Korea's former fashion mecca hangs on by a thread as Chinese apps move in

Industry

Published: 30 Mar. 2024, 07:00

Korea's former fashion mecca hangs on by a thread as Chinese apps move in

A vacant store area on the first floor of the shopping complex Good Morning City in Dongdaemun District, central Seoul, on Thursday [KIM JI-YE]

When Good Morning City, a 16-story shopping complex, flung open its doors in 2008 in a prime spot in Dongdaemun, once Seoul's fashion mecca, it bustled with locals and tourists interested in Korea's street fashion.

But now, only the first floor is running, with few or no visitors to be seen as more people have moved to purchasing clothes and other goods online due to convenience and cheaper prices.

Though it was the only floor operating, many parts were left empty, either totally vacant or without store owners accompanying their merchandise on Thursday morning.

The arrival of China's e-commerce platforms has further eroded the appeal of such malls with prices far cheaper than the Dongdaemun stores.

Short sleeve shirts sold in Dongdaemun, for example, generally ranged from 10,000 won to 30,000 won, some 10 times more expensive than those sold on Chinese e-commerce giant AliExpress.

Dongdaemun's title as Korea's fashion mecca has long given way to other neighborhoods such as Hongdae, Hannam-dong and Seongsu-dong, although wholesale markets maintain their presence.

Other consumer-oriented malls in Dongdaemun like Hello apM and Migliore face the same challenge.

Dual attack of Covid-19 and online shops
The decline of Dongdaemun malls began long before e-commerce sites went mainstream, accelerating at the onset of the 2010s with the advent of smartphones allowing for quick shopping on the go.

The reduced presence of local shoppers, however, was cushioned by foreign travelers — until the pandemic era.

“We have fewer Korean customers nowadays,” a seller at the Dongdaemun shopping complex Migliore said. “During the winter, we had fewer foreign customers than now because of the cold weather.”

However, seeing empty store areas with notices that read “lease inquiry” is a more common sight than sellers hustling customers to come see their products.

An escalator in Good Morning City is blocked with a notice saying "temporarily closed due to business downturn affected by the pandemic." [KIM JI-YE]

The bankruptcy of LinkShops early this year shocked the fashion industry in Dongdaemun.

Established in 2012, LinkShops was an online platform that connected wholesalers and retail shop owners selling clothing items. It not only linked the two parties but also managed deliveries, orders and customer service.

The company even received over 10 billion won ($7.42 million) from investors, including Altos Ventures and KB Investment, and was mentioned as the next unicorn company.

As the market deteriorated, however, LinkShops also fell into capital impairment.

“While there were strategic problems, the inroads made by Chinese commerce platforms made the situation worse,” an industry insider said.

C-commerce taking a toll
Fashion is the most popular category among direct "Chinese commerce" purchases in Korea.

Clothes and fashion topped the gross merchandise volume (GMV) among Chinese overseas direct purchase products with 56 percent during the fourth quarter of last year, according to Statistics Korea.

It was followed by home appliances, electronic and communication devices at 9 percent, household goods and car supplies at 8 percent and cosmetics at 5 percent.

The GMV of Chinese overseas direct purchases of clothes and fashion items last year grew threefold compared to the previous year, according to the Mirae Asset Securities Research Center.

The empty second floor of Good Morning City on Thursday [KIM JI-YE]

The introduction of Chinese e-commerce platforms such as AliExpress, Temu and Shein in the domestic market is making it more difficult for Dongdaemun sellers as the platforms increase the accessibility of Chinese fashion items.

These Chinese e-commerce platforms are also known as Guangzhou commerce, as most of their low-priced products are made in factories located in Guangzhou and Hangzhou.

While the infiltration of Guangzhou-made clothes into the Dongdaemun market is not new, the story has changed with the producers jumping into the platform business.

In other words, it is inevitable that Dongdaemun will face another major obstacle to survival while continuing to hang on amid the digitization of fashion commerce.

AliExpress was first introduced in Korea in 2018 and launched a section dedicated to fashion last year.

It is also putting effort into expanding its presence by collaborating with famous YouTubers and actively garnering sellers.

Chinese online shopping platform Temu, run by PDD Holdings, sells women's, children’s and men’s clothing as well as accessories and bags at low prices.

Another Chinese shopping platform, Shein, which mainly targets female customers, is slowly expanding in the Korean market.

