Affinity-backed SSG.COM offers first voluntary redundancy

Loss-making SSG.COM, once South Korea’s most popular online shopping mall, has asked some of its employees to leave the company on a voluntary basis for the first time since it started operations, amid growing competition in the country’s e-commerce market.

According to sources from the retail industry in the country who said on Friday, SSG.COM has launched a voluntary redundancy programme for its employees who have worked for more than two years.

Employees who apply for the program will receive a severance payment for a period of six to a maximum of 24 months, equal to their current salary and the costs of their children’s education. The company will also offer anyone looking for a new job a job search assistance program.

The first-ever voluntary redundancy offer comes as the company is in the midst of a drastic business reorganization after two years of loss-making operations, with the exception of 2019, its first year as an independent organization after being spun off from E-Mart Inc.

Last month, Shinsegae Group reshuffled SSG.COM’s management team, including its CEO. The downsizing program is the first restructuring effort by new CEO Choi Hoon-hak.

RESTRUCTURING BEGINS

SSG.COM reported an operating loss of 103 billion won ($75 million) last year and a loss of 13.9 billion won in the first three months of this year.

Despite the losses, the company maintained its leading position in the domestic online shopping industry in terms of sales, but was overtaken by Coupang Inc. last year.

Naver Corp, the country’s largest online platform, is also making a rapid foray into e-commerce with the launch of Naver Commerce. To make matters worse, it faces the rapid growth of Chinese rivals such as AliExpress and Temu at home.

Faced with intensifying competition in the Korean online shopping industry, its smaller local rivals have already been optimizing their workforce to cut costs.

SK Square Co.’s e-commerce unit, 11Street Co., has launched voluntary redundancy programs twice, late last year and in March this year. Lotte On, part of Lotte Group, also laid off employees last month.

FROM THE GOLDEN GOOSE TO THE UGLY CORNER

SSG.COM was once developed as one of the new growth engines by its parent company Shinsegae Group.

After being separated from E-Mart, SSG.COM took over the e-commerce business of Shinsegae Department Store and became the group’s sole online platform.

Expecting synergies with SSG.COM, the Korean retail giant spent 3.44 trillion won in 2021 to acquire Gmarket, a major e-commerce marketplace based in Korea, and Auction from eBay Korea.

However, none of these efforts yielded any results.

Instead, the company now faces increasing pressure from financial investors Affinity Equity Partners and BRV Capital Management, demanding a return on their investment.

Both investors invested a total of 1 trillion won in SSG.COM in 2019 and 2022 to own a 15% stake each.

However, the condition for making the investment was that the online shopping mall’s gross merchandise value would exceed 5.16 trillion won by 2023 or that the company would be eligible for a public offering before the put option contracts expire in May this year.

Since SSG.COM failed to meet any of the demands, both investors demanded that Shinsegae buy back their shares as per the agreement.

As its parent company, a domestic retail giant, also struggles with declining revenues, SSG.COM’s two main shareholders, Shinsegae Inc. and E-Mart, recently struck a new deal with two financial investors that will bring in at least one new investor by the end of the year to buy back shares from them, thereby ensuring their exit from the business.

The company’s largest shareholder, E-Mart, reported its first annual loss in 2023 and in March announced it would launch an early retirement program for its employees for the first time since the company was founded 31 years ago.

E-Mart and Shinsegae are the largest shareholders of SSG.COM, owning 45.6% and 24.4% respectively.

write to Jae-Kwang Ahn at [email protected]
Sookyung Seo edited this article.