A Gold Mine Called Home Shopping
At first, the new business plan seemed counterintuitive--if not a quick route to bankruptcy. Koreans who ordered products from LG Home Shopping, a television shopping channel hawking everything from jewelry to cookware, could return them no questions asked and get a refund even before the items were collected from their home. All deliveries were free. And the new plan was launched in the depths of the Asian financial crisis in 1998.
Little wonder that everyone including his staff thought LG Home Shopping Inc. Chief Executive Choi Yung Jae had a screw loose. Even as Choi offered one of the best bargains in Korea, he refused to sacrifice quality. One day, he appeared at a Seoul warehouse for a spot inspection--and canceled orders from nearly 70% of LG's suppliers. "Customer trust will make or break our business," he declared. Not long after, Choi set up a fax line in his office to handle customer complaints directly. Complaints poured in. "But then," says LG manager Shin Hyung Bum, "six months later he started getting complimentary faxes."
Choi is still getting them. In 1998, LG Home Shopping earned its first profit as sales tripled, to $169 million. The channel, which airs around the clock and prices items up to one-third cheaper than department stores, has thrived ever since. Despite the global slowdown, the company predicts sales of $779 million this year, up 68% from 2000. Executives are confident sales will jump another 50% next year. Says Chief Financial Officer Choi Jong Sam: "We want to be the no-store retail king."
WEB LEVERAGE. To help fulfill that goal, the company launched a cybermall in May, 2000. This year, LG expects the online site to do about $77 million in business. LG's goal next year is to pass Samsung Corp. as Korea's top e-tailer--though that means increasing online sales 150%. The Web site is leveraging the channel, luring online shoppers with slick TV footage of its latest products that can be downloaded via the nation's broadband connections. Complemented by its mail-order business, the retail unit of LG Group aims at shoppers who want goods delivered to their homes.
LG takes advantage of Korean demographics. Knowing that most middle-class women are homemakers, it has focused its marketing on females in their 30s and 40s. And delivery costs are minimal because nearly half of Korea's 14.3 million families reside in apartment blocks.
The operation is also resolutely up-market, in contrast to similar U.S. channels. Because most cable-TV subscribers in Korea are well-to-do, LG sells no item for less than $23, which it figures is the minimum it can charge and still make a 4% margin after covering delivery. On average, LG shoppers spend $110 per order, triple what U.S. TV shoppers spend.
Rivals acknowledge Choi's contribution to electronic shopping, which has gobbled 3% of Korea's $90 billion retail market. "The whole industry is indebted to Choi's pioneering campaign," says Samsung Vice-President Suh Kang Ho, who heads the chaebol's Internet shopping division. "The big question is if LG can keep its momentum in the face of tougher competition."
The field is getting crowded. Already, LG's market share has slipped to 57%, from 60% last year, as rival CJ39 Shopping has stepped up its marketing campaign after being taken over by Korea's largest food company, Cheil Jedang. In March, the government awarded three more shopping channel licenses. Two companies--Woori Home Shopping and NongsusanTV--are already operating. The third, to be run by retail giant Hyundai Department Store, aims to launch in November. "Rivals will quickly copy LG's strategies," says Chang Mihwara, retail analyst at Tongyang Securities Co. "Unless it keeps moving ahead, its market share and margins will keep shrinking."
For the short term, however, industry fundamentals should give LG plenty of room to expand. Analysts expect cable TV viewership to double to 8 million this year, while Net shopping could surge fourfold to $8.5 billion by 2005. If he can dominate this new industry, this retail king may yet be crowned emperor.
By Moon Ihlwan in Seoul