Korean retail industry is dynamic and fast paced. Successful retailers in Korea are sensitive to changing trends and move rapidly to identify and exploit pockets of opportunity when and wherever they arise. Although the Korean retail industry has matured, online retailing and convenience store sectors continue to grow. In recent years, slower economic growth has driven consumers to become more price sensitive. As a result, consumers are increasingly purchasing cheaper products online and consuming more food from convenience stores than restaurants and pubs. To survive in Korea’s fast-changing retail environment, Korean retailers adjust their value proposition and business model to focus on new technology, product differentiation, and customer attraction to brick and mortar stores.
For U.S. manufacturers interested in entering the Korean market, it is important to understand the uniqueness of Korean market and culture. Partnering with Korean importers and distributors with good retail industry networks is crucial to enter the Korean retail market because Korean retailers usually source products through importers and distributors. Korean consumers are known for their demanding attitudes and sophisticated taste. Products popular in other global markets are not guaranteed to be accepted in Korea. In general, high-end consumer goods from the U.S. are more marketable than low- to mid-range consumer goods so high-quality U.S. consumer goods meeting Korean tastes will find great success in Korea.
The South Korean retail market is saturated with domestic players, mainly conglomerates, such as Lotte, Hyundai, Shinsegae, GS, CJ, and E-land, which own multiple retail channels. With the growing demand of on-line retailing, however, e-commerce start-ups such as WeMakePrice, TMON, and Coupang have become major e-commerce channels since their founding in the early 2010s. Many foreign retail stores are present in Korea, but most of them partner with Korean conglomerates. Boots, Seven Eleven, Flying Tiger Copenhagen, and Williams Sonoma are some examples of foreign retailers with Korean licensing or importing partners. Walmart, Carrefour, Tesco, Watsons, and Groupon are examples of foreign retailers that previously had full or partial ownerships of retailing channels in Korea, but were eventually forced to exit the Korean market because they failed to adapt to the Korean context.
Walmart and Carrefour established Korean subsidiaries and operated big-box stores according to their globalized standards, but these standards were not suitable for the Korean market. At Walmart, customers were dissatisfied with Walmart-style customer service. At Carrefour, expatriate managers struggled to understand Korean culture, and had communication issues with many local employees lacking English proficiency. Overall, customers preferred their shopping experience at Korean retailers over Walmart and Carrefour because Korean retailers offered better fresh food selections, more convenient floor plan, lower shelf height, smaller product packaging sizes, and more appropriate customer service. In addition, the product prices of Walmart, Carrefour, and Korean retailers were almost identical so Korean consumers did not have compelling reasons to shop at Walmart and Carrefour.
Tesco and Watsons pursued a joint venture strategy by partnering with Korean conglomerates. While Tesco acquired 100% ownerships after accumulating enough knowledge about the market, Watsons exited the market by selling its shares to the Korean partner because of strong pressure from its Korean competitor Olive Young. For a time, Tesco operated a profitable wholly foreign-owned enterprise under the name of Homeplus, but later sold the operation to a private equity firm MBK Partners due to its financial problems arising from an accounting scandal in the company’s UK headquarters.
Costco, Ebay, and IKEA are examples of major foreign retailers that own and operate successful retailing businesses in Korea. While Costco formed a joint venture with a local retail giant and later acquired 100% of ownership in Korea, IKEA directly established a wholly-owned Korean subsidiary. Both retailers are flourishing due to each company’s unique and reasonably priced product portfolio. Ebay entered the Korean market by acquiring existing Korean online retailers such as Auction and Gmarket, and as a result benefited from the already well-established system.
In conclusion, the Korean retail industry is highly competitive and fast-moving. To be successful, retailers must appreciate Korea’s cultural norms and consumer preferences.
