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Collection of full-length papers and in-depth analysis of economic and management issues.

Online Shopping Market in Korea Rising Fast: Suggestions for Companies

Online Shopping Market in Korea Rising Fast: Suggestions for Companies

SHIN Hyung-Won

Aug. 12, 2008

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Originally released on April 10, 2008

ABSTRACT

Korea's online shopping market is growing at a rapid pace with annual sales growth averaging 29.5% since 2001. The market overtook supermarkets to become the nation's No.3 retailer behind discount stores and department stores. Online shopping sales amounted to 15.8 trillion won in 2007. If the current pace of growth continues the figure is likely to top 20 trillion won in 2008, exceeding that of department stores. The share of online shopping in total retail sales has followed an upward trend, reaching 7.4% in 2006, much higher than in US and Japan, where both their shares lie at 2.9%.

Rapid growth is bringing about drastic change in market structure and consumption trends. For instance, from the p erspective of market structure, the open market is currently absorbing small- and medium-sized on/off-line retailers. Second, online shopping malls are looking towards enlargement after experiencing significant volatility in sales. Lastly, an increasing number of online companies are now going offline, while the number of offline-based retailers who launched into the online business is increasing thereby making it common for retailers to run two channels of business in parallel.

In respect to consumption trends, consumers tend to consider information offered by other consumers as more trustworthy than that given by companies, thereby invigorating the proliferation of consumer-led information and distribution activities. Furthermore, online sales of boundary items, such as service goods and apparel that consumers had a reluctance to buy through the Internet, are growing at a steady pace. Prudent and calculative consumption patterns are becoming more prevalent with an increasing number of consumers making price comparisons or completing transactions online after assessing products offline (in stores).

These changes are facilitating higher competition in the online frontier. Given that competition has evolved by centering in on prices, corporate profitability remains weak despite market expansion. To ensure the sustainable growth of Internet shopping, businesses need to shift their focus away from price competition and towards strategic differentiation. At the core of this strategic move would be a good selection of strategic product groups and the development of product competitiveness.

In an attempt to take on a full analysis of changes in market environment, core capabilities and future prospects, this study classifies products into four major product groups: standardized; non-standardized; daily necessaries and non-daily necessaries.

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