Local businesses battle influx of foreign brands
They were concerned about the impact on their businesses of a company with 38 trillion won ($33 billion) yearly sales and a reputation for reasonable prices, modern styles and diversity, as well as a marketing pitch of “selling lifestyle.”
As Ikea’s one-year anniversary of opening in Korea approaches, many believe it has brought both good and bad aspects to the market, and many companies have met the competitive challenge.
Hyundai Department Store Group’s affiliate, Hyundai Livart, launched its home accessory brand Livart Home, jumping into a sector that Ikea is strong in.
Until recently, home accessories were treated less important than actual furniture in the marketplace. However, as accessories sales accounted for 2.5 trillion won out of the furniture market’s total sales of 10.5 trillion won last year, accessories are not ignored anymore.
Ikea made the industry wake up to the accessory market.
Ikea opened its first store in Gwangmyeong, Gyeonggi, last December. The store has more than 8,600 products on display. It has become the mecca of accessories.
Shinsegae Group launched its new home accessory shop, The Life, which is often called “Chung Yong-jin’s Ikea,” at E-Mart Town in Goyang, Gyeonggi, last June.
Hanssem, the nation’s largest furniture manufacturer by sales, has benefited most from Ikea. Hanssem’s sales for the first half of this year went up to 770.2 billion won, which is the largest amount in the company’s history. It increased 30.3 percent compared to the same period last year. Hanssem’s profit also rose 42.2 percent to 66.3 billion won.
“It is true that Ikea is a superpower in the market. But Ikea has its strengths and weaknesses at the same time. We are doing well in this fight,” said Choi Yang-ha, Hanssem’s chairman.
Hanssem says it targeted Ikea’s weak points. The company acknowledged that Ikea customers are not satisfied with delivering and assembling products on their own, and decided to offer delivery and assembly service. Hanssem also built stores in the inner city area to increase accessibility, as Ikea stores are normally located far from downtown areas.
“Recent furniture industry developments are driven by local brands who know the needs of Korean customers. Hanssem has worked on its strategies ever since it learned of Ikea launching in Korea,” said Lee Yong-won, the secretary general at the Korea Furniture Association.
Local furniture brand Emons announced its focus on high-end products to challenge Ikea’s practicality.
“Manufacturing quality products is necessary to gain customers’ interest,” said Kim Kyung-soo, chairman of Emons, at an exhibition last spring. In return, Emons launched an online store to expand its target customers from the 40-50 age group to the 20-30 age group.
In business, what Ikea has done to the Korean furniture industry is called the catfish effect, where a strong competitor causes the weak to better themselves. The theory became famous after Samsung’s chairman, Lee Kun-hee, said it in 1993 when he emphasized “New Management.”
However, it is not just the local furniture industry that has been forced to become more competitive. Other global brands have also expanded their businesses in Korea.
Hyundai Motor and Kia Motors, which are in the top five in the world based on sales, were under pressure after foreign automotive brands were introduced in Korea.
The automotive market was first opened to foreign companies in 1987. Since then, their share has grown, and now their share is as high as 15.8 percent out of total sales in the nation.
After Mercedes-Benz launched its first store in Korea in 2002, luxury brands such as BMW and Audi followed.
Hyundai and Kia became concerned about how to improve their competitiveness. Hyundai Motor Group Chairman Chung Mong-koo introduced “Quality Management” as his brand’s primary goal to compete.
Chung’s plan prompted Hyundai to introduce a premium sedan named Genesis to the market in 2008 and a new edition of Genesis was introduced in November 2014. Since then, there have been 105,915 cars sold and 53,254 exported by the end of November.
Hyundai also changed its former premium sedan named Equus (EQ) to Genesis. “Genesis EQ900,” which will be released next month, has received a total of 4,342 pre-orders on the first day it started receiving orders.
“Launching a separate Genesis luxury brand is a new start for Hyundai,” said Chung Eui-sun, vice chairman of Hyundai Motors, at its launching event held earlier this year. “Being satisfied with what we have now is not Hyundai’s style.”
The retail industry also had its share of uneasiness when Walmart, the No. 1 retail store in the world, moved into Korea.
Local stories worried they would not be able to survive, but, in fact, Korean supermarket chain E-Mart managed to buy Walmart Korea. E-Mart focused on meeting Korean customers’ needs while Walmart was left with its warehouse-like style.
German heating equipment manufacturer Vaillant, the world’s top boiler maker, also launched a store in Korea last September.
To compete with Vaillant, local manufacturers are introducing new strategies. Kiturami released new products which minimized nitrogen oxide emissions. Now, KD Navien is competing with Vaillant by releasing premium gas boiler products.
BY MOON BYUNG-JOO, LEE HYUN-TAEK [firstname.lastname@example.org]