Will Shein and Temu gain popularity in the crowded Korean fashion e-commerce market?

The company has ramped up its marketing initiatives since last month, including appointing South Korean actress Kim Yoo-Jung as an ambassador for its Shein Dazy sub-brand and opening its first pop-up store on the famous Seongsu-dong shopping street this week to boost its brand awareness in the market. “The fashion market in South Korea continues to experience tremendous growth, which I think was a key driver (of Shein’s expansion),” Dominika Kustosz-Lee, founder and CEO of Dkl & Company, told Inside Retail. “The market is already very saturated with established players, but the price range on Korean platforms is typically much higher than Shein’s, and that’s their key differentiator.” Established Local Rivals Launched in South Korea last August, Temu has seen an 11-fold increase in users, reaching 6.36 million monthly active users in March and more than 8 million by April. The figure put the company in fourth place in the domestic market after Coupang, 11Street and AliExpress, according to Business Korea. Having entered the market in 2018, AliExpress’s user base in South Korea had grown to 9 million by April. “Shein’s entry cannot be ignored, and fashion marketplaces that also make money by hosting third-party sellers will likely be the first to suffer,” Kustosz-Lee said. The market is dominated by local fashion platforms including Musinsa, Ably, Brandi, W Concept, Zigzag and 29CM. In addition to its online platform, Musinsa also operates offline stores and provides content, including webtoons, to support its ecosystem. South Korean online platform Ably posted its first operating profit of 3.3 billion won last year from a loss of 74.4 billion won the previous year, with sales rising 44 percent to 259.5 billion won. The company is set to raise 200 billion won ($144 million) from investors including Alibaba Group to fuel its expansion plan. At the same time, rival 11Street Co is set to be acquired by South Korean grocery delivery platform Oasis Corp as competition heats up. While Shein has quickly gained popularity in the U.S., reaching a valuation of $100 billion in 2022, five years after launching there, the situation is different in Asian markets like Japan and South Korea, where fashion consumers have deep-rooted loyalty to local brands and the fashion industry is highly competitive with well-established domestic players. The company may need to adopt a different strategy to gain market share and establish itself in those regions. Temu was the first to reach 4 million downloads in Japan, faster than Shein, local platform Mercari and Amazon, according to a data.ai analysis shared with CNBC. The same pattern appears to be playing out in South Korea. “Localization of services and shipping speed will probably be the most challenging aspects,” Kustosz-Lee said of Shein’s prospects in the South Korean market. “This is a country where same-day or one-day shipping is the norm — Coupang sets a new standard for everyone. Anything beyond that is considered a long wait.” “It’s important to note that there is no Amazon Korea, nor has there ever really been an Ebay Korea — the company eventually acquired existing platforms before exiting the market entirely recently. In general, very few non-Korean e-commerce companies have succeeded here — Qoo10, which has also acquired several local players, is one of the exceptions. Koreans like services designed by Koreans for Koreans,” she added. Quality Control and Market Regulation While South Korean consumers enjoy the incredibly low prices offered by Shein, Temu and AliExpress, complaints to the Korea Consumer Agency about these companies are growing rapidly, ranging from delivery issues and counterfeit goods to the presence of toxic substances. In May, the Seoul city government reported that toxic substances were found in baby products sold by Shein at levels that exceeded legal limits by up to 428 times. The city has also conducted safety tests on products from Chinese e-commerce giants such as AliExpress and Temu seven times. Of the 93 products tested so far, about 40 products, or 43 percent of the total, contained toxic substances. The rise in complaints raises questions about the regulation and oversight of international e-commerce platforms and the importance of ensuring consumer safety and product authenticity. “The platform could face greater scrutiny through new regulations, especially given the sensitivity of child safety,” Kustosz-Lee said. “With the country’s low fertility rate crisis and the fact that having a child has become a luxury, such cases are becoming high-profile very quickly. The government intends to establish a systematic system to check the quality and safety of products purchased through overseas e-commerce platforms and continue to expand the categories covered. On May 24, 2024, a business agreement was signed with three security certification agencies of the National Institute of Standards and Technology. So far, it seems to be sending a message to foreign and local platforms selling such items and blocking access to pages of items identified as malicious.” Room for improvement According to the Federation of Korean Industries, South Korea ranks fifth in the world in terms of e-commerce market size after China, the US, the UK and Japan, with 228.9 trillion won spent online last year. “Aliexpress, Temu and now Shein will probably continue to strengthen their position in the market,” Kustosz-Lee said. “From what I understand, the reason Aliexpress and Temu have become so widespread in the past few years is that people tend to buy things in bulk on these platforms to then resell them and make some extra money. It’s all about the price and that’s it.” She added that inflation and the general downward trend of the global economy have had a very negative impact on the livelihood of Koreans. It’s a small country that naturally depends on what happens in its partner markets. “In the long term, I think the key to making or breaking the scene will be to provide both an exciting selection of fashion and lifestyle elements, and to really put the customer experience at the forefront of your business strategies,” Kustosz-Lee concluded.