Shinsegae’s day of reckoning looms for online ambitions

Back in 2021, South Korea’s retail titan Shinsegae Inc. beat its archrival Lotte Shopping Co. to purchase Gmarket and Auction, the country's two largest open market platforms at the time, from eBay Korea, reportedly for around 4 trillion won ($3 billion).

The estimated deal size made Lotte's jaw drop. As the other final bidder for the two e-commerce companies, Lotte thought the value made little sense and would eventually pose a huge burden to Shinsegae, according to sources close to the situation.

Five years on, Lotte seems to have been right. Gmarket and Auction have not created as much synergy as expected and became a headache for its parent group.

Dreaming of becoming the Amazon of Korea, Shinsegae has snapped up online fashion mall W Concept for an estimated 250 billion to 300 billion won.

The same year, Shinsegae, the operator of Shinsegae Department Store and the supermarket chain E-Mart Inc., ventured into professional baseball. It took over a baseball team, now SSG Landers, from SK Group for 135.3 billion won to step up its sports marketing.

In 2022, Shinsegae acquired Napa Valley-based winery Shafer Vineyards for $250 million.

Described as an early adopter, group Chairman Chung Yong-jin has spearheaded its aggressive expansion. His acquaintances said his leadership did not originate from counting numbers but rather painting a bigger picture of the future.

Things turned out differently from what he had expected, however.

In 2023, E-Mart reported its first-ever loss of 46.9 billion won.

DISPUTES WITH AFFINITY EQUITY, BRV

Its conflict with Affinity Equity Partners and US-based BlueRun Ventures (BRV) over put option contracts attached to their 1 trillion won investment in SSG.COM between 2019 and 2022 provides a reality check for its aggressive online expansion.

The two investment firms are demanding that Shinsegae and E-Mart buy back their 15% stake each in the e-commerce brand, adding to its cash-strapped parent's woes.

SSG.COM combined the online retail operations of Shinsegae Department Store and E-Mart.

Affinity Equity and BRV agreed to invest in SSG.COM on the condition that the e-commerce platform’s gross merchandise value (GMV) surpass 5.16 trillion won by 2023, or be eligible for an IPO before their put option contracts expire on May 1, 2024.

Under the agreement, if SSG.COM fails to meet the conditions, Affinity Equity and BRV can exercise their rights to request the e-commerce operator’s major stakeholders buy back their stakes at a premium.

At the time, Shinsegae saw no problem with meeting the requirements.

Now SSG.COM is grappling with its dwindling market share even in the growing e-commerce market.

Last year, Coupang Inc., listed on the New York Stock Exchange, overtook SSG.COM in terms of sales. The rise of Chinese rivals such as AliExpress and Temu threaten domestic e-commerce players.

Naver Corp, the country’s largest online platform, is rapidly penetrating into the e-commerce market with the launch of Naver Commerce.

ABSENSE OF CHIEF FINANCIAL OFFICER

Illustrating the harsh reality it faces, SSG.COM's chief financial investor moved to a larger rival company last year, after leading its initial public offering plan. 

His departure dented hopes for its IPO as the company has yet to find his replacement.

Before the put option contracts for Affinity Equity and BRV expired on May 1, SSG.COM started including both gift certificate sales and sales paid by certificates in calculating gross merchandise value (GMV).

But Affinity Equity and BRV argue such certificate sales should not be included in the GMV calculation. They said SSG.COM’s GMV doesn't reach the agreed level if it excludes gift certificate purchases.

Their disputes could evolve into a legal battle if Shinsegae fails to fulfill the agreement, which industry observers said would be a warning sign indicating the end of the easy money era.

Write to Jong-Kwan Park at pjk@hankyung.com
Yeonhee Kim edited this article