Kakao spins out online fashion unit, buys VC-backed Zigzag

The size of the deal was not disclosed, but several Korean media outlets reported it as nearly KRW1 trillion ($896 million). Croquis, Zigzag’s parent company, previously received KRW3 billion in funding from Altos Ventures in 2016 and KRW7 billion from Altos and Stonebridge Capital in 2017, AVCJ Research’s records show.

Launched in 2015, Zigzag offers products from 4,000 online shopping malls and fashion brands. It targets female customers in their 20s and 30s, using an artificial intelligence-driven engine to provide personalized recommendations based on preferred shopping malls, products of interest, and purchase history. An integrated payments service allows products from different malls to be consolidated into one cart. Gross merchandise value (GMV) is set to reach KRW1 trillion in 2021.

Croqui is merging with Kakao Style, which performs a similar function to Zigzag. It is part of Kakao Commerce, a broader e-commerce business that chiefly operates through Kakao Talk, the parent company’s flagship messaging product. Kakao Commerce accounted for just over half of the Talk Biz division’s KRW1.12 trillion in revenue last year. Kakao’s overall revenue was KRW4.16 trillion.

Euromonitor International expects Korea’s non-store sales to rise from KRW143 trillion in 2020 to KRW191.7 trillion in 2025, with the share of overall retail increasing from 41% to 47%. Various industry participants, from traditional retailers to internet players, are targeting e-commerce. Last year, Coupang, Naver, and eBay Korea – which is currently for sale – controlled 45% of the market.

Kakao’s tie-up with Zigzag comes on the heels of SSG.com, the online shopping unit of brick-and-mortar retail giant Shinsegae, acquiring fashion e-commerce specialist W Concept from IMM Private Equity. Fashion is regarded as a specialist area that lies beyond the reach of cost-oriented platforms like Coupang. Kakao also has plans to take Zigzag into other Asian markets, notably Japan and China.

Altos is an investor in Coupang as well as Zigzag. Han Kim, a managing director at the VC firm, recently told AVCJ that he tries to avoid areas of e-commerce where there would be direct competition with Coupang. To this end, Altos recently invested in another company that targets over 50s consumers.

"We invest in seemingly niche opportunities that we think have the chance to become big," he said, noting that Zigzag has the potential to join Korea's select group of technology unicorns.

Jeong-Hoon Seo, founder of Croquis, will serve as CEO of the merged entity. “Just as we have built a value chain to provide a convenient shopping experience optimized for mobile to all generations, we will aggressively develop new businesses to gain a strong competitive advantage in the market,” he said in a statement.

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• Topics
• North Asia
• Consumer
• Technology
• Trade sale
• South Korea
• M&A
• TMT
• Altos Ventures