The South Korean retail market size reached to KRW 296 Trillion (USD 255 Billion) in 2016. Between 2012 and 2016, the Korean retail industry grew by CAGR of 3.2%. It maintains a growth rate slightly higher than the Korean GDP growth rate, CAGR of 2.9% over 2012-16. Industry experts predict that the Korean retail industry will continue to modestly grow over the next few years given the market maturation. Traditional retailing channels are growing slower than average while online retailing is growing significantly faster. According to the December 2017 issue of Retail Magazine, the estimated growth rates of department stores, hypermarkets, supermarkets, convenience stores, and online retailing in 2017 are -3.2%, 1.9%, 2.5%, 14.5%, and 19.0% respectively. The growth of Korean Retail Industry is mainly driven by the increased sales through online Retailing and convenience stores.
Market Size of Korean Retail Industry: 2012-2016
Unit: ₩ Billion ($ Million)
Source: Statistics Korea
*Note: The data excludes the market value of car and fuel sales
According to official statistics by Statistics Korea, department stores grew by CAGR of 0.7% over 2012-16 period. Industry experts point out that the growth rates at the brick-and-mortar stores were actually negative, but positive growth from online retailing and specialty stores by department stores outweighed the shrinkage. Given the Korean consumers’ price sensitivity, department store growth rates are expected to continue falling.
Market Size of Department Stores: 2012-2016
From 2012-16, hypermarket growth rates stagnated because of price competition with online retailing. Due to stagnation, new store openings are highly limited in 2018. Non-food items sales at hypermarkets are significantly reduced since consumers tend to buy more non-food items online. However, according to a 2015 market report by Kantar Worldpanel, Koreans are also the biggest online grocery shoppers in the world and online retailers are increasing their food product offerings. Hypermarkets will only face more pressure from online retailers in the future.
Market Size of Hypermarkets: 2012-2016
Source: The Yearbook of Retail Industry 2017
The market size of online retailing surpassed that of hypermarkets in 2014, and the gap is getting bigger every year. The growth of online retailing has been driven by the growth of mobile shopping, and mobile became the most popular online shopping platform in 2016 and is expected to continuously grow. The growth of mobile platform is not only driven by Korea’s high smartphone penetration rate, but also by the unique mobile platform shopping experience. Food delivery and car sharing are exceptionally suited for the mobile platform, and new technologies such as mobile payment services make mobile shopping experience more convenient.
Korea is one of the most wired countries in the world. According to a 2016 study by the Ministry of Science, ICT and Future Planning, 99.2% of households have access to broadband internet and 85 % of Koreans older than age 6 own smartphones. According to the “Mobile Shopping Trend Report,” by OpenSurvey in 2017, the most sourced items by Korean online shoppers are clothing and fashion goods, but groceries are also important items as 32.7% of Korean online shoppers have purchased groceries online. According to a 2017 report by Kantar Worldpanel, South Korea ranked first for online grocery shopping and fast-moving consumer goods products in the world so on-line retailers are paying more attention to fresh food selection. Since same day delivery service is common in Korea, online grocery shopping trend will continue to grow.
Market Size of Korean On-Line Retail Industry: 2012-2016
Convenience stores, unlike other brick-and-mortar store based retailing, are growing at double digits. Stores are opening rapidly, in part, because it is an easy business to start. The minimum capital needed to open a convenience store is approximately USD 20,000 and a property rental fee. The low start-up costs incentivize entrepreneurs to open convenience stores or similar service establishments. The popularity of convenience stores originates from the increasing number of single member households and their distinctive purchasing behaviors. The sale of small packaged goods and meal replacements is increasing as the trend of eating or drinking alone at home continues to grow. People do not eat and drink at pubs and restaurants as much as before, and purchase more food and daily necessities at convenience stores. According to Statistics Korea, in 2017 the food service sector market size decreased by 3.1% compared to 2016, and it was the biggest drop since 2009 global financial crisis. Convenience stores became the largest channel for selling alcohol drinks in 2016. For example, 27.1 % of the total beer in Korea was sold through Convenience Stores in 2016. However, the convenience store market is becoming highly saturated with average sales of individual stores declining.
Market Size of Convenience Store: 2012-2016
Duty Free Shops
Duty free shops also saw double digit growth rates from 2012-16 due to increased numbers of foreign tourists, mainly Chinese, to Korea and increased outbound tourism by Koreans. However, in 2017, Korean duty-free shops suffered because the Chinese government discouraged tourism to South Korea following a diplomatic dispute over THAAD. The Korean tourism industry is heavily dependent on Chinese travelers.
