E-commerce Firms Tighten Budgets Amid Rising Competition from C-commerce

As competition from Chinese e-commerce platforms like AliExpress and Temu intensifies, domestic e-commerce companies are implementing stringent cost-cutting measures. These include relocating offices to reduce fixed costs and expanding voluntary retirement options to lower-tenured employees in a bid to improve profitability.

According to the retail industry on June 17, Lotte On, the e-commerce division of Lotte Shopping, is accepting applications for voluntary retirement from employees until the end of this month. This marks the first voluntary retirement offer in two years since 2024. Employees with at least three years of service, including those in their 20s, are eligible to apply.

The conditions for voluntary retirement have improved compared to two years ago. Lotte On will provide eligible employees with a lump sum payment of up to 12 months' salary. Additionally, employees with college-age children will receive 10 million won per child for educational expenses. This is an increase from the six months' salary offered during the last voluntary retirement program, indicating a strategy to attract as many applicants as possible.

Launched in 2020 as a unified online mall for Lotte Group's retail business, Lotte On has struggled to turn a profit. In the first quarter of this year, it reported an operating loss of 5.8 billion won, a decrease of 2.7 billion won from the previous year, but it remains in the red. A Lotte On representative stated, "We decided to implement voluntary retirement to reorganize our workforce and become a more competitive organization in the rapidly changing e-commerce market."

Gmarket, an e-commerce platform under Shinsegae Group, is also relocating its office from the Gangnam Finance Center in Seoul to the AM Plus building in Seongdong-gu, Seoul, in October. Gmarket's consolidated revenue fell by 23% year-on-year to 740.5 billion won last year, and its operating loss nearly doubled to 122.4 billion won. The industry expects Gmarket to benefit from lower rental costs in Seongdong-gu compared to Gangnam.

Previously, 11th Street moved its office from Seoul Square in front of Seoul Station to the U-Planet Tower in Gyeonggi Province in 2024. The monthly rent for U-Planet Tower is reported to be one-third of that at Seoul Square. Additionally, 11th Street has conducted voluntary retirement programs for three consecutive years since 2023, focusing on reducing fixed costs through office relocation and workforce restructuring.

The tightening of budgets among domestic e-commerce firms is largely driven by the rapid growth of C-commerce. AliExpress and Temu have attracted domestic users by offering ultra-low prices, improved delivery speeds, and a wider range of products. Recently, even major domestic brands have begun to partner with C-commerce platforms, challenging the perception that these platforms offer low-quality goods.

According to retail analytics service WiseApp & Retail, Temu's monthly active users (MAU) rose by 7.6% in May to 9,055,909, making it the second most popular comprehensive mall app. AliExpress also saw a 1.3% increase to 8,413,841 users, ranking fourth. Both platforms surpassed 11th Street (fifth) and Gmarket (sixth) in user rankings.

Industry experts anticipate that the cost-cutting trend among domestic e-commerce companies will continue for the foreseeable future. With high inflation and a slowdown in consumer spending, the growth of the market has decelerated, and the price competition with C-commerce has made cost efficiency a top priority over aggressive expansion. An industry insider noted, "As C-commerce users grow rapidly, the burden on domestic e-commerce firms has increased," adding that domestic companies are likely to focus on cost reduction and organizational efficiency for the time being.