AliExpress, Alibaba's cross-border e-commerce unit, is ramping up investments in South Korea as it seeks to gain more share in a market with higher buying power.
The company spent 10 billion won ($7.27 million) in South Korea this year to lower product prices to ensure it has the best pricing, Gary Topp, European commercial and marketing director at AliExpress, told in an exclusive interview with CNBC on Tuesday.
With the fund's backing, AliExpress is looking to expand its presence in South Korea, the world's fifth-largest e-commerce market with $120 billion in annual online sales. According to the 2021 survey, the average monthly spending of Korean consumers on online shopping is about 170,000 won ($124.11).
In this enticing market, cross-border shopping is growing at a faster rate. The Korean cross-border e-commerce market continues to grow, from $2 billion in 2017 to $4.5 billion in 2022, with an average annual growth rate of 23%. By comparison, its domestic retail sales grew at just 3.8% per year over the same period.
The search for cheaper goods may be a big reason for the rapid growth of cross-border e-commerce in the country. More and more Koreans are turning to cross-border e-commerce sites for their daily purchases, as buying from Korean retail channels can be more expensive than sourcing from overseas even after adding-in international shipping fees and tariffs, according to a report in March by the US International Trade Administration (ITA).
Also, the Korean government encourages cross border e-commerce by simplifying and expediting customs procedures which allows its people to benefit from the low-priced goods from overseas.
Currently, US e-tailers dominate the cross-border shopping market. According to a report in August by ITA, South Koreans’ online purchases from foreign retail sites grew by $1 billion in 2021 to $4.5 billion, with 41% of that coming from the US. The most popular products are health supplements (19.4 %), apparel (17.7 %), electronics (10.4 %), footwear (7.3 %), and handbags and bags (6.8 %).
Aside from direct-to-consumer (DTC) channels, American sellers mostly reach out to Korean consumers via Amazon, eBay, iHerb, and the country's homegrown e-commerce platforms including Coupang, Gmarket, and Auction.
When the European market, which AliExpress has previously focused on serving, is seeing a decline in retail consumption due to high inflation, the opportunity presented by the fast-growing East Asian market with strong spending power is too good to pass up.
In an August interview with The Korea Economic Daily, AliExpress stated that "South Korea is the market that it will focus on expanding this year." The parent company, Alibaba, has also been working hard to assist AliExpress in further penetrating into the region.
To shorten cross-border delivery times for the business unit, Alibaba's logistics arm, Cainiao Network, last year launched a sea freight route between China and South Korea, with chartered ships operating six times a week. In March, it launched its first distribution center and trucking line haul route in South Korea. Now, deliveries from mainland China to the country takes an average of five business days.
In the near term, Cainiao plans to further expand its last-mile delivery network by adding more local courier partners and establishing a nationwide logistics network beyond South Korea’s capital city, Seoul.
The ever-improving logistics solutions provide customers with a more satisfying shopping experience, which in turn drives sales. Last year, AliExpress said it saw strong Black Friday sales in South Korea, with a surge in orders over four days, boosting the company's global sales.
By investing more resources in South Korea, AliExpress will bring more challenges to SoftBank-backed Coupang. Founded in 2010, Coupang is the largest e-commerce platform in South Korea with a 20.01% share. To keep up with burgeoning demand in South Korea's cross-border e-commerce sector, it has been actively recruiting Chinese vendors in recent years.
As a local e-commerce platform, Coupang has built a moat, that is, a robust fulfillment network. According to the company, it has 100 fulfillment and logistics centers in 30 cities and 15,000 delivery drivers. About 70% of South Korea’s population now lives within seven miles of a Coupang logistics center, which means it can offer free next-day delivery or even same-day deliveries for a wide range of products.
In August last year, AliExpress was among the top five sites most frequently used by South Koreans to purchase goods directly from overseas sellers, according to the Korea Consumer Agency, a government agency. However, revenue from Alibaba's international commerce retail business fell 3% year-on-year to $1.57 billion in the quarter ended June 30 as it faced hurdles in European markets such as the depreciation of the euro against the dollar and new EU tax rules.
As part of an effort to boost its fourth-quarter sales, AliExpress launched its longest shopping festival ever. On October 31st, the 11.11 Global Shopping Festival was officially kicked out and will last until the end of November. Free shipping is available on any order in Korea, Spain, France, Poland, UK, Germany, Netherlands and Italy.