Market Size of Duty Free Shop: 2012-2016
Source: Korean Customs Agency
Characteristics of Retail Channels
Department stores offer a wide range of products and services in large brick-and-mortar stores. In addition to conventional product categories such as fashion, grocery, sporting goods, and home goods and appliances, Korean department stores usually include other facilities such as restaurants, movie theaters, cultural academy and more in the stores. Traditionally, fashion was the most important product category at the department stores, but the fashion category sales have been decreasing because younger consumers in their 20s or 30s increasingly shop more from global fast fashion brands and from domestic and international e-commerce channels than before. Even though the major consumers of department stores are women in their 50s and above, the decreased sales in the fashion category due to younger consumers’ shift to other sales channels are significant . As consumers gravitate towards either high-end or low-end brands, mid-range fashion brands are leaving the department stores. Major department stores are focusing on high-end and luxury fashion, food and other service categories to attract customers. Often, brand awareness among Korean consumers is one of the most crucial factors determining procurement for department stores. Lotte Department Store (mid to high range), Hyundai Department Store (high end), Shinsegae Department Store (high end), and Galleria Department Store (premium) are some key department store players in Korea.
Key Department Stores in Korea
Name of Stores
Number of Stores
Lotte Dept. Store
Hyundai Dept. Store
Shinsegae Dept. Store
Galleria Dept. Store
The first hypermarket was introduced to Korea in 1993. Hypermarkets have similar product categories to department stores except hypermarkets offer low to mid-range products in high volume with low margins. The main consumers of hypermarkets are aged 30s and 40s with family. They are price conscious and need large-size products. Between the early 2000s and 2013, hypermarkets were the biggest retail channel in Korea. In 2012, the Korean government imposed a rule of closing hypermarkets twice a month to protect mom-and-pop shops. The rule is strongly criticized by hypermarkets since other retailing channels such as department stores and supermarkets are not mandated to close. Moreover, primary customers of hypermarkets have been steadily shifting to online retailers which often offer cheaper products. For hypermarkets to offer price competitive products, they focus on private label brand products. E-mart, Homeplus, Lotte Mart, and Costco are key hypermarket players in Korea.
Key Hypermarkets in Korea
Source: The Yearbook of Retail Industry 2017 & Retailers’ Homepages
TV Home Shopping Networks
Soon after Korea’s first home shopping channel by CJ aired in 1995, large Korean conglomerates moved quickly to launch their own TV home shopping networks. The main customers of TV home shopping networks are housewives in their 40s to 60s. Mid to high-end fashion, food, cosmetics, home appliances, tourism, and insurance products are sold through TV Home Shopping Networks. Because the home shopping business in Korea is nearing saturation, companies are expanding their business by adding T-Commerce and combining with online retailing. CJ O Shopping, GS Shop, Hyundai Home Shopping, Lotte Home Shopping, and Home and Shopping are key players. CJ O Shopping is known for its private label brand products and fashion, NS Home Shopping is specialized in agricultural products and, Home and Shopping is focused on products manufactured by Korean SMEs.
Key Home Shopping Companies in Korea
CJ O Shopping
Hyundai Home Shopping
Lotte Home Shopping
NS Home Shopping
Home and Shopping
The main customers of Korean online retailers belong to the tech-savvy generation aged 20s and 30s. According to a 2017 study by Consumer Insight, although single women in their 30s are the core users of online retailing, men in the 40s with family are increasingly purchase more online. Online retailing is becoming a common purchasing channel for daily necessities gradually replacing hypermarkets. Open markets like Amazon and social e-commerce platforms like Groupon have the biggest market shares among online retailers in Korea.
As social e-commerce platforms expand into open market business, however, the boundary between the two types is blurring. On both platforms, individual sellers can easily create accounts and sell products so many sellers have multiple accounts at various online retailers. One of the biggest trends in online retailing is convergence with other platforms. Internet portal sites, social network services, TV home shopping, etc. now all have online shopping functions and the popularity of their platforms are increasing since consumers want a one-stop shopping experience that includes product reviews and price, purchasing, and paying with new online payment solutions associated with the platforms. As the online retailing channel continues to grow in Korea, certain brands are only available through online retailing. For example, LF, a major Korean fashion company, exited from department stores to focus on the online retailing channel.
