Linkshops, once a leading South Korean online apparel startup, closed its doors last month. The company operated a platform that connected Dongdaemun’s clothing and accessories wholesalers with retail business owners. Established in 2012, it attracted nearly 20 billion won in venture capital (VC) investments and became highly popular among Dongdaemun merchants. The company, struggling against e-commerce giants, eventually shut down after losing its main retail customers to Chinese e-commerce platforms offering low-priced clothing.
Small and medium-sized e-commerce companies that thrived during the coronavirus pandemic due to an increase in non-face-to-face transactions are now collapsing one after another, unable to withstand the onslaught of large e-commerce platforms, including those from China, amid slowing online shopping growth and reduced investment due to high interest rates. “E-commerce companies that have carved out niche markets with customized products and services are unable to withstand the discounting offensive of large players,” said a retail industry insider, adding, “A few large companies are dominating the e-commerce market.” Last year, the number of online shopping malls (mail-order companies) that went out of business reached a record high of 78,580, up 37% year-on-year.
Other e-commerce businesses have also been faltering. Bithumb Live, a live commerce (online real-time home shopping) platform established by cryptocurrency exchange Bithumb for business diversification, went bankrupt in October last year. VogoPlay, a live commerce platform started as an in-house venture at Samsung, entered court receivership due to accumulated losses and barely survived after receiving court approval for its reorganization plan in December last year.
The business environment for domestic small and medium-sized e-commerce companies is deteriorating as their funding dries up. According to Startup Alliance, a startup support organization, investment in domestic e-commerce startups totaled only 3.15 billion won in the first quarter of this year, merely 4% of the 71.1 billion won invested during the same period last year. In contrast, startups in the cross-industry solutions sector, which includes artificial intelligence (AI), data, and cloud services, attracted 240.55 billion won during the same period. Lee Ji-young, a specialist at Startup Alliance, said, “In 2021, e-commerce attracted more investment than AI and healthcare, but now the situation has completely reversed.”
The intensifying competition from Chinese e-commerce platforms also poses a severe threat. Platforms like AliExpress and Temu are rapidly encroaching on the market. From last October to March this year, payment amounts and transaction numbers on Chinese e-commerce platforms increased by 138.8% and 130.6%, respectively, while payment amounts on domestic online shopping platforms decreased by 2.5% and transaction numbers by 1.1%.
First-generation e-commerce platforms that competed with Coupang are also in the red. Tmon, Wemakeprice, and Interpark Commerce, all of which have accumulated losses, have been acquired by the Singapore-based e-commerce platform Qoo10 in the last two years. Online retailer 11st, which has suffered losses exceeding 100 billion won for two consecutive years, has been undergoing a sale process since the second half of last year.
