South Korea is a hot topic right now, with the 2018 Winter Olympics taking place in Pyeongchang, but something else is also happening in South Korea: strong e-commerce growth.
South Korea is one of the biggest e-commerce markets worldwide, the third largest e-commerce market in Asia, and has the highest e-commerce penetration in the Asia Pacific region. This is thanks to strong technological and mobile adoptions; South Koreans are described as well-educated, informed, and unmatched in their technological abilities.
Over a third of South Koreans spend more than half of their monthly income on online shopping. Between 2012 and 2013, online shopping grew from 9.7% to 10.9% of total retail sales. Cross-border commerce is also growing rapidly; imports from foreign e-commerce websites rose 47% in 2013.
Unless otherwise noted, figures in this article are sourced from:
South Korean Consumers
- Total population: 51.16 million (2018)
- Internet penetration: 92.72% (2016)
- Mobile penetration: 110% (2013)
- Online shoppers: 30.5 million (2017)
- E-commerce sales: $21.38 billion (2017)
- M-commerce sales: $3.08 billion (2016)
- E-commerce annual growth rate: 20.5% (2016)
M-commerce in South Korea is a major driver of the country’s impressive e-commerce growth. M-commerce is booming here, largely due to the fact that South Korea has some of the fastest average internet connection speeds worldwide and a high penetration of smartphones. Between 2011 and 2013, the m-commerce market grew 2.5 times faster than the US, and between 2015 and 2016, purchases made on a mobile phone increased from $22 billion to $31 billion, an increase of 41.8%.
Competition between e-commerce companies in South Korea is increasing and the delivery process is one place where merchants try to stand out. Merchants should offer a quick delivery service to attract and keep South Korean customers who expect fast and trackable deliveries when they shop online. Many South Koreans companies offer same-day deliveries so international merchants must offer better prices to compete. Studies indicate that South Korean customers tend to accept a longer delivery time if it means getting a better price.
The South Korean market is highly penetrated by electronic payments. The most popular payment methods include card payments and alternative payment methods such as money transfers (non-cash payments: wire transfers, electronic fund transfers, online bank transfers), and mobile payments. E-wallet payment methods are not common in the South Korean market.
Major buying holidays in South Korea include Chu-seok (the 15th day of the 8th lunar month), Seollal (Lunar New Year’s Day), Parents’ Day (May 8th) and Children’s Day (May 5th). However, since South Koreans love to shop cross-border, they also follow foreign countries’ buying holidays, such as Black Friday, to find the best deals.
In 2017, fashion was the leading product category in South Korea, followed by Toys, Hobby & DIY. Other popular product categories for online shopping include Online Travel, and Home Electronics & Appliances.
Drivers and Barriers
Driver: Strong Cross-border Commerce Numbers
Cross-border e-commerce is exploding in South Korea, reaching $1.6 billion in 2016. In 2013, cross-border credit card spending grew 15.4% while domestic credit card spending grew only 3.2%. Many consumers here have discovered that products are less expensive overseas. This is because South Korean retailers have agreements with manufacturers that let them charge higher costs for products. This means that consumers have to pay up to nine times higher prices for local products compared to overseas ones!
Barrier: Protection of Privacy
Since 2014, South Korea has been strengthening its rules concerning privacy for personal data. International merchants should review the Personal Information Protection Act (PIPA) and ministerial data privacy/spam regulations before entering this market, as these can restrict e-commerce for companies that manage their user-data on international servers.
South Korea is one of the world’s biggest markets for Bitcoin. In 2017, South Korea was named the world’s third-largest Bitcoin market, after Japan and the US, according to market tracker Coinhills. More than three out of ten salaried workers have invested in cryptocurrencies. In January, it was also reported that the number of cryptocurrency app users in South Korea has increased to around 2 million users. Online merchants here have started to realize the value in offering cryptocurrency payments as a way to make payments more convenient for consumers.
Barrier: Domestic Sales Events
South Koreans who shop online are always looking for the best deals and they expect special sales on holidays. Prices drop and sales volumes increase dramatically during buying holidays such as Chu-seok and Seollal. South Korean consumers also look for deals during non-domestic buying holidays, such as Black Friday and Boxing Day. If you plan to compete with domestic companies, you must be prepared to offer big sales promotions during the South Korean holiday seasons.
South Korean E-Commerce Facts
- The third biggest e-commerce market in Asia.
- Has the highest e-commerce penetration in the Asia Pacific region.
- Over a third of South Koreans spend more than half of their monthly income on online shopping.
- M-commerce is a major driver of the e-commerce growth.
- The most popular payment methods include credit cards, wire transfers, electronic fund transfers, online bank transfers, and mobile payments.
- The biggest buying holidays are Chu-seok (the 15th day of the 8th lunar month),Seollal (Lunar New Year’s Day), and Black Friday (the day after American Thanksgiving).
- The most popular product categories for online shopping are Fashion, Toys, Hobby, DIY, Travels & Reservation Services, and Home Electronics & Appliances.
As the e-commerce market continues to grow in South Korea, the popularity of cross-border commerce continues to grow as well. South Koreans shop at international online stores to find the best deals. If you can undercut the high prices of local merchants, South Korea could be a very profitable market for you.
Expanding into a new cross-border market is always a challenge, but it can be very rewarding if done right. For the latest news and information about how to scale up your e-commerce enterprise into an international success, subscribe to the Payza Blog and follow us on Facebook and Twitter.