“Higher growth potential than Amazon”. This is what Barron’s, an American investment magazine, said while evaluating Coupang shares, which recently made their debut on the New York Stock Exchange. Amazon’s market capitalization (based on the 11th closing price) being traded on the NASDAQ is $1.555.7 trillion (about 1768 trillion won). Considering that Coupang’s market capitalization is 83.1 billion dollars (about 94 trillion won, based on the 11th closing price), it means that the growth potential of Coupang shares is endless.
Although Barrance gave a generous score for Coupang’s future, it is not easy to put Amazon and Coupang on the same line of comparison. Amazon started selling books online in 1994, and it is already close to 30 years. Apart from the market cap, Amazon’s business area is far larger and broader than Coupang. AWS alone, the number one in the global cloud service sector, has a market capitalization of $500 billion (data from Coen, an investment research company in 2019). Even Coupang spends money on AWS for cloud services.
Amazon is a leader in the global IoT market using artificial intelligence speaker technology. Jeff Bezos’ dream is a world in which all consumption and intellectual activities can be performed with only a human voice. Even if you don’t have to put the Amazon speaker’Alexa’ in your living room, the day isn’t too long for all kinds of home appliances and even cars to be equipped with Amazon’s voice recognition technology.
Amazon collects data from more than 300 million users around the world and invests $28.8 billion in R&D expenses in 2018 alone. Amazon’s OTT service for Prime members threatens Netflix and others, and Amazon is generating tremendous profits in areas that Coupang cannot afford due to Korea’s unique regulatory conditions such as finance and healthcare.
Nevertheless, there is one reason why Barrance’s evaluation has’rationality’. “Walk on Coupang, it’s better than Amazon,” Barrence commented. “Coupang has better geographic conditions than the Amazon. Korea has a small area but a dense population. Korea is similar in area to Indiana in the United States, but has a population of about 10 times. Such a population density will help Coupang grow rapidly.”
Coupang founder Kim Bum-seok said a similar story in an interview with CNBC immediately after listing. He said, “It is not only Korea that is pleased with the service that allows you to easily and quickly purchase products and refund products,” he said. “We will share the high urbanization and population density of Korea, especially in the rapidly modernized Asian region.”
Coupang has achieved a corporate value of nearly 100 trillion won at once, and the’Korean trait’ is being discussed because it could be larger in the future. In other words, it means that Coupang has something different from other global e-commerce companies, such as Amazon, China’s Alibaba, and Jingdong.com. To understand this, it is necessary to take a look at what Coupang’s management has said to employees. “The key to Coupang is to have our own logistics IT that is different from Amazon”. It is said that management, including Kim Bum-seok, chairman of Coupang’s board of directors, is citing’Dense Urban Logistics’ as Coupang’s’secret weapon’.
Until Coupang delivered early morning delivery in 2014, logistics in Korea worked under the concept of’agent’. It is so-called third-party logistics. Major domestic companies set up affiliated logistics companies and entrusted them with import and export logistics. Glovis takes over the logistics of Hyundai Motor Group, while CJ Group is in charge of CJ Logistics. As online shopping emerges as a major consumption channel, existing logistics companies have another opportunity. Online shopping malls such as Gmarket, Auction, Timon, Wemake, and 11st have begun to entrust the delivery demand arising from their platforms to existing logistics companies such as CJ Logistics, Hanjin, and Rosen Express. This is the background of the rapid growth of the parcel delivery market to 7 trillion won per year.
The reason Coupang is well received by foreign investors is because it is expected to completely change the game of the existing logistics agency in Korea. Coupang changed logistics to a direct operating system rather than an agency. The practice of entrusting logistics to a third party was a huge opportunity for Coupang. In addition, it was also advantageous for Coupang that “there is no big logistics company like UPS in Korea” (a statement by Chairman Kim Bum-seok in an interview with foreign media). Although Amazon alone is expanding its internal delivery network, it has still left a large part of it to global express companies such as UPS.
