The $5 billion South Korean start-up that's an Amazon killer

  • Coupang is the largest online retailer in South Korea, with more than $3 billion in annual sales.
  • The 8-year-old start-up is one of a handful of Korean unicorns and is viewed in the country as a strong candidate for an IPO in 2019 or 2020.
  • The company says half of South Korea's 51 million people have downloaded its mobile app.
  • Amazon, already struggling to crack markets in Asia, has yet to set foot in the South Korean market.
Coupang founder and CEO Bom Kim
Source: Coupang
Coupang founder and CEO Bom Kim

Did those ballet slippers you ordered online turn out to be too small? No problem. Just make a few clicks on your app, place the shoes outside your door — no box, no invoice, no label to print. The slippers will be picked up within hours and you will immediately get a refund.

This scenario is not a glimpse at the future of online retailing but reality now in South Korea, where Coupang has become the largest online retailer in the country. Analysts estimated Coupang's sales reached $3 billion in 2017. The 8-year-old start-up company is one of a handful of Korean unicorns (companies valued at $1 billion or more) and is viewed in Korea as a strong candidate for an IPO in 2019 or 2020, although the company won't discuss plans to go public.

With a valuation of more than $5 billion and $1.4 billion in venture capital investment, Coupang is the fastest-growing and best financed e-commerce site of all time in South Korea. It dominates a highly competitive e-commerce market, where no one is making a profit. The company says half of South Korea's 51 million people have downloaded its mobile app. That may be why Amazon, already struggling to crack markets in Asia, has yet to set foot in the South Korean market.

"Amazon's strength as an e-commerce company comes from fast delivery, but most Korean e-commerce players do one-day or same-day shipping service for a cheap price," said Sehwan Choi, founder of TechforKorea, a site that tracks Korean technology. Amazon did not respond to CNBC's request for comment.

Amazon CEO Jeff Bezos.
The Washington Post | Getty Images
Amazon CEO Jeff Bezos.

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In any conversation with Bom Kim, founder and CEO of Coupang, the phrase "end-to-end" comes up a lot. "It's about reducing customer stress," said Kim, who insisted his goal is making it as easy as possible for his customers to buy and return products. This includes reducing the packaging and filler material and knowing exactly where on the truck your order will be placed.

South Korea, with a population of 51 million concentrated mostly in its cities, is the fourth-largest economy in Asia and enjoys an advanced high-speed tech infrastructure. It is already the seventh-largest e-commerce market in the world (about $56 billion) and is expected to surpass Japan and the U.K. within five years to become the world's third largest after China and the United States. Because of Korea's heavy urban concentration, Kim said 99.6 percent of orders are delivered within 24 hours.

"Imagine double the population of Texas in half the size of Massachusetts," said Kim. "Pretty much everybody lives in downtown somewhere." He's aiming to reduce delivery times across the entire country to just a few hours for the millions of products Coupang carries in its inventory.

Outcompeting Bezos

Behind this high efficiency is a formidable technological investment. "The way we've approached it is integrating from end to end," said Kim. "We've built our own last mile." Coupang has its own trucks and more than 10,000 employees, including 4,000 delivery drivers. Despite the heavy emphasis on tech, Kim has insisted on a very personalized service. The company keeps track of every interaction with the customer and that customer's preferences.

"If you have babies and you don't want the doorbell to wake them up, our deliveryman will knock," he said. "If you're not home and you want the package to be left in a specific location, we'll leave it where you prefer — behind a potted plant or behind the stairwell." If you're not home when a delivery is made, a driver will text you a picture of the package in its designated location.

"Amazon's strength as an e-commerce company comes from fast delivery, but most Korean e-commerce players do one-day or same-day shipping service for a cheap price." -Sehwan Choi, founder of TechforKorea

Coupang delivers more than ballet slippers. It claims to be Korea's leading distributor of pet food, organic products, health supplements and men's grooming products. The massive infrastructure investment has kept Coupang in the red: Sales figures issued for 2016 showed a loss of more than $500 million on sales of $1.7 billion. (Numbers for 2017 are not yet available.) Kim is not concerned about the red ink. "We're investing in a customer experience," said Kim. "We have a very long-term view."

Bom Kim didn't start out wanting to create the "Amazon of Korea," as his company is inevitably called, but he couldn't resist the entrepreneurial opportunities in his native Korea. The Harvard Business School dropout first focused on a daily-deal business, like Groupon, then moved on to a sales platform like eBay. But he said he noticed that half of customer complaints were about delivery. That suggested an area where he could make a difference.

Best in class

Coupang's obsessive focus on customer service has helped make it the dominant online retailer in South Korea. Half of all Koreans have downloaded Coupang's app. The company is consistently voted the best online retailer by Koreans in their 20s in a survey conducted by Daehak Naeil, a college magazine. Coupang has drawn more than $1.4 billion in venture capital funding, including an investment of $1 billion in 2015 by SoftBank, the Japanese conglomerate known for its big bets. At the time, Coupang's valuation was $5 billion. Other investors include Sequoia Capital and BlackRock.

Eric J. Kim (no relation to Bom Kim), a managing partner at Goodwater Capital, was an early investor in Coupang. He said the conditions in Korea are perfect for companies like Coupang. "Korea is a great market in itself because of its scale and strong GDP and strong economy and its infrastructure." Eric Kim sees Bom Kim's singular focus on customers as an essential asset. "They have one of the best e-commerce examples in the world right now. Some of the most interesting internet companies are being built at a global scale in South Korea right now."

Bom Kim insists he is completely focused on the Korean market. But he concedes that some of the trends driving Coupang could have applications elsewhere. He notes that cities around the world are growing or making a comeback, presenting the customer densities that have helped make Coupang so efficient. In Korea 80 percent of orders are placed via a mobile app, 90 percent on weekends. That, too, is a global trend.

"I don't think it's just Korean customers who will delight in being able to buy or return something so easily and quickly."

— By Joel Dreyfuss, special to CNBC.com

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