Affinity, BRV support Shinsegae e-commerce spin-out

The agreement involves the online businesses of Shinsegae Department Store and E-mart, a discount store chain operator. Last year, the two businesses, Shinsegae Mall and E-mart Mall, each generated more than KRW1 trillion in sales. Shinsegae wants to increase this fivefold by 2023, according to a statement cited by Yonhap News Agency. The conglomerate launched SSG.com, an integrated e-commerce channel for all its subsidiaries in 2014, and sales have since grown at double-digit pace.

Online retail sales came to KRW67.6 trillion in 2016, having more than doubled over a five-year period, according to the Korean Statistical Information Service. Over 60% of these sales were generated by online-only malls.

The country’s traditional retail conglomerates have been relatively slow movers in e-commerce, allowing three independent players to steal a march: Coupang, Tmon, and Wemakeprice. They face competition from eBay’s Gmarket and Auction services. Coupang has raised substantial private equity funding, KKR and Anchor Equity Partners are the controlling shareholders in Tmon, while Wemakeprice is bankrolled by its wealthy founder.

VC investors say that the major stumbling block for Korea’s chaebols is the same as for their foreign peers that are tied to offline distribution channels: offline roots and established cultures make it hard to compete in a fast-moving world like e-commerce. At the same time, these roots – and the supply chain dominance that emanates from them – have enabled the chaebols to control the B2C space.

Speaking to AVCJ in August 2016, Wonki Yoon, a senior associate at IMM Investment, identified Shinsegae as the conglomerate that posed the biggest threat to e-commerce start-ups following the launch of SSG.com. Earlier in the year, the company had also started a price war against Coupang, which it saw as eating into E-mart’s market share.

However, the extent of this threat was downplayed on the basis that chaebols’ size works against them; with so many business units to coordinate, they cannot afford to focus on a single vertical and give it the attention it needs to succeed. Shinsegae’s decision to spin-out its major e-commerce assets could be interpreted as an attempt to solve this problem.

There are 13 Shinsegae department stores nationwide, while E-mart has 148 hypermarkets in Korea and 16 in China. At group level, Shinsegae reported sales of KRW2.95 trillion in 2016, up from KRW2.56 trillion the previous year. Over the same period, net profit fell from KRW433.2 billion to KRW323.4 billion. E-mart, which was spun out in 2011, saw its sales increase to KRW14.8 trillion from KRW13.6 trillion, while net profit slipped from KRW455.9 billion to KRW381.6 billion.

Affinity recently closed its fifth pan-Asian fund at the hard cap of $6 billion. Recent Korean acquisitions include the acquisition of a majority stake in food container manufacturer Lock & Lock for KRW629.3 billion. BRV is a technology and consumer-focused investment firm established by BlueRun Ventures. It primarily operates in Korea, China, and Japan.

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• Topics
• North Asia
• Buyouts
• Consumer
• Technology
• South Korea
• TMT
• Affinity Equity Partners
• BlueRun Ventures