Please read the important disclosures at the end of this document.

Coupang’s potential $58B IPO* would put it at the top of an excellent 2020 cohort, including Palantir ($15B), DoorDash ($32B), Snowflake ($33B), and Airbnb ($47B). A comparison of Coupang’s S-1 data to global comps as well as Goodwater’s proprietary consumer research illustrates why Coupang has established itself as the dominant e-commerce player in Korea. Coupang is potentially setting a new benchmark for global e-commerce companies across Asia and the U.S. and there are a number of key lessons startups can learn from what Coupang has achieved.
*$58B assumes Coupang prices at the top of the range of $32 – $34 / share.

Coupang’s Rising Market Dominance in Korea

Nothing demonstrates how well Coupang competes than seeing its market share widen from 2019 to 2020:

Not only does Coupang have a market leading position, but it is also the only player making major market share gains, widening its lead over competitors.

Surveying consumers provides an even starker contrast — while consumers are evenly split across most online shopping platforms, Coupang is both the most commonly used and the most frequently used platform, easily 2x over competitors.

Consumers are clearly finding reasons for coming back and spending on Coupang over its competitors.

To put this competitive dominance into perspective, we can compare Coupang to major US e-commerce players.  Using dollar retention rate (the amount of spending that a cohort spends each year after they were introduced to the platform — for example, if someone spent in 2016, year 2 would be 2017) as a proxy:

Even as far back as the 2016 cohort, Coupang dollar retention rates exceeded Walmart, Etsy, and Alibaba for every subsequent year (2017, 2018, etc.) with the gap widening each year.  Customers are coming back and spending at a rate that easily exceeds those platforms and closely matches the behavior on Amazon.

But more surprising is Coupang’s 2017 cohort, where dollar retention in each subsequent year (2018, 2019, and 2020) has started to exceed even Amazon.  Just in 2020, that 2017 cohort spent 346% of the original spend in the first year, compared with Amazon at 278%. Later cohorts have already improved on top of that. The value of these customers are not only best-in-class in Korea, but likely the highest in the world.

Coupang has established a consumer value proposition in Korea that exceeds even that of Amazon in the US, and startups can learn from Coupang’s laser focus on customer experience.

Customer Experience Driving the Coupang Flywheel

In Coupang’s words, the main driver of its success is their commitment to “wow” the customer:

“We are committed to delivering a “wow” experience to all of our customers every day.  This commitment drives every aspect of our operations and pushes us to redefine the standards of e-commerce.”

When it started ten years ago, Coupang started with a seller-centric interface similar to eBay, but moved over to a product-centric interface more akin to Amazon in order to solve problems like duplicate listings and multiple prices in order to make the customer experience better.

While most e-commerce players are happy to stop with digital improvements, the limited e-commerce infrastructure in South Korea was always going to be a limiting factor in wow-ing the customer unless they found a way around:

Limited E-commerce Infrastructure. In the U.S. and other markets, nationally scaled delivery and logistics companies like UPS and FedEx existed even prior to the ubiquity of e-commerce. In contrast, no major third-party logistics company in Korea reliably offers next-day delivery at scale or delivers every day of the week. As a result, merchants are forced to stitch together highly fragmented solutions using third-party services across logistics, fulfillment, and delivery. The fragmented nature of existing fulfillment, logistics, and delivery solutions in Korea, all of which are essential to the development of a robust e-commerce ecosystem, means that significant capital investments are required to build an integrated and end-to-end network for e-commerce.”

Those logistics limitations threatened to make the e-commerce experience deficient when compared with walking into a local brick and mortar store. In order to wow the customer, Coupang did the difficult thing and invested heavily to build 100 fulfillment and logistics centers in 30 cities and hire 15,000 delivery drivers in order to get the coverage they needed:

“70% of the population lives within 7 miles of a Coupang logistics center. Our operational infrastructure spans over 25 million square feet across over 30 cities, a footprint of over 400 football fields in a country that is 1% the size of the US geographically.

Those investments in not only technology, but also operations and logistics, have enabled it to offer game-changing features to the customer:

  • Rocket Delivery — “Next Day Free shipping Customers are eligible for free, one-day delivery nationwide 365 days a year—even the day before gift-giving holidays like Christmas”
  • Dawn and Same-Day Delivery — “Millions of items every day—including fresh groceries—are delivered within hours via Dawn Delivery (ordered as late as midnight, arrive before 7am) or Same-Day Delivery (ordered in the morning, arrive same-day).”
  • Effortless Returns — “No need to pack a box or print a label. Our customers simply tap a button on the app and leave the item outside their door for pickup. Refunds are initiated the moment the item is picked up at the door.”
  • Deliveries without Packaging — “Our re-engineered fulfillment process eliminated cardboard boxes in over 75% of the parcels we package, and our latest innovation, Zero Packaging, first introduced for Rocket Fresh, eliminates almost all disposable packaging by delivering in eco-bags that are collected for reuse after each delivery.”
  • Last Order by Midnight — “Customers are promised free, next-day delivery for orders placed any time of day—even seconds before midnight.”
  • Vast Selection of Millions of Items — “Customers can order from a selection of millions of items across almost every category of goods—from tomatoes to TVs—for next-day delivery. We have the largest number of total SKU count for owned inventory products listed on our e-commerce apps and websites compared to other product e-commerce players in Korea. We also have the largest total SKU count for both owned inventory and third party products listed on our e-commerce apps and websites compared to other product e-commerce players in Korea.”