Key Online Retailers in Korea
Books & Tickets
On-line department store
Source: The Yearbook of Retail Industry 2017
Convenience stores are small-size retailers open 24 hours and offering various goods and services. While snack food, home meal replacements, beverages, household items and cigarettes are popular products at convenience stores, banking, postal, delivery, and other services are gaining importance. The main customers of convenience stores are students and business people aged teens to 40s who often purchase food, beer, and cigarettes. Many convenience stores have plastic tables and chair placed outside for customers to eat their food. Convenience stores are important channels for food sales, and convenience stores often carry various private label brand food products.
As Korea is continuing to struggle with declining economy growth rate and increasing unemployment rate especially among people aged 20s, the concept of ‘value consumption’ is more important to consumers driving major retailers’ outlet expansion, especially in the suburban areas where real estate is less expensive. The number of shoppers in suburban outlets is expected to continue growing. Apparel and fashion accessories, such as bags and shoes, make up the bulk of products, food products are rare, and housewares and interior design products are becoming increasingly popular. Most fashion outlets are geared toward liquidating older, discontinued, and past-season stock.
Key Outlet Stores in Korea
Orange Factory Outlet
Newcore, 2001 outlet, NC Outlet
Lotte Premium Outlet
Source: The Yearbook of Retail Industry 2017
*Note: 4 of Orange Factory outlets launched in 2008 are as shop-in-shop in Lotte Mart
Drug Stores / Health & Beauty Stores
American style drug stores were not present in Korea until CJ opened its first Olive Young store in 1999. The market soon grew as other Korean conglomerates, such as Watsons by GS and Hong Kong based A.S. Watson Group’s joint venture, Boons by Shinsegae and Lohb’s by Lotte, entered the market. In 2017, Shinsegae terminated its Boons business and introduced Boots drugstore chain owned by Walgreens. GS, on the other hand, acquired 100% of the ownership of Watsons and is rebranding the store name to Lalavla. While drugstores in other counties are more like general stores that sell food, drugs and personal care goods, the ones in Korea mainly sell cosmetics and personal care goods.
Number of Stores
Source: The Yearbook of Retail Industry 2017& Retailers’ Homepages
Natural & Organic Specialty Stores
Although Pulmuone, a Korean food and beverage company, launched a small natural & organic food store in Korea in 1981, this niche sector was not popular with consumers until early 2000, when the health and well-being trends really took off in Korea. Today, with more consumers focused on healthy eating and lifestyle, the trend has expanded to include other products, such as detergents, cosmetics, apparel, and other daily commodities. Especially with food safety concerns, more consumers are turning to natural and organically produced local food products. Food products take up 90% of shelf space in these specialty stores.
Name of the Store
ORGA Whole Foods
Duty Free Stores
Duty free stores are found at airports, sea ports and central shopping districts as well as online in Korea. They are for outbound Korean travelers and foreign visitors so only those who are scheduled to leave Korea are eligible to purchase at duty free stores. Well-known luxury fashion and cosmetic brands, such as Channel, Prada, Louis Vuitton, etc. are sold through duty free stores so brands lacking recognition are not suitable to enter this channel. The key players are conglomerates such as Lotte, Shilla, Shinsegae, Galleria, etc.
Economic stagnation in South Korea is the main reason for the modest growth of retail industry.
South Korea's household debt continues to rise reaching KRW 1,419 Trillion (USD 1.3 Trillion) in September 2017 up from KRW 1,296 Trillion (USD 1.1 Trillion) in September 2016. Increased household debt reduces consumption and causes consumers to cut their spending even on groceries and daily supplies, intensifying competition among brick-and-mortar retailers and slowing their growth. Fewer consumers visit brick-and-mortar stores resulting in highly limited new department store and hypermarket openings. The rapid demographic shift to single member households contributes to reduced interest in traditional retailing channels. Many consumers visit brick-and-mortar stores for showrooming purposes and then purchase goods online after trying out products at brick-and-mortar stores. Although online retailing sales are growing, profits are falling due to pricing competition. Consumers can compare product prices easily through online platforms driving online retailers to offer excessive discounts to win over consumers and market share. To survive in Korea’s dynamic retail environment, retailers strive to increase profitability and customer loyalty by focusing on the areas below.
