Korean e-commerce big Coupang is anticipated to carry one of many largest tech IPOs of the yr on March 11. The corporate disclosed earlier this month that it’s searching for as much as $3.6 billion at a possible $51 billion valuation on the New York Inventory Alternate. Based in 2010, Coupang is usually described because the Amazon of South Korea, however for years it has managed the spectacular feat of attaining an excellent larger greenback retention charge than Amazon, based on a report by Goodwater Capital.
Goodwater’s S-1 teardown of Coupang, launched immediately, is predicated on a mix of proprietary client analysis and data from Coupang’s S-1 submitting. Earlier than launching Goodwater, co-founder Eric Kim was managing director at Maverick, an early investor in Coupang and served on the corporate’s board from 2011 to 2017. Neither he nor Goodwater have holdings in Coupang, nevertheless, and are releasing the teardown as third-party analysis.
In accordance with the report, Coupang will not be solely the present market chief in South Korea, but additionally “the one participant making main market share good points, widening its lead over rivals” like G Market, 11 Avenue, Public sale, WeMakePrice, Naver Procuring and TMON. In 2020, it elevated its market share to 24.6%, up from 18.1% in 2019.
Notably, Goodwater’s analysis discovered that buyers usually tend to return and spend cash on Coupang than different e-commerce websites — not simply in comparison with its South Korean rivals, but additionally different main e-commerce gamers world wide. Primarily based on greenback retention charge (or the amount of cash a gaggle spends annually after they first use a platform), Coupang clients return and spend more cash than buyers on eBay, Etsy, Walmart or Alibaba within the U.S.
“Prospects are coming again and spending at a charge that simply exceeds these platforms and intently matches the conduct on Amazon,” the report says. “However extra stunning is that as early as 2017, Coupang’s efficiency already began to exceed Amazon, with year-three greenback retention of 346% with Amazon at 278%. Later cohorts have already improved on that. The worth of those clients are usually not solely best-in-class in Korea, however probably the very best on the planet.”
That is due largely to Coupang’s heavy funding in logistics. When the corporate was based in 2010, there have been no main third-party logistics suppliers in South Korea similar to UPS or FedEx within the U.S. Coupang needed to construct its personal infrastructure and now has 100 success and logistics facilities in 30 cities and 15,000 supply drivers.
On account of this aggressive focus, about 70% of South Korea’s inhabitants now lives inside seven miles of a Coupang logistics heart. This implies it could possibly supply free next-day supply, same-day deliveries for objects like groceries and its trademark Daybreak Supply (order by midnight for packages that arrive earlier than 7 a.m.) for tens of millions of merchandise. This makes it particularly engaging to buyers in a rustic the place “the work tradition rivals that of the 996 work tradition in China,” the report says.
With the intention to catch up, Kim advised TechCrunch in an electronic mail that “a competitor would want to determine a strategy to make investments billions into logistical and technical infrastructure to attempt to compete with Coupang. Even with the required resourcing, you’ll discover that in South Korea, much like different developed geographies, market leaders have a tendency to construct on their leads over time. We’ve seen this with Kakao, Naver and now Coupang.”
“The moats from scale are fairly sturdy in a market like South Korea since you’ve achieved one thing proper to win over the South Korean client,” he added.
Regardless of its excessive market penetration already, Kim mentioned Coupang nonetheless has two principal areas of development. These are Rocket Recent, its recent grocery supply enterprise, and Coupang Eats, much like Uber Eats. “Each leverage Coupang’s huge logistics community and Coupang has the biggest instantly employed supply fleet in South Korea with over 15,000 instantly employed drivers.”
Coupang was additionally in a position to develop rapidly due to South Korea’s very excessive web penetration charge of 96% and comparatively excessive gross home product per capita. As well as, its logistics infrastructure advantages from the nation’s geography.
“Coupang’s mannequin could be very distinctive due to the density of South Korea. You might have 50 million+ individuals within the landmass the scale of the state of Indiana, however whenever you look particularly at simply inhabitable land, it’s actually the scale of Rhode Island, about 2,700 sq. kilometers,” Kim mentioned. “This enables Coupang to innovate on supply in a means the world has by no means seen earlier than.”
Coupang’s IPO is drawing comparisons to Alibaba’s debut on the New York Inventory Alternate in 2014, since each are Asian e-commerce giants. However there are additionally a number of noteworthy variations between the 2 corporations together with “the quantity of capital depth between the 2 on the time of the IPO, the place Alibaba had a capital-light mannequin that didn’t require having plenty of infrastructure funding on the time,” Kim mentioned. “That reveals primarily within the working margins on the time, the place it was 31% for Alibaba versus -4% for Coupang (Coupang was nonetheless working money movement optimistic from in 2020 with $302 million).”
A significant commonality is that each corporations grew to become pioneers by specializing in making it simpler to purchase from their platforms of their respective markets, he added. “The street to fixing for the buyer expertise in China was completely different than the street for fixing it in Korea, the place the most important friction factors for shoppers are completely different. This led Alibaba to embrace initiatives like digital funds early on, and why Coupang went to resolve client logistics.”