According to data research company WiseApp, the number of users of AliExpress, Temu and Shein reached almost 15 million as of last month.

Trying to win over customers
In terms of price, it is almost impossible for Dongdaemun-based merchants to overcome the Chinese platforms that market aggressively by providing products at ultralow prices, establishing a game-like shopping experience for customers.

Chinese-based merchants are able to sell at such unbeatable prices because of access to cheap labor and massive production lines to reduce fixed costs, while also minimizing their retail margins by sending products directly from factories.

Such marketing is not welcomed news to the Dongdaemun sellers.

As a result, the Korean merchants are trying to focus on quality to entice discerning domestic customers.

In terms of quality, Dongdaemun’s products are still considered superior to Guangzhou’s.

“Korean consumers have a higher expectation of clothing design and quality than other overseas customers,” an employee at the Korean shopping platform Brandi said.

A notice saying "lease inquiry" in a vacant store area in Good Morning City on Thursday [KIM JI-YE]

Many speculate that consumers may buy some Guangzhou-made outfits just for fun, but when the quality does not match their expectations, they will turn their backs on the products.

Fashion in particular has a higher rate of requests for exchange and refunds on those platforms compared to other product categories.

In other words, customer service is a very important factor in the fashion industry, which is also a weak point of Guangzhou commerce.

As a result, domestic e-commerce is strategizing to offer high-quality products and sell a “good experience” to buyers through customer service rather than relying solely on price.

An example of good customer service is finding the products that customers are looking for, which is the marketing strategy of Korean fashion apps Queenit and Danble.

Queenit, which targets women in their 40s and 50s, displays products that fit the body type of the age range of its target users as well as preferred brands.

Fashion e-commerce platform Danble, which targets men between their 30s and 50s, has a system that automatically finds the right size for customers who have provided their height and weight when signing up for the app.

"We differentiate our business by providing products that our target users search for, rather than jumping into the price competition,” Kim Hee-su, CEO of Danble operator Tailor Town, said. As a result, “we have gained a high repurchase rate.”

Going with the flow
Some domestic e-commerce companies are capitalizing on the inflow of Chinese products.

Business-to-business platform uh2sa Market, run by uh2sa Company, supplies over 300,000 clothing items made in various places including Guangzhou.

The company provides a direct service allowing retailers to obtain affordable clothes made in China without going through wholesalers.

Brandi launched an overseas direct purchase category on its app in addition to selling products from a Guangzhou-based shopping platform, VVIC.COM, that have been verified, unlike those sold on AliExpress, Temu and Shein.

Some fashion e-commerce platforms are trying new angles, such as jumping into creating their own content and connecting with customers, unlike the general platforms that just sell clothes.

The idea is to increase user engagement on the platform, leading to more purchases.

Local fashion e-commerce app Ably has been offering a “magazine” corner since 2021, introducing the latest fashion trends and popular items.

Shopping app ZigZag operates user communities like “Talk Lounge” as well as a real-time communication channel for sellers and customers.

Clothing brand Nerdy, run by beauty tech company APR, is working on securing fashion intellectual property (IP) through collaborations with other brands, influencers and popular characters.

The underground entrance of Good Morning City, connected to the subway, is blocked, restricting entrance by customers. Entrance is only possible via the gate at ground level. [KIM JI-YE]

The move into the Korean market by AliExpress, Temu and Shein is also alarming to sellers who buy and sell Chinese clothes on behalf of customers.

“Many online sellers who simply purchase on behalf of their customers will disappear,” said Prof. Lee Dong-il of Sejong University’s Business Administration department. “[Though] such situations will allow domestic online commerce to grow one step further.”

As the online fashion market grows, homegrown e-commerce players are trying to bolster their fashion categories.

Coupang, for example, launched its own fashion private brands (PB) in 2020, such as Caret and Base Alpha Essentials, rising as a new star in the fashion e-commerce industry.

It also manages the design and retail of its own brand products, which are made by small- and medium-production companies.

In August of last year, Coupang’s PB fashion customers increased 334 percent within three years of launching, the company said.

Naver Shopping is another platform that accounts for a proportion of the domestic fashion industry.

As of last September, fashion clothing and goods stood at No. 5 among newly opened shops, based on overall age.

Naver Shopping also acquired Poshmark, a U.S. customer-to-customer fashion platform service, in 2022 to reinforce its commerce business.