1. New Technology
Expansion of e-commerce coupled with the introduction of new information technologies has revolutionized how Korean consumers purchase daily necessities. Coupang introduced an IT technology based subscription service in 2015 and gets great responses from their customers. With the subscription service, Coupang analyzes customers’ previous shopping history, identifies suitable products for customers, and delivers them on scheduled dates. For example, if a customer orders diapers through the subscription service, the customer's purchase history is analyzed to identify products recommendations and their quantities as the customer’s baby grows. Also, Coupang has recently launched a new private brand called “Tamsa,” developed based on data accumulated from product reviews.
A retail giant, Lotte plans to establish a next-generation distribution model by combining Big Data and Artificial Intelligence to set up a foundation for omni-channel service and to increase overall sales of its subsidiaries. According to IBM, which is working on this project for Lotte, by analyzing each customer’s shopping history and behavior, Lotte can “offer more personalized services to customers, consistent product information and expert advice tailored to individual customer needs. personal assistant offering help from product recommendations, shop location guidance, to support for online pickup service.”
The use of new payment systems and sales through T-commerce based on IPTV are also increasing as consumers seek more convenient ways to shop. The evolution of Fintech, Internet of Things, and Artificial Intelligence is disrupting Korea’s retail industry by forming a new ecosystem combining retail, communication, payment, and entertainment channels.
2. Product Differentiation
With numerous channels providing same products to consumers, price competition is intensifying and hurting the profitability of national brands. Retailers find private label brand products more attractive to customers than national brands because customers want high quality products at low prices. According to Korea Development Institute (KDI), the Korean private label market grew to KRW 9.3 trillion (USD 8.4 billion) in 2013, up from KRW 3.6 trillion (USD 3.3 billion) in 2008. Department stores, hypermarkets, online retailers, home shopping channels, and convenience stores all have their own private label brands. While food and beverages are the dominant product categories for private label brands, coverage is expanding to fashion, home, and other goods. Another approach for retailers to differentiate themselves is to source unique products by acquiring well known consumer goods companies or sole distribution rights.
3. Customer Attraction to Brick-and-Mortar Stores
Consumers are increasingly making purchases online, while visiting brick-and-mortar stores for showrooming purposes. Because Korean retail giants have vertical lines of retailing channels including department stores, hypermarkets, supermarkets, convenience stores, and online retailing, showrooming is an important part of attracting consumers and boosting sales. For example, a consumer who declines to purchase a dress from Lotte Department Store may purchase the same item from Lotte’s online platform later. To attract consumers to their brick and mortar stores, retailers are opening specialty stores and flagship stores for consumers to try out products and are offering more food and entertainment contents. “Malling” in which consumers enjoy diverse activities such as dining, exercising, and entertaining during shopping trips in one location is becoming one of the hot trends in retailing.
To enter the Korean retailing channels, it is important for U.S. exporters to partner with Korean importers and distributors who have expertise in the market. Korean retailers usually do not meet with foreign exporters because they prefer to work with importers and distributors. Unlike U.S., Korean importers and distributors are responsible for product sourcing, sales and marketing. Korean retailers provide space or platforms for importers and distributors to sell their products and collect sales commission afterwards. Importers and distributors are required to submit marketing cost and fund monthly marketing plans on a seasonal basis as to draw more customers to the retailers. In cases where dedicated sales staff is required, some retailers, such as department stores, hypermarkets, outlets and duty-free stores, often pass on these related costs including training, uniforms, and payroll, to the importers and distributors
Korean retailers source some products by themselves. The volume, however, is small and the product variety is often limited to food and some consumer goods. Purchasing managers for Korean retail companies tend to be risk averse, and few have the expertise and experience needed to carry out direct international sourcing so they prefer to work with vendors and are still prudent with increasing the volume of direct sourcing. Vendors bear greater risk than retailers as they carry the risk of poor sales and overstock. It encourages vendors to add high markup on new products to cover potential loss. Given the conservative characteristics of Korean retailers, the practice of including middlemen such as importers and distributors in the supply chain will continue.
