April 22, 2021

The costs of having the second-most mature ecommerce market on Earth

This blog article is part of our South Korea market insight series, exploring opportunities for parcel carriers and offering insight and comparison to other parcel markets around the world. Download your free copy of our South Korea market report here.

With South Korea having 10 times the global average population density, which means ecommerce orders get delivered quickly and costs are slightly reduced compared to, for example, US residential deliveries, where homes are more spaced out and routes are therefore longer with a lower drop density.

But it also means a lot of people live within easy reach of a physical retail outlet. One consequence of that is there’s little need or incentive to rely on online shopping unless it offers lots of convenience – shoppers in South Korea have high expectations where convenience is concerned. For example, one of those expectations is that delivery will be free or low-cost, while home delivery is by far the most popular option. 

Chinese ecommerce is forecast to take over half of retail sales in the next year. South Korea is in second position on the list of countries with the highest share of retail happening online. It’s somewhat unlike many other mature ecommerce markets though – whereas in China, failed deliveries due to recipients not being at home result in a massive amount of locker usage, in South Korea that’s not the case. Parcel theft is very rare, which allows parcels to be left on the doorstep without risk – so failed delivery rates are very low for home delivery.

What that means for the typical online shopper in metropolitan areas of South Korea is that there is little or no incentive to opt for anything other than home delivery. Convenience is king.

A perfect storm

The situation in South Korea looks like a perfect storm. eCommerce adoption is increasing more than ever, and if consumers continue to expect extremely fast and cheap deliveries, costs are going to rise even more sharply for parcel carriers. Something will have to give if those carriers are going to stay financially viable.

Winning over customers to save on costs

The carrier sector has to fight on two fronts: keeping costs under control and shifting customer mindsets. The former could be achieved through the use of tech tools – the digitisation of the last mile promises to maintain service levels while reducing costs. The latter may be a little trickier to solve, but the answer might actually be hiding in plain sight. Lockers have never really taken off in South Korea. But in a nation where people will head to the nearest store (and that is usually a very nearby store), could there be a PUDO revolution waiting to be ignited?

If carriers can convince online shoppers that they can get the same speed and cost of delivery if they pick up orders from a nearby convenience store instead of having them delivered to their doorstep, that gives them a path forward to reduce the cost of each delivery without massively changing the level of service they offer to consumers. There are recent examples of this happening elsewhere – Amazon in the UK usually requires a minimum basket size to qualify for free delivery (for non-Prime customers), but has recently allowed shoppers free delivery to PUDO locations on items below this threshold. In Poland, the national post recently partnered with beauty retailer Hebe to offer rapid 24-hour delivery to collection points. Harmonising the convenience of both online and offline shopping has serious potential, and parcel carriers in South Korea might soon need to harness the idea.

To find out how Doddle can help you deliver cost-effectively in the last mile, get in touch today.

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