Keep in mind that these features are offered in a country where the norm is for school-aged children to return from after-school classes at 10pm and where the work culture rivals that of the 996 work culture in China.  Promising people next day delivery when they’re home and online between 10pm-12am is an incredible challenge for order fulfillment, but a sublime experience for the consumer that keeps them coming back for future orders.

The result is that consumers are using Coupang the most over other Korean e-commerce platforms; there’s just no comparison for the price and the convenience that the platform offers:

And that leadership with the consumer is leading them to come back every week and month:

Coupang’s focus on customer experience isn’t just a blind effort, but instead a result of how the company believes it drives compounding value to the platform — customer experience is what drives the Coupang flywheel.

The S-1 tells us how:

  • As customers learn more about our superior experience, we believe more customers will choose our offerings and existing customers will also spend more and more.
  • Increasing scale will make us not only more compelling to merchants and suppliers, but also generate economies of scale and operating leverage, resulting in increased profits.
  • Increasing profits enables us to invest in efficiency improvements, more compelling offerings, and lower prices, all of which attract more customers and merchants to our ecosystem and increase their engagement.
  • The net result is that we are building a consumer and merchant network that we expect to continue to grow and monetize over time.

Let’s try to visualize this with a picture:

Looks similar — and it should be — it closely resembles the Amazon flywheel.  While Amazon was likely the original inspiration, Coupang has adapted it to its own local market better than anyone else. Coupang’s focus on customer experience driving the flywheel remains the reason why they’re seemingly pulling ahead of competitors, and in some ways, out-Amazoning even Amazon. Every startup can benefit from ensuring their flywheel is robust and clear.

Korea: A Country Perfect for Internet Innovation

While Coupang deserves much of the credit for its progress, the company also enjoys a number of inherent advantages that are natural to Korea that enable rapid internet innovation faster than larger countries, with its high internet penetration, relatively wealthy population, and high population density.

South Korea’s high rates of Internet and smartphone penetration are well-documented. Its connectivity rates are among the highest in the world, and make the effective market for digital services the entire 50M population within its borders:

The country also holds its own among developed nations with a relatively wealthy population that makes the market opportunity larger and more attractive despite its smaller population versus its larger neighbors (Japan with a 126M population and China with a 1.4B population):

But it’s the density of this relatively wealthy, internet connected population that really helps to accelerate innovation.  South Korea’s top cities rival the density of the major metropolitan areas in the US:

While the US has the luxury of excess land that has led to extensive suburbs and rural areas that house sizable populations, South Korea’s actual usable land is limited by its geography. Much of Korea is mountainous and forested regions, which limit the population outside those top cities.

So while South Korea has the same amount of land as Indiana, its actual usable land area is actually closer to that of Rhode Island.

South Korea’s 50M people, equal to the populations of California and Georgia combined, all fit into that small area, making it the third densest country in the world (Rhode Island, for reference, only has 1M people in the state).

These factors make South Korea a fertile ground for digital innovation and a region where tech-enabled change happens at an even faster pace than in larger countries. The creation of the Coupang model, while perhaps the most prominent example, is unlikely to be the last innovation coming from South Korea. Like Coupang, entrepreneurs around the world can combine unique nuances of their local market with global learnings to create innovative solutions for consumers.

Out Amazoning Amazon is Just the Start

There’s plenty for entrepreneurs to learn from Coupang, where it’s taken an excellent model that was pioneered by Amazon, applied the same maniacal customer focus, and adapted it to local consumer preferences in order to serve its customers even better than Amazon can in the US.

While it’s tempting to point to Coupang as an anomaly, the underlying conditions in Korea, with its dense population and high internet connectivity rates, are likely to lead to a continued trend of innovative companies in the country for years to come.

This document is for general informational purposes only. This document does not constitute investment advice or any offer to provide investment advisory or investment management services. The information in this document should not be construed as any current or past endorsement, recommendation or sponsorship of any company or security by Goodwater Capital. This document does not constitute a solicitation, offer, opinion, or recommendation by Goodwater to buy or sell any security, or to provide legal, tax, accounting, or investment advice or services regarding the profitability or suitability of any security or other investment. At the time of issuance of this document, Goodwater did not hold any interest in the company discussed in this document. Please refer to our Terms of Use for more detailed information.