Online and TV Shopping Reshape South Korean Retailing

April 15, 2013, 1:08 p.m. ET

Online and TV Shopping Reshape South Korean Retailing

Department-Store Market, Notoriously Difficult to Crack, Starts Opening Up

By EVAN RAMSTAD

SEOUL—The look of South Korean retailing, long a stranglehold of big department stores, is being reshaped partly by cable-TV shopping and smartphones.

A decade ago, it took Lee Jie-on three years to persuade South Korean biggest retailers to stock a line of children’s skin-care products from the U.S. But the product distributor, recently had an easier time persuading them to sell U.S.-made accessories online for new moms.

She introduced the Belly Bandit line of clothing and accessories on the websites of South Korea’s department stores in January after holding just one promotional event and starting a Korean-language website. Ms. Lee says she hopes the brand will develop enough of a following online to reach the shelves of physical stores.

“Penetrating the department store in Korea is very difficult,” she says. Meanwhile, she is relying on smaller retailers and baby-products exhibitions to introduce Belly Bandit to Korean shoppers. For a small company, even cracking the online offerings of a major chain here is a big change, in part reflecting South Korean department stores reacting to the growing power of home-shopping television channels and social-commerce websites.Since smartphones came to this country about three years ago, South Koreans seem to be shopping all the time. Last year, a local warehouse chain plastered a Seoul subway station with photos of household goods and made it possible for customers to make purchases simply by taking pictures of bar codes on the posters with smartphones.

Data aren’t available on the number of brands on retail shelves. But people in the industry say that the array of products available online and on Korea’s home-shopping TV networks, which have a more affluent demographic than in the U.S., are pressuring old-line retailers to expand their offerings.

A spokesman for department-store operator Shinsegae International Co.031430.SE -2.17% says that while online and home shopping are playing a role, he cautions against giving them too much of the credit. Home shopping and online commerce more typically provide, for example, a way to sell late- or off-season inventory, says the spokesman, Kim Yoon-sup.

“This kind of competition is not bad,” Mr. Kim says. “It’s not like the department store has to be the only one that holds the pie in the fashion industry.”

Because of space limitations, department stores can’t react to every new product online or on TV, he says. “It’s difficult to react instantly.” Shinsegae also looks to smaller stores and boutiques for inspiration, Mr. Kim says.

Representatives of Lotte Shopping Co. 023530.SE +0.86% and Hyundai Department Store Co., 069960.SE +0.30% two other big chains here, declined to comment.

Gina Chon, a principal at Alus International Co., an importer and distributor of cosmetics in South Korea, last year brought the U.S.-based Mario Badescu line of skin creams to Korean retailers in part by using influential bloggers to help drive interest as a way to crack South Korea’s highly competitive beauty market.

She also got exposure on home-shopping television. South Korea has the lowest rate of female participation in the workforce of any developed country, giving South Korea’s four cable-TV shopping networks an unusually large audience of middle- and upper-income women. Luxury products, even cars, are sold on home-shopping networks. One evening last fall, Ms. Chon sold 10,000, $60 sets of Mario Badescu skin-care products in less than an hour on a shopping channel.

Even with such changes, manufacturers seeking access in South Korea still face an unorganized, even chaotic, environment.

“It is still a little bit like the wild West,” says Sarah Chung, a partner at consulting firm Luxe Brand Advisors and co-author of a recent study on the Korean retail market. “There are not distribution agencies with a portfolio you can easily look at and decide to use. It’s really still individuals who are doing this work.”

South Korea’s retail industry was shaped in the 1960s and ’70s as the country was rising from war-torn poverty. The government tried to bolster domestic department stores. It also promoted a policy that substituted homegrown products for imports, putting trade barriers on foreign goods to encourage Korean companies to make products from perfume, to clothing, to TV sets.

Over the past decade the government has entered free-trade agreements with the European Union, the U.S. and other countries, which has cut tariffs. But many such levies are phasing out slowly here.

Coupang Inc., which started two years ago operating a daily deals website like U.S.-based Groupon GRPN -4.12% .com, last year transformed into an all-purpose e-commerce retailer more like Amazon.com Inc. AMZN -1.89% Closely held Coupang says results from recent months put it on pace to generate more than $1 billion in revenue this year, with nearly half its transactions coming from mobile apps for smartphones and tablets at peak ordering times. Revenue last year was about $700 million.

To help American brands reach Korean consumers, the company set up distribution centers in California and New Jersey so vendors could more easily ship products to South Korea. “There are a lot of manufacturers who are coming directly to us now,” says Coupang Chief Executive Bom Kim.