South Korea's Gmarket Takes on eBay

Posted 03 October 2006 @ 06:29 am EET     Print     Reprint     E-Mail     Comments

SEOUL, South Korea (AP) - The thumping pop music and blaring lights at Seoul's Dongdaemun market keep going all night long as shoppers swarm around merchants hawking the latest trendy fashions at rock-bottom prices.

South Korea's Gmarket Inc. seems to have captured the energy of that raw commerce and made a home for it on the Internet, creating a Web site that has quickly become a top online destination in this computer-savvy nation. It's going head-to-head with eBay Inc.'s Korean subsidiary.

Gmarket has drawn the interest of U.S.-based Yahoo Inc., which recently bought a 9 percent stake. It went public in June, offering shares on the Nasdaq Stock Market, and is pondering future expansion, with an eye to entering Japan next year and later moving into China and the U.S.

The company, which doesn't stock inventory, offers online storefronts and a variety of tools to make it easier for sellers to set up shop and manage inventory. Gmarket handles payments, earning its revenue from transaction fees that vary depending on the product.

For consumers, it offers the variety of a shopping mall, said Gmarket Chief Executive Ku Young-bae.

"People try to make their own fashions Gmarket is at the center of that cultural trend," he said in an interview at the company's headquarters in the chic southern Gangnam district of Seoul.

The value of all the merchandise traded on Gmarket's site in the second quarter of this year was 543.8 billion won ($567 million), an increase of 163 percent from the same period in 2005.

The site has more than 9.2 million registered users in a country of 48 million people, with the most active being females in their 20s and 30s.

Originally launched in 2000 under a different name, the company became Gmarket in October 2003 and refocused its efforts on capturing online markets such as clothing. Now, some 40 percent of Gmarket's sales are from fashion.

Choi Sang-hyun tried but failed at running a brick-and-mortar shop, and he's found more success with online malls like Gmarket, where he offers trendy clothes aimed at young women.

"There were limitations selling offline, so I studied the Internet," said Choi, 34, who now makes his living from online sales.

Gmarket's model is different from the other top Korean online retailer Internet Auction, which like its eBay parent focuses on directly connecting individuals to each other to sell new and used goods. That site plays a more neutral role, instead of Gmarket's helping sellers manage transactions and ensuring service, such as by monitoring shipping and ensuring returns are properly handled.

Gmarket sells new goods mostly at fixed prices, but also allows sellers to use an auction format.

According to Internet usage statistics from online consultancy KoreanClick, Internet Auction has faced increasingly strong competition with users flocking to Gmarket in recent months. In August, Internet Auction saw some 17.3 million unique visitors, with Gmarket at 16.2 million.

While Internet Auction once held a monopoly on the online shopping market here, Gmarket has changed the situation into an oligopoly of two dominant players, said analyst Kwon Min-jung at KoreanClick.

"It looks as though the rivalry between Gmarket and Auction will become more fierce," she said.

Kim Li-la, an employee at a trading company, said she shops once a week at Gmarket, purchasing mostly low-cost clothes as a way to relieve stress. She said she doesn't worry about problems associated with online buying, such as identity theft, because the site has a reputation for security.

"The price is cheap, delivery is fast and above all Gmarket is more reliable" than other sites, said Kim, 29.

David Chung, an executive director at Goldman Sachs, said Gmarket is able to take advantage of South Korea's well-established Internet infrastructure and payment systems to offer a unique way for merchants to sell to online customers.

"We did not see any markets with this model able to offer this kind of opportunity for sellers," said Chung, whose company was an underwriter for Gmarket's U.S. stock offering.

The stock was oversubscribed and priced at the top of its range at $15.25 when offered in June, but it has seen some volatility since and was trading under $14 for most of the last month.

Gmarket hopes its model can also work abroad. The company is looking to open a Japanese site next year where it will take on dominant online seller Rakuten. With the intensely brand-conscious Japanese loyal to established names, Gmarket will likely face a struggle to establish its presence.

In the U.S., the company would face leading online merchants like Amazon.com Inc. and eBay, and China poses its own issues due to a lack of advanced payment systems.

Still, Gmarket's executives say they aren't aiming to dominate the global online marketplace yet. They also are still working to determine how to use their alliance with Yahoo to fuel future growth.

"We want to just find some markets and some customers," said Gmarket CEO Ku. "The initial target is to find some market where we can grow."