korean local platforms have been forced to offer low prices and enter the price market one after another.

TMON, mentioned above, also used a low-price strategy to boost sales by launching low-price stores called "10,000 won happiness." But as we have seen, excessive price involution has further frustrated TMON's profitability, leading to a financial crisis.

It is foreseeable that, under the leadership of Temu, the price war in the Korean e-commerce market will become more and more intense in the future.