Coupang is back in the headlines. The New York-listed South Korean e-commerce company that acquired Farfetch in January released its first quarter results this month. It marked the first time that losses from the troubled London-based luxury marketplace were included in its financial statement. Coupang’s quarterly revenue increased 23 percent to $7.1 billion but net income plunged 95 percent to just $5 million.
That’s not the only news that put investors on edge. Shortly after revealing that earnings had missed analysts’ estimates, Coupang confirmed local media reports of the Korean tax authorities investigating the flow of funds between the company’s Korean entity, owned by US-based Coupang Inc., and its overseas affiliates. The probe is classified as “irregular” by the authorities but a spokesperson for Coupang characterising it as a “routine tax audit,” rather than an investigation into “suspected offshore tax evasion,” as reported by The Chosun Daily.
Coupang was portrayed as a ‘white knight’ when it rescued Farfetch from near collapse with a $500 billion loan, but the shine started to wear off the deal as major luxury groups like Kering ended their partnerships with the luxury marketplace. After the takeover, the departure of Farfetch founder José Neves and eight C-suite executives left Coupang’s chief executive Bom Kim with the difficult task of steering Farfetch back on track.
The exodus sparked even more concerns among investors about the future of Farfetch, under the ownership of what many see as a mass-market platform unfamiliar with the nuances and complexities of the luxury industry. Kim, however, seems undeterred.
“We’re already executing a plan to make Farfetch self-funding,” Kim said in a February conference call with analysts following Coupang’s full-year financial results. “And we see many paths to making this a worthwhile investment for shareholders.”
Fashion insiders have weighed in on the perceived merits and flaws of the pairing since news of the deal broke six months ago. However, since few outside Korea have a deep understanding of the Coupang empire, few have been able to present an informed analysis.
What exactly does Coupang do?
Often referred to as “Korea’s Amazon” due to its size and position in the local market, Coupang is an e-commerce platform selling everything from mass market fashion and beauty products to toys and home appliances, providing a range of additional services including quick commerce, online grocer Rocket Fresh, food delivery platform Coupang Eats, video streaming service Coupang Play and digital payments platform Coupang Pay.
Though it is incorporated in the state of Delaware in the US, Coupang conducts most of its business in Korea. The company was headquartered in Seoul until 2022 when it relocated to Seattle following a listing on the New York Stock Exchange. At the time of its US Securities and Exchange Commission filing, the company indicated that “more than 99 percent of our business is in South Korea.”
Coupang’s arch-rival in Korea is Naver Shopping, the e-commerce arm of web portal and search engine Naver. According to a 2023 report by Euromonitor International, the two companies have been in a tug of war for the last five years but Coupang has come out on top. Other companies vying for market share include Shinsegae’s Gmarket, Lotte’s online shopping platforms and SK Planet-owned 11Street.
Despite its deep influence in the domestic market, the company has struggled to build a solid presence in international markets like Japan where it closed operations last year, less than two years after it launched. In Taiwan, however, Coupang reportedly scaled faster than its Korean business did in the first 10 months of business there. The company also has support services in markets including Singapore, mainland China and India.
Coupang dipped its toes into the premium end of the market last year with the launch of Rocket Luxury, which allows customers to buy beauty products from labels including Estée Lauder, Mac and Bobby Brown through its Rocket Delivery service. Five months after that launch, Coupang announced its entry into the luxury fashion market through the acquisition of multi-brand e-tailer Farfetch.
Coupang reported its first-ever annual operating profit of $473 million for the 2023 financial year, marking a major turnaround from the $112 million loss a year earlier. Sales grew 18 percent to $24.3 billion in 2023.
How did it grow so fast?
Born in Seoul in 1978, founder Bom Kim moved to the US with his family when he was seven years old. The 45-year-old businessman dropped out of Harvard Business School after six months into the programme and founded the Vintage Media Company, a magazine aimed at university graduates, before selling it in 2009 and returning to Korea the same year.
Kim founded Coupang in May 2010 as a discount-oriented service with some Groupon-like features. But it soon evolved into a more conventional e-commerce platform, directly purchasing products from third parties and selling them to end customers. Kim wanted to turn the business into a logistics-driven online ecosystem.
The company’s popularity surged after its 2014 launch of Rocket Delivery, a subsidiary offering Coupang customers fast same-day and next-day delivery of purchases, leading to the platform expanding its offer of consumer goods.
It bagged a $1 billion investment from Japan’s SoftBank the following year and an additional $2 billion in 2018, which valued the company at $9 billion at that time. Other major investors included BlackRock, Sequoia Capital and Fidelity Investments. By then, it had amassed 25,000 staff.
Less than a year after its second investment round, the company introduced Coupang Eats and Rocket Fresh. Fast forward to the Covid-19 pandemic and demand for Coupang’s services surged across all divisions, leading it to deliver over 3 million packages daily – significantly eclipsing its competitors by that metric.
A March 2021 IPO on the New York Stock Exchange raised $3.4 billion in working capital.
What does Coupang gain from Farfetch?
It is likely that Coupang was inspired by other multi-category mass market e-commerce players in Asia that have expanded into luxury fashion. Alibaba Group’s Tmall and JD.com both have a solid track record in China with their dedicated luxury sub-platforms. In Japan, Rakuten and Zozo have more recently followed suit, venturing upmarket in the luxury fashion segment.
Whether the timing is coincidental or not, Coupang’s acquisition of Farfetch has also positioned the company to directly compete with Shinsegae Group-owned SSG.com in the Korean luxury sector. Less than a month after the Farfetch deal was announced, SSG launched the country’s first official brand store for the luxury e-commerce platform Net-a-Porter.
“Coupang has probably seen the Farfetch acquisition as a shortcut to build [its] access to luxury brands,” said Pascal Martin, partner at OC&C Strategy Consultants.
“Online platforms like Coupang are often finding it difficult to establish commercial relationships with luxury brands. Farfetch’s biggest asset is its existing relationships with luxury brands, which has not always been the case. It took time for Farfetch to build trust with these brands. There was a lot of defiance initially.”
Experts suggest factors other than access to luxury were in play at the time of the acquisition. With Farfetch in its portfolio, Coupang inherits a foothold in the US and European markets, gaining direct access to customers outside its existing Asian markets.
“Farfetch’s audience is truly global with a big US component,” Martin said. “Coupang’s current audience is mostly Korean with an emerging presence in other Asian countries.”
How likely is a Farfetch turnaround?
On the other hand, “Coupang is attractive because it is big, growing, and also a multi-market player with its core in Asia, which is essential for the luxury sector where Farfetch is active,” he added.
“[Coupang] has strong logistics capabilities, an area where Farfetch is weak by comparison. Therefore, there could be operational synergies that will help Farfetch’s operations,” Martin explained.
Kim recently stated that Coupang’s focus remains on capturing the “massive opportunities” in the retail markets in Korea and Taiwan and that it will “continue investing billions of dollars in capex over the next several years.”
But the Coupang-Farfetch deal has come at a time of increasing scepticism about the future of the wider multi-brand luxury e-commerce sector with high-profile players like Matches shuttering and the fate of Yoox Net-a-Porter still up in the air.
Farfetch investors may also fear Coupang will deploy promotional tactics on Farfetch, which could further endanger relationships Farfetch has painstakingly built with luxury brands over years. “Coupang should be careful to not completely damage its relationship with the brands,” said Martin.
For now, though, Coupang’s biggest challenge will be stemming the losses at Farfetch and building long-term commercial viability. “A turnaround cannot happen without cost-cutting [and] restructuring opportunities,” Martin warned.
