Muristek
Costco arrived in South Korea in 1998
Costco Wholesale Corp, a big-box retail giant, has given up on its offline sales-only policy and began dawn delivery services in South Korea as e-commerce is becoming the norm in the grocery retail market, according to sources familiar with the matter.From late in May, the membership-only retailer has been delivering online orders worth more than 50,000 won ($40) to customers in Seoul and neighboring Gyeonggi Province for the first time in its 24-year history in the country.With 16 outlets across the country, South Korea became the first country to launch the early morning delivery services among the 13 overseas markets where it operates stores. In Texas, it started a similar service, or same-day delivery, in cooperation with Uber Technoligies Inc. a US mobility service company. “The move demonstrated Costco’s determination to expand its presence at the cost of profit margins,” a retail industry official said.The delivery services are being provided in cooperation with CJ Logistics Corp., South Korea’s largest moving and delivery service provider,Domestic e-commerce leaders such as Kurly Inc., Coupang Corp. and Shinsegae Corp.’s SSSG.COM have been stepping up efforts to take a bigger slice of the market of fresh produce and daily necessities, encroaching on Costco’s market share.In some measure, the US warehouse-type retailer might be trailing the local online malls that give customers loser deadlines by when an order must be completed, or by 11 pm or midnight, for their orders to be delivered to designated places by 7 am the next morning.For Costco’s online customers, any order must be placed by 5 pm the day prior to get it delivered by 7 am the next morning.REMARKABLE REVERSALBut its entrance into the early morning delivery market is a remarkable reversal of its no-delivery policy.To better compete with established e-commerce platforms, the minimum amount qualified for Costco’s dawn delivery service is set at 50,000 won ($40), less than half SSG.COM’s 120,000 won.Further, Costco offers a 20% discount for a few selected items for its online shoppers. E-commerce takes about a 40% share of South Korea’s entire commerce market in 2021, or worth $196 billion out of the $483 billion market, according to Euromonitor, a research firm. LOTTE'S RETREATHowever, Costco’s move is in stark contrast with that of South Korea’s retail titan Lotte Group which recently pulled out of the loss-making dawn delivery market. In April of this year, the country’s fifth-largest conglomerate ceased dawn delivery services for fresh food, two years after it jumped into the burgeoning e-commerce market to challenge the sector-leaders Coupang Corp. and Kurly Inc.
Coupang is leading South Korea's early morning service with its trademark Rocket DeliveryCoupang has been strengthening its fresh product offering and competitive pricing, alongside its trademark ‘Rocket Delivery,’ or the same-day or the day-after delivery.Kurly, the operator of Market Kurly, is also following in the footsteps of Coupang as it is planning to go public this year.GROWING LOSSESHowever, both Coupang and Kurly are under pressure from growing losses.Coupang saw its operating loss almost doubling to 1 trillion won in 2021 from a year earlier, despite a 50% jump in sales. Kurly’s operating loss widened by nearly 90% to 217.7 billion won during the same period, while its sales soared 64%.Costco might maintain its price competitiveness thanks to its global sourcing and efficient expense management, as well as annual membership fees.“Costco seems to cover delivery costs with the membership fees,” the retail industry official said.But it is also suffering from declining operating margins in South Korea, which stood at 3.3% in 2020, versus 4.5% in 2015, according to its filing to the Financial Supervisory Service.In 2020 alone, Costco Korea's sales expenses increased by 100 billion won due to a rise in wages and promotion and transportation costs. Dawn delivery services could add to its cost pressures. In its fiscal year of 2020 ending on August 31, 2021, it reported 177.5 billion in operating profit on sales of 5.4 trillion won.By Dong-Hui Parkdonghuip@hankyung.comYeonhee Kim edited this article