How Savvy Korean Consumers Beat Overpriced Brands

Affluent, savvy women in their 30s and 40s are leading a revolutionary fall in the prices of global branded goods in Korea. By comparing price tags online, they are able to highlight any inflated prices here and cause brands who have traditionally taken advantage of Korea's inward-looking society to slash them.

Spanish fashion brand Zara landed in Korea in 2008 to a rapturous welcome from young women. But even considering tariffs on imported goods, consumers failed to understand why they had to pay nearly double what European consumers would pay. Koreans protested in shops and online. Zara came up with a number of responses such as bargain sales, but it was too late to reverse the image that the shops were overpriced in Korea. With the fast growth of similar brands like Uniqlo and Spao, and its biggest rival H&M opening a shop in Myeong-dong, central Seoul in February, Zara negotiated with headquarters and decided to lower prices substantially.

Sweden's H&M took a different approach from the start, and goods in Korea are just W1,000 to W2,000 (US$1=W1,138) more expensive than in Europe. Jeong Hae-jin at H&M said, "With the goal of having identical prices worldwide, we priced some items such as children's clothes even lower than in Europe."

Popular U.S. brands Gap, Gap Kids, and Banana Republic slashed prices by 20 to 30 percent compared to last year for this spring/summer collection, at around 120 to 130 percent of U.S. prices. These brands were so popular in the past that many Koreans went abroad just to shop there, but when they were launched here in 2007, the price was 170 to 180 percent higher than the U.S. price. However, Korean consumers prevailed in the end.

Korean consumers not only complained about the exorbitant prices but started buying items straight from websites. Some companies like Polo tried to fight back by preventing Korean IP addresses from accessing the website but caved in after complaints from consumers. Instead, they opted to block Korean credit cards, but that too may have to change.

The usual practice when these fashion brands are launched overseas has been setting the price at about 180 percent compared to the price at home, but direct online shopping forced companies to rethink the policy. Cho In-young at Shinsegae International, the official importer of Gap, said, "We had a hard time deciding on what to do, but in the end we concluded that we should protect the purchasing rights of consumers." The firm went on to slash prices to the level of the U.S. "At least, the price should be around 130 to 140 percent of the U.S., but we got it down to about 120 percent to minimize resistance from consumers."

An industry insider said the received wisdom used to be that the more expensive a brand was, the more luxurious it would seem. But with the increasing number of global shopping experts who know prices all around the world, more and more global fashion companies will end up lowering their prices here.