When Korean office worker Lim Ji Han wanted a television made by homegrown Samsung Electronics Co. (005930), he had Amazon.com Inc. (AMZN:US) ship it halfway around the world rather than walking to a department store.
The two-week wait saved him more than $600.
Lim is one of South Korea’s jicgoojok -- literally, tribe of direct buyers -- challenging local retailers who have long used their protected status to charge prices as much as nine times higher than overseas Web stores. International shipping offered by foreign companies, such as Seattle-based Amazon and Gap Inc. (GPS:US), is giving Korean consumers a workaround and forcing brick-and-mortar sellers to cut prices.
“Word is spreading online fast that products can be bought much cheaper abroad and people are blogging about product-specific shopping experiences, boasting about how much they saved,” said Gene Park, a retail analyst at Woori Investment & Securities Co. in Seoul. “Consumers who used to think of jicgoo as a complicated process are giving it a shot after realizing that the price difference is huge.”
For decades, South Korea’s retailers have enjoyed agreements with manufacturers that allow them to charge a premium for foreign and domestic products with little concern about competition. Overseas brands cut exclusive deals with local partners to get a quick start in Korea, said Lee Hay Lim, an economist studying consumption trends at LG Economic Research Institute in Seoul.
The national government began an effort to spur competition from abroad after complaints about price gaps for consumer goods. Startups have also sprung up, offering to ship products from overseas at a discount.
Savings offered by direct buying often more than make up for import duties, shipping fees and waiting times.
“Why should I pay more for the same, or a very similar, product?” Lim said.
Housewife Han Ji Won said she also finds it easier to ignore brick-and-mortar retailers and shop online. Han, 34, buys from Gap’s U.S. website, pays shipping fees and insurance charges, and waits a couple of weeks for her clothes. That’s preferable to paying the prices at local stores, she said.
“Jicgoo saves me about 30 percent compared with shopping at Gap stores in Korea,” Han said in an interview in Seongnam, south of Seoul, where she lives. “I don’t mind the delivery time.”
Data show that the direct-buying trend is expanding in Korea. Overseas credit-card spending grew 15.4 percent in 2013, outpacing a local increase of 3.2 percent, according to the Bank of Korea. Imports through e-commerce sites rose 47 percent to about $1 billion in 2013, according to the Korea Customs Service.
Under the traditional system, goods from San Francisco-based Gap are shipped exclusively to an affiliate of Shinsegae Co., the nation’s second-biggest department-store group.
Likewise, children’s clothing made by San Francisco-based Gymboree Corp. is sold to Lotte Shopping Co., of Seoul. Cie. Financiere Richemont SA’s Chloe fashion is among some 20 brands that can only be imported through Handsome Co., an affiliate of Hyundai Department Store Co. (069960)
Shinsegae, Lotte and Hyundai together accounted for 83 percent of department store sales in 2011, according to the latest figures from the Korea Fair Trade Commission. Shares of the nation’s three biggest department stores have slumped this year.
“This is a survival issue,” said Woori Investment’s Park. “The exclusive import rights held over many department store brands will soon be all gone” with prices of “just about everything” expected to fall, he said.
Critics of the system now include the government, which said on April 9 that it will encourage parallel imports by major outlets to increase competition and stabilize consumer price of import goods. Finance Minister Hyun Oh Seok said some imports sold through exclusive dealerships are “excessively expensive,” Yonhap News reported on April 1.
Ten frequently imported consumer items, including wine, lipstick, cheese and car tires, were 2.7 times to 9.2 times more expensive locally than overseas, the Korea Customs Office has said.
“Operating profit margins (AMZN:US) for Amazon.com are close to zero, but some Korean retailers still maintain double-digit margins,” said Lee, of LG Economic.
Shares of Lotte Shopping, which controls 45 percent of the market, have dropped 21 percent this year. Hyundai Department Store shares retreated 17 percent, while Shinsegae (004170) fell 10 percent. Shinsegae International Co. (031430), the affiliate with an exclusive contract with Gap, has slumped 18 percent.
Revenue at the three fell through four sale seasons last year even as brands such as Polo Ralph Lauren cut prices by as much as 40 percent, trade ministry data show.
By contrast, companies catering to Korea’s direct-buyers are seeing growth, including firms that offer U.S. delivery addresses to circumvent manufacturers’ and retailers’ shipping rules. Some, including Malltail.com, also test televisions in the U.S. before repackaging them for shipping to Korea.
Malltail saw a 13-fold revenue increase to 26 billion won between 2010 and 2013, according to the company.
“Korean consumers are savvy, smart, and want more choices,” said Choi Seung Sik, an agent at Malltail.com. “We’re just facilitating the process and reducing the delivery risk.”
To get his 55-inch LED television delivered to his home in Seoul’s Songpa district, Lim used the Korean website www.ohmyzip.com. The site redirected the shipment from Amazon, whose website doesn’t allow products made by Samsung or LG Electronics to be shipped to Korea.
Lim said he paid about $1,250, including taxes, insurance and delivery, which took two weeks. Depending on specifications, the same model retails in Korea for about 2 million won or about $1,900 at the time.
Samsung and LG said higher local prices include delivery and installation, and reflect other factors such as tax rates.
“The line-ups we provide in each country are optimized for specific conditions in each country, such as market demand and size,” Samsung said in an e-mailed statement.
Lotte Shopping (023530), Hyundai Department Store and Shinsegae declined to comment on their pricing policies.
“The jicgoojok are creating more competition,” Baek Un Chan, head of the Korea Customs Service, said in an interview. “More and more stores will be pushed to cut prices. Supply chains will be shortened. Marketing margins will be cut.”
Global Internet companies are also eyeing the market as the power of Korea’s big retailers erodes. Amazon aims to open a South Korean site this year, the Chosun Ilbo newspaper reported in January, citing industry officials it didn’t identify. Mary Osako, a spokeswoman for Amazon, didn’t return a call for comment.
For shoppers like Han, the attraction of direct-buying is unlikely to wane. She said she now makes about 70 percent of her purchases from overseas websites.
“Jicgoo is just a black hole -- once you start doing it, you can’t stop,” she said. “Why would you?”
To contact the reporter on this story: Cynthia Kim in Seoul at email@example.com
To contact the editors responsible for this story: Stephanie Wong at firstname.lastname@example.org Adam Majendie, Stuart Biggs