Korea’s Coupang, CJ Group on collision course in online, offline markets

Coupang Inc. headquarters in Seoul. [Photo by Park hyung-ki]

Competition between South Korea’s e-commerce company Coupang Inc. and CJ Group is intensifying in both the online and offline markets.

According to multiple sources from the retail industry on Monday, Coupang filed a complaint with the Korea Fair Trade Commission (FTC), alleging that CJ Olive Young Corp., which operates as a health and beauty (H&B) store, had forced exclusive deals with cosmetics suppliers. “CJ Olive Young has been treating Coupang as a competitor since 2019, when Coupang started selling cosmetics in earnest, and has been continuously hindering its entry and growth in the beauty market,” Coupang claimed in the complaint. “CJ Olive Young explicitly prohibits suppliers from supplying to Coupang, or penalizes them for selling to Coupang, while imposing exclusive deals on suppliers or hindered their dealings with other businesses,” the company added. Coupang believes that these actions by CJ Olive Young violate the law and prevent it from obtaining competitive products from suppliers, causing significant disruptions to its business.

Coupang argues that CJ Olive Young, with an annual revenue of 2 trillion won ($1.56 billion) has used its dominant position in transactions to engage in exclusive deals or hinder dealings with other businesses. In Coupang’s opinion, this behavior by CJ Olive Young was aimed at preventing its competitor from entering and growing in the beauty market.

Industry observers believe that Coupang’s targeting of CJ Olive Young is related to its recent strengthening of its beauty business. After entering the beauty market in 2019, Coupang gradually increased the number of stores and officially launched “Rocket Luxury” this month. While the online beauty market has been rapidly growing in recent times, the consensus is that there is no clear dominant player in the market. This is because, compared to fresh food and clothing, the beauty industry has low logistics costs and high profitability, making it an attractive market to enter.

In response to the accusations, CJ Olive Young said that it is difficult to confirm whether or not a complaint has been filed with the FTC while categorically denying that it had restricted its partners’ entry into any distribution channel, including Coupang. If an FTC investigation is conducted in the future, the company plans to “cooperate diligently.”

The conflict between Coupang and CJ Group, whose competing businesses also overlap in logistics and over-the-top (OTT) media service, appears to be escalating. In the logistics sector, where CJ Logistics Corp. is the industry leader, competition is intensifying after Coupang’s subsidiary Coupang Logistics Service Inc. (CLS) entered the home delivery business in 2021. In the content sector, CJ ENM Co. has been promoting its own OTT platform TVING, while Coupang has been steadily increasing its user base since launching Coupang Play in 2020.

CJ Group headquarters in Seoul. [Photo by Lee Seung-hwan]

One of the more prominent conflicts between the two sides was the suspension of orders for CJ Cheiljedang Corp.’s products such as Hetbahn steamed rice and Bibigo steamed dumplings in November last year. Coupang suspended orders for CJ CheilJedang’s products after failing to resolve differences over product margin rates. Since then, CJ CheilJedang has formed an “anti-Coupang coalition” with other e-commerce operators such as Shinsegae, Naver Corp., and Kurly Inc. to develop joint products, while Coupang has countered by saying that sales of its private label brand (PB) products made by small and medium-sized enterprises have surged as a result of the company‘s refusal to stock famous brand food products.

This is not the first time CJ Olive Young has faced allegations of exerting undue influence over its suppliers. In April 2021, one of CJ Olive Young’s suppliers filed a complaint against the company with the FTC for “unfair returns and malicious inventory purchases,” and the company is currently under investigation for “abuse of market dominance.” The FTC believes that CJ Olive Young expanded its market dominance by pressuring its suppliers not to supply cosmetics to competing health and beauty (H&B) stores, forcing them out of business. According to Article 13 of the Distribution Industry Development Act, large-scale distributors are prohibited from coercing suppliers into exclusive deals.

The FTC is expected to finalize the level of sanctions against CJ Olive Young at a plenary meeting next month. The critical point of the sanction is whether CJ Olive Young can be regarded as a “market-dominant business.” The FTC considers CJ Olive Young to be dominating the H&B market, while CJ Olive Young denies that it holds such a dominant position, as there are many operators in the cosmetics distribution market, both online and offline, and H&B is only one of them.

Industry insiders are speculating that CJ Olive Young could be fined hundreds of billions of won if the FTC determines that it abused its market power. Abuse of market dominance can result in a fine of up to 6 percent of sales.

Some believe that Coupang’s complaint to the FTC could actually work in favor of CJ Olive Young. One industry insider noted that CJ Olive Young has been arguing that it is not a market-dominant business and that beauty market competition is not limited to offline channels. However, Coupang’s complaint defines the beauty market as including both online and offline channels, which could potentially expose vulnerabilities in the claims that CJ Olive Young is a market dominant player.