Shopping At The Chaebol Cybermall
Did South Korea's Samsung Group know what it was in for when it set up a cybermall for employees two years ago? Decidedly not. Beginning with 185,000 customers, all working at Samsung, the group's Net shopping operation now serves 1.2 million consumers and plans to add 1 million more this year. It's selling everything from appliances to moving services--150,000 products in all. Revenues, $64 million last year, are expected to nearly triple this year--and hit $1.2 billion by 2005, when Samsung hopes to report profits of $45 million from the venture. Says Kim Min Yeoul, who heads Samsung's Internet Shopping Div.: "In a matter of years, Koreans will buy as much on the Net as they do offline."
Call it Web shopping, Korean-style. Samsung set up its online Together Mall to help employees through the economic crisis of the late '90s by offering products at discounts of up to 15%. But it soon discovered that Koreans like buying in groups. The Samsung employees quickly emerged as a wired buying club. And that, says Kim, "gave us an instant business model." Once Samsung looked beyond its workforce, it attracted legions of consumers who band together to acquire buying clout.
In effect, Korea's traditional social networks are going cyber. Together Mall now serves dozens of companies, from tiremakers to airlines, that want to cut costs while maintaining corporate benefits. Instead of running discount stores, these companies let Samsung create and manage Web sites--logos and all-- through which their employees shop. Housing & Commercial Bank, Korea's No. 3 bank, closed its employee discount store last June; Samsung now serves the bank's 12,000 employees with an HCB site. Pohang Iron & Steel Co., Korea Telecom Corp., and some 30 other companies have since followed suit.
HOME PAGES. Samsung is also operating a site called Samsung Mall. It's open to anybody, but here, too, Samsung is tapping into Korea's group ethos by offering discounts to what are effectively purchasing clubs. In January, it linked up with Freechal.com, a startup that specializes in creating cybercommunities out of professional and social groups--an alumni association, say, or groups of dentists, teachers, or golfers. Freechal wires these groups up so they can create home pages with bulletin boards and the like. And along with 20 other companies in alliances with Samsung, it also directs them to Samsung Mall. "Members will be very loyal to their cybercommunities," says Chun Jae Wan, Freechal's president, "and they can serve as specialized buyer groups."
Samsung is riding a couple of waves at once. Since its launch in January, Freechal has already created some 18,000 cybercommunities. In addition, Korea is leading Asia's Net revolution. The number of Net-connected Koreans more than tripled last year, to 10.8 million, 23% of the population. Korea also has 24 million cell-phone users, who will soon be hooked up to the Net.
ICING ON THE CAKE. Samsung Corp., the chaebol's trading arm and parent of the two malls, is jumping in quickly. The strategy is to stitch buyers together and share profits. Freechal gets 2% of the revenues derived from shoppers it directs to Samsung Mall. Samsung is also extending its reach. It just paid $3.3 million for a 70% stake in HTH, a parcel service that lets Together Mall offer 24-hour delivery. "If you e-mail your wedding photo," Kim says proudly, "an anniversary cake with the image will be delivered at the time and place of your choosing."
Foreign investors are gathering. GE Capital is forming a consortium--it's talking to Goldman Sachs, American International Group, and J.P. Morgan--to give Freechal $13 million in expansion capital. By June, Freechal hopes to have 3 million members. That may sound ambitious, but consider Korea's explosion in e-commerce. It's expected to triple this year, to $1 billion--after quadrupling in 1999. The number of e-shops jumped to 1,200 last December, a 50% rise in four months. "The pace won't let up in the next three or four years," says Park Tae Sung, who watches e-commerce at the Trade, Industry & Energy Ministry. It doesn't look as if Samsung is going to let up either. It wants a third of Korea's e-shoppers to use its malls.