When negotiating export pricing with Korean importers, it is important to keep in mind the higher cost of business due to sales commissions and extra layers of distribution that often result in high consumer prices. However, it is becoming more important to keep Korean retail prices comparable to the U.S. retail prices. Since Korean consumers actively make purchases on foreign e-commerce sites, imported goods often compete with the same products sold in U.S. or other foreign e-commerce sites. If Korean retail prices are much more expensive, Korean consumers choose to buy from foreign e-commerce sites.
Market Opportunities & Issues
According to Bain & Company, Korea is “Asia’s trendsetter and influencer for fashion and luxury.” Thus, success in the Korean market can be a good indicator of success in other Asian markets. Korean consumers are known for their demanding attitudes and highly sophisticated taste. Products popular in other global markets are not guaranteed to be accepted in Korea. In general, high-end consumer goods from the U.S. are more marketable than low- to mid-range consumer goods, which may be another barrier to entry. Another major obstacle for small businesses is that department stores will often not extend space to brands that lack international recognition or those that are also sold through other sales channels. The purchasing decision of department stores is driven by stores’ desire to offer more popular brand products faster than other competitors.
Notably, the Electrical Appliances and Consumer Products Safety Control Act and Special Act on Safety Management of Children's Products provide important product safety guidelines for product compliance in Korea.
CS Korea offers various services for U.S. exporters to explore the market opportunities in Korea. Please consult with your local U.S. Export Assistant Center to learn more about how the U.S. Department of Commerce can support your overseas expansion goal.
CS Korea regularly supports U.S. exporters visiting or exhibiting in the many trade events in Korea. Most notable shows are concentrated in Seoul.
Name: Imported Goods Fair 2018
Date: June 21 ~ 23, 2018
Organizer: Korea Importers Association
Exhibits: Food & beverage, children’s items, home decoration, bathroom supplies, jewelry & accessories, sports & leisure items, electric & electronic appliances, vehicles, tools, daily necessities, trade & travel service
Daejeon Government Complex, 189 Cheongsa-ro,
Seo-gu, Daejeon 302-701, Korea
Korea Customs Service
Daejeon Government Complex, 189, Cheongsa-ro,
Seo-gu, Daejeon, Korea
Ministry of Trade, Industry and Energy
402 Hannuri-daero, Sejong-si, 30118, Korea
Ministry of Science, ICT and Future Planning
Government Complex-Gwacheon, 47, Gwanmun-ro,
Gwacheon-si, Gyeonggi-do 13809, Korea
Other Organization Resources
Korea Chainstores Association
7F, Jinseok Bldg., 1536-6,
Seocho 3-dong, Seocho-gu,
Tel: +82-2-522-1271 ~ 4
Website: http://www.koca.or.kr/ (English website is not available)
Securities Supervisory Board Bldg., 38, Yeoui-daero,
Yeongdeungpo-gu, Seoul, Korea
Website: http://dart.fss.or.kr/ (English website is not available)
Media and Journal Resources
For information about the Commercial Service/Global Markets, Korea: www.export.gov/southkorea
Ms. Jinjoo Lee, Author of this IMI/ISA
Commercial Specialist for Consumer and Retail Distribution
The U.S. Commercial Service — Your Global Business Partner
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Locate the U.S. Commercial Service trade specialist in the U.S. city nearest to you by visiting http://www.export.gov/
Disclaimer: The information provided in this report is intended to be of assistance to U.S. exporters. While we make every effort to ensure its accuracy, neither the United States government nor any of its employees make any representation as to the accuracy or completeness of information in this or any other United States government document. Readers are advised to independently verify any information prior to reliance thereon. The information provided in this report does not constitute legal advice.
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