What Is The Current Role of Digital in Korea’s Retail Industry?
by Mr Sang IkJung ,Ph.D, Research fellow/Director, The Korea Chamber of Commerce and Industry and Executive Director, Korea Retailers Association (KRA)
- Retail Trends
Korea’s retail sales growth is showing signs of slowing due to recession and low consumer confidence. The (YoY) growth rate in consumer salesshows sluggishness with 1.0% in 2013, 1.7% in 2014 and 2.2% in 2015, respectively. The results are very modest even when compared to 8.4% in 2011 and 4.4% in 2012, when the Korean economy suffered major setbacks brought on by the global financial crisis of 2008.
Sales Growth in Korea’s Retail Industry(YoY)
By retail type, department and discount storesreported poor performance. Major causes include: the depressed consumption market; the intensifying competition with non-store retail shops such as internet shopping malls and TV home shopping channels; and the limitation in new store participation because of market saturation. As part of diversification strategy for a new takeoff, department storesseek to open mega shopping complex while discount stores try to expand into supermarket and internet shopping mall businesses.
Among offline stores, only convenience stores experience a boost in sales. This is because the existing mom &pop stores are rapidly converting their business into convenience stores, and new stores are opened by baby boomers who retire. Increase in one or two member households and preference for short distance shopping also had positive influence in driving convenience store growth.
For the past few years, e-Commerce showed the highest growth rate in the Korean retail industry. Since its introduction in 1997, e-Commerce has achieved rapid growth to the extent of occupying about 20% of the retail sales. Companies have exerted their best efforts to improve internet shopping environment, by providing of value-for-money products, improving customer convenience, upgrading logistics service and utilizing internet technology. Korean customers highlyevaluate shopping convenience via internet. Such is the background of growth in the Korean e-Commerce.
Mobile shopping, which has spread widely in the last 2~3 years, is leading Korea’s e-Commerce toward its second takeoff period. In its foundation, there is a rapid development and utilization of Information & Communications Technology (ICT). Retail companies communicate and sell products to their customers under an ICT-facilitated environment. Customers obtain transactional information by using mobile as medium, assess the value to make purchasing decisions. Such transition in shopping pattern requires creative and active response of retail companies. The Omni channel strategy based on digital technology can be regarded a key part of change response strategy.
- Expansion of Omni Channel Using Digital Technology
Omni channel is a compound word of ‘omni’ meaning ‘all’, and ‘channel’ meaning distribution channel of product. It means a channel strategy that converges all channels owned by the company, such as offline, online, and mobile channels. We can consider it as a channel strategy that integrates, connects all channels, provides consistent communication, intensifies customer experience and increases sales.
Omni channel strategy is being widely deployed by offline-based retail companies with multiple stores and business types. The trend of omni channel utilization by Korea’s major retailers divided into (1) integration of customer purchasing channel, (2) provision of personalized services, and (3) minimization of inefficiency of the purchasing process(Source: KCCI, 2016).
2.1 Integration of Customer Purchasing Cannel
Integration of customer purchasing channel is to operate a single unified purchasing channel, including online, offline and mobile channels, which is the concept of the existing omni channel strategy. The purpose of this strategy is to provide consistent purchasing value to the customers through seamless migration in purchasing channels.As a Korean example, Lotte Department Store offers a ‘pickup desk’service where customers can receive their products at various offline sales channels such as department store or convenience store Immediately after they make an online purchase, or even return or exchange an on-line channel product they are not satisfied at offline stores. Samsung Electronics is operating a ‘store pickup service’ which enables customersto collecton-line purchased products in an offline store. Amore Pacific is operating a ‘simple purchasing’ service which is connects offline stores to the online mall via QR code. Homeplus is operating an online mall that sells various brand products which are displayed in their offline store, and a ‘virtual store’ based on QR code.
2.2 Personalized Service
Personalized service means provision of customized service suitable for individual customers through advanced technology such as big data, mobile, IOT(Internet of Things), beacon, and QR code. Retailers including Shinsegae Department Store, analyze individual customers’ purchasing information and provide customized purchasing information and coupons when the customer visits the store. Here, “big data analysis, beacon service for short-distance location service on product information, and location-based advertisement technology” are being utilized.
The cases of companies that provide personalized service to customerswith omni channel strategy are as follows.
2.3 Minimizing Inefficiency in Purchasing Process
Minimizing inefficiency of purchasing process means to improve inefficient operation at offline stores by re-arranging product display, minimizing counter wait time at and improving shopping environment. Lotte Department Store and GS25 offer a ‘Scan and Go’ service under which customers can make payment after scanning bar code or QR code of the product via smart phones. The order can be placed not only in offline but also in online stores, to minimize counter wait time. In addition, retailers introduced simplified payment system to streamline the payment process. Lotte’s L-Pay, Shinsegae’s SSG Pay are the representative cases. Recently, platform companies also entered into the Fin Tech market, such as Samsung’s ‘Samsung Pay’ and Daum Kakao’s ’Kakao Pay.’ Customer convenience in the purchasing process is being further improved by their participation.
- Future Prospect
In Korea, “how to cope with the Fourth Industrial Revolution” is a much-debated social issue. The retail industry is exploring “better ways to utilize digital technology,” to keep pace with such change. In particular, people are interested in technological innovation to utilize in omni channel environment such as “mobile technology, big data analysis technology, customer recognition technology such as beacon” for “integration of channel, customized customer service, efficiency purchasing process.”
The Korean government is promoting a project in the retail R&D sector, which individual companies are unable to pursue on its own. As retail industry is closely connected to manufacturing, logistics and retail sectors, and the customers, the purpose of this project is to establish a highly developed infrastructure at the industry level that reaches beyond an individual company level. Direction to promote this project can be classified into 3 ways.
First, in order to raise customer convenience via smart commerce, retail logistics big data support platform will be established and development of augmented reality-based product search technology will be promoted
Second, visibility of supply chain will be expanded through standardization of product information and provision of real time information. To this end, development of product information meta DB and standardized e-template will be promoted.
Third, service innovation through improvement of logistics competitiveness will be pursued. There is a plan underway to develop advanced logistics equipment that converges electronics and IT technologies to manage warehousing of products. Major projects include “development of logistics handling robots, sorters (which classify products by regions and recognize the product bar codes), and the ERP system.”
Sang Ik Jung , Ph.D
Research fellow/Director, The Korea Chamber of Commerce and Industry, Executive Director, Korea Retailers Association
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