Coupang introduced the’fast delivery’ service in 2012 and poured trillions of won into the logistics infrastructure by implementing’rocket delivery’ that delivers orders before midnight on the same day to the door the next day in 2014. Most of the accumulated deficit exceeding about 4 trillion won was invested in research and development related to logistics and building logistics centers. The core is the full-filment center, a logistics facility that enables immediate delivery of online orders. Coupang does not reveal the exact number, but there are about 170 Coupang logistics facilities. Coupang said, “70% of households nationwide are within 10km of Coupang’s logistics facilities.” Coupang, which will raise about 5 trillion won through this listing, plans to invest at least 1 trillion won in building full-filment centers (7 locations) in addition to Seoul and the metropolitan area.
Coupang’s’logistics ability’ stands out more when compared to other competitors. The combined gross area of Coupang’s logistics facilities is 2.3 million square meters. This figure excludes additional investment plans. According to a letter sent to Coupangi employees in May this year, the annual online delivery processing capacity is about 3.3 million cases per day.
SSG.com, an integrated online shopping mall affiliated with Shinsegae, operates three full-filment centers in Yongin and Gimpo, with an annual area of 79,000m2. Shinsegae plans to use E-Mart offline stores as a delivery base to increase the amount of online orders and shipments processed per day to a maximum of 360,000 by 2025. CJ Logistics, Korea’s No. 1 courier service, also operates a full-filment center in one Konjiam, which can handle online orders and immediate delivery. With a total floor area of 115,500 square meters, it can handle 1.7 million parcels per day. This is why Coupang is evaluated as the number one logistics company in Korea (excluding overseas transportation).
Experts find that the core competitiveness of Coupang logistics is not only in the’hardware’ aspect, but also in the fact that it has developed its own logistics software. Coupang is one of the few companies that has not followed’Amazon Way’ in the logistics sector. Amazon operates about 175 full-filment centers around the world (end of 2018). Since the introduction of Kiba robots in 2012, about 200,000 robots have been doing what humans used to do. Amazon is trying to automate logistics tasks using robots and even drones to reduce operating costs and increase inventory space.
China also prefers automated logistics. Jingdong.com, which is said to be the largest online retailer in China with approximately 301 million users, opened a warehouse in 2017 that uses robots to take out packaged products of uniform shape and size, such as cell phones and laundry soaps. did.
In the UK, Okado, known as an online-only supermarket, is implementing automated logistics. In 2018, the Endover warehouse, the size of several soccer fields combined, was opened. Inside the warehouse, over 1000 robots wandered around at a speed of 14 km/h on metal rails in the shape of a grid like a giant chessboard. Move baskets around. Okado is generating profits by selling the’Artificial Intelligent Automated Logistics System’ developed by them to global retailers. In 2018, Kroger, an American supermarket chain, signed a contract to build a full-filment center with Okado.
Coupang also initially planned to introduce an Amazon logistics system. However, it was impossible to implement the’Amazon Way’ in places where the city’s population density is high like Korea and the roads are intertwined like a maze. To deploy the robot, a logistics facility must be built on at least 100,000 pyeong of land. It is almost impossible to find many lands like this in Korea.
It was also a challenge for Coupang’s management that automation would soon reduce employment. Moreover, automation through robots still had a clear limit. Robots were useful for sorting and carrying standardized products, but it was impossible for the robots to pick out items that were not programmed in a basket of randomly mixed items. Coupang’s logistics software was born within these limitations. It is a system that creates an effect comparable to automation as much as possible by dataizing the way workers move or sorts and loads things, while creating jobs as more jobs increase.
If Coupang completes its logistics ambition of’within 10km nationwide’, the domestic logistics market is expected to undergo a tremendous change of perception. Not only are more people buying things online through Coupang, but there is a high possibility that vendors in other online shopping malls will entrust the delivery of products to Coupang. Coupang has already obtained permission from the government to enter the third-party logistics market last year.
Considering that existing couriers such as CJ Logistics are in business difficulties, such as expanding automatic sorting facilities due to the’overworked death’ problem, the logistics industry is expected to reorganize due to Coupang’s offensive. Lotte Logistics alone has recently announced plans to increase the parcel delivery unit price because it could not afford the deficit due to investment in automated sorting facilities. An official in the parcel delivery industry said, “Recently, there is a consensus to some extent to increase the unit price of parcels instead of automating classification by social consensus, but we are concerned that coupang will once again lead to bleeding competition.”
Reporter Park Donghui [email protected]