March 17, 2022 08:31
Online stores have mushroomed thanks to the COVID-19 pandemic, and so has the number of entrepreneurs taking a stab at the business.
The prevailing view now is that starting an online retail business is less risky than the old staple for retirees who want their own small business of opening a franchise restaurant or convenience store. But while the entry barriers may be lower, the sheer number of new players means competition is just as fierce as in the offline streets and alleys.
According to Café 24, the biggest e-commerce start-up platform in Korea, a whopping 288,762 online shops opened in 2020 and 2021 using its tool kit, up 35.8 percent compared to the previous two years.
Since Café 24 accounts for 63 percent of all online start-up shops, the total across all platforms is probably 400,000, an industry insider said.
So far the increase keeps pace with the growth in online transactions. According to Statistics Korea, online transactions increased 21 percent last year to W192.9 trillion and 42.6 percent compared to 2019, before the pandemic started.
"The domestic online industry had entered a period of saturation and slow growth until the pandemic started, but now entrepreneurs are entering the market again," a Café 24 staffer said.
The low entry barrier is a huge incentive. Easy-to-use-platforms take much of the work out of entrepreneurs’ hands for very low fees, and a well-developed courier industry ensures prompt delivery. But this also means intensive competition for the armies of players, and entrepreneurs who jump into the market without thorough preparation often end up regretting their decision.
Kwon Hyuk-joong, an e-commerce professor at Kyungbok University, said, "The survival rate for online shop is less than 50 percent in their first year after opening. It's really easy to go bust without thorough preparation."
One of them is Kim Min-kyoung (36), who quit her corporate job to raise her baby before the pandemic and set up her own online clothes shop with the W30 million severance pay (US$1=W1,234). But she ended up closing down her business and is left with W15 million worth of inventory.
"At first, my friends bought my products and also publicized my business on social media, but orders plummeted because I couldn't cope with sheer amount of packaging and sending off products," she said.
Marketing costs are another factor many entrepreneurs underestimate. Many start-ups have to advertise their products on major portal, blogs and social media, which costs a considerable amount of money.
One entrepreneur who closed down his online flower shop because of the high advertising costs said, "Portal ads charge you every time someone clicks on the ad rather than for every product sold. My sales could no longer keep up with the rising advertising fees."
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