Shinsegae places $ 3 billion bet on online retail with eBay Korea Buy

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SEOUL – The Shinsegae Group’s $ 3 billion deal to buy eBay Korea puts the South Korean retail giant in a three-way competition with Naver and the growing Coupang for the country’s e-commerce market.

Shinsegae, which beat a competing bid by rival retail group Lotte, will acquire 80% of the outstanding shares of the eBay unit through central group company Emart, according to an announcement Thursday.

“In the retail industry of the future, only those who are strong online will survive,” Shinsegae said in documents released with the announcement. “This agreement saves us time and opportunities.”

The deal aims to tap eBay’s 15 million members in South Korea to boost Shinsegae’s e-commerce business, but there is still uncertainty as to whether this will benefit the retail group enough to justify the move. high price.

Launched in 2000, eBay Korea recorded 1.3 trillion won ($ 1.15 billion) in sales last year and operating profit of 85 billion won. Although it has an 11% share of South Korea’s online retail market, it has recently weakened in the face of competition from Naver and Coupang, who has been dubbed “Korea’s Amazon. South”.

Retail group Lotte and SK Telecom were among the contenders in the first round of tendering in March. But only the Shinsegae and Lotte camps submitted actual bids before the June 7 deadline, and Lotte offered less than $ 3 billion, according to an executive at a company who participated in the process.

There was a lot of backstage maneuvering over the two plus weeks it took to pick a buyer.

eBay had put its South Korean branch up for auction with expectations of a purchase price of around $ 5 billion – a figure even top bidder Shinsegae failed to hit. The American company has asked Shinsegae and Lotte to soften their offers. When trading stalled, eBay decided to keep a 20% stake, rather than selling all of the outstanding shares as originally planned.

There were also uncertainties over the role of Naver, which has cross-shareholdings with the Shinsegae group. Shinsegae had pitched his offer as a joint offer with Naver, in the hopes that the internet company would bear some of the costs, but Naver ended up bowing.

“If Naver, who competes with [eBay Korea] in online retailing got involved, the antitrust review would be more complicated, “said a source familiar with the matter.

Emart, a core company of the Shinsegae Group, operates brick and mortar hypermarkets as well as its online mall. (Photo by Kotaro Hosokawa)

Shinsegae now ranks sixth in South Korea’s online retail market, with a share of just 3%, according to Hanwha Investment & Securities. The addition of eBay Korea, with its 11% share, would propel it to about the same level as No.2 Coupang and not far from market leader Naver itself, making it a three-horse race. Claire.

But Shinsegae’s Emart, which sells direct to consumers, and eBay Korea, which provides an online marketplace for sellers, have different business models that industry watchers say will take some time to integrate. The purchase price of $ 3 billion, which equates to 40 years of operating profit for eBay Korea, is also of concern.

“Adding up their membership totals and turnover is useless if there are no synergies,” a retail industry source said.

Shinsegae will not find it easy to radically reorient the e-commerce market, South Korean brokerage firm Kiwoom Securities said. The company will also face a daunting challenge in hampering Coupang’s strong growth, according to a report released on Friday.

Amazon.com has not embarked on a full-scale entry into South Korea, largely due to the size of the market. Still, Coupang achieved 91% revenue growth last year to $ 11.9 billion.

Coupang is capturing market share from online and physical competitors through its Rocket Delivery service, which promises to deliver orders to customers within 24 hours. This feat is achieved thanks to Coupang’s national network of distribution centers.

Rocket Delivery is a lot like Emart’s direct selling model, where a point of sale buys and stores products ready for purchase. Coupang plans to use the funds raised on Wall Street to further expand its powerful distribution network. Much like Amazon in the United States, a “Coupang effect” poses a threat to South Korea’s traditional retail industry.

Shinsegae’s portfolio includes 381 supermarkets and 5,323 convenience stores. The company has been able to remain competitive with Lotte Group in the traditional retail game, but has fallen behind in the transition to digital sales.

Last year, Emart’s operating profit was down 60% from 2014, to 240 billion won.The company’s feeling that future earnings growth is unlikely prompted Shinsegae to buy eBay Korea.

It remains to be seen whether Shinsegae’s bet pays off. Lotte ultimately decided to drop the tender because of the overall price.

“After taking into account the additional investments following the acquisition, we have taken a cautious approach,” said a source from Lotte.


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