How Coupang Conquered South Korean E-commerce

Often referred to as "the Amazon of South Korea," Coupang is the leading e-commerce platform in the country and one of the top e-commerce businesses globally. With $24.4 billion in revenue in 2023 and a remarkable CAGR of 43% from 2018 to 2023, Coupang dominates the South Korean e-commerce market where nearly half of the ~52 million population are active buyers. The company's Rocket WOW membership program – its version of Amazon Prime – has over 14 million subscribers, representing two-thirds of all Korean households. This is the story of how Coupang captured the hearts – and wallets – of nearly every household in South Korea in less than 15 years.

• Strategic pivot to logistics: Inspired by Amazon, Coupang shifted from a Groupon-inspired platform to a fully integrated e-commerce and logistics powerhouse. This once bold long-term bet is now its greatest strength.

• Deep consumer understanding: By precisely addressing local consumer preferences, Coupang has remarkably attracted nearly every household in South Korea to subscribe to its Rocket WOW program.

• Capital-intensive moat: The company's substantial logistics investments establish a durable competitive advantage, deterring rivals while enabling superior delivery speed, reliability, and service quality.

• Financials: Achieving a 43% revenue CAGR over the last five years and first-time profitability in 2023, Coupang is now positioned for continued margin growth and competitive resilience.

Before we dive into the story, we'd like to extend a special thanks to Speedwell Research and their interview on Business Breakdowns (2024), from which some of the insights in this article are derived.

The story of Coupang begins with Bom Kim, a South Korean-born entrepreneur who moved to the U.S. at a young age. Kim's entrepreneurial drive showed early in life when he launched Current, a magazine he later sold while still an undergraduate at Harvard. Kim enrolled in Harvard's MBA program seeking his next challenge, but it wouldn't be long before he dropped out to pursue something bigger – e-commerce.

Central to the story is Groupon's rapid growth in the U.S. shortly after its launch in 2008. Groupon became one of the fastest-growing companies in history during this period, leading to a $6 billion buyout offer from Google in 2010, which was declined. Groupon's success with its social commerce model was reportedly the inspirational spark for Kim, who was eager to bring a similar business to South Korea. He moved back to his hometown, Seoul, and launched Coupang in 2010.

Co-founder and CEO Bom Kim inside one of Coupang’s fulfillment centers.

Co-founder and CEO Bom Kim inside one of Coupang’s fulfillment centers.

Like most tech startups, Coupang needed early funding to survive and grow, but those first funding rounds are still a bit of a mystery. Among the initial believers was none other than Clayton Christensen – the author of The Innovator's Dilemma, famously a favorite of Steve Jobs. Christensen got in on the action through his fund, Rose Park Advisors, but the exact amount they invested is still under wraps.

About a year after its inception, with only around $100,000 in revenue, Coupang attracted the attention of the highly-respected San Francisco-based VC firm Altos Ventures, which acquired a stake during its second funding round in 2011. This raise brought in $18 million – just what Coupang needed to lay a solid foundation and kickstart its rapid growth.

At the heart of Altos' strategy are trust and a long-term commitment, values that are carefully nurtured by co-founders and General Partners Ho Nam and Han Kim. Instead of micromanaging or imposing strict oversight, Altos empowers founders to lead, offering guidance when needed while allowing them the autonomy to steer their businesses. Nam and Kim place great value on resilience and creativity, prioritizing entrepreneurs who are passionate and capital-efficient – those who have grand visions and can do more with less. With this approach, one could argue that Altos was investing in Bom Kim as much as in Coupang itself – which would pay off significantly.

The early belief from both Clayton Christensen and Altos in Kim quickly paid off; by 2012, just two years after its inception, Coupang had already become one of South Korea's leading e-commerce platforms.

Coupang made a bold decision to double down on its aggressive logistics infrastructure strategy in 2014. The company consequently raised $300 million in a funding round led by BlackRock and Sequoia, followed by a $1 billion investment from SoftBank in 2015.

Coupang launched its Rocket WOW program (similar to Amazon Prime) in 2018, guaranteeing seven-hour delivery on millions of items. Fast forward to today, Rocket WOW now has ~14 million subscribers.

Coupang's revenue growth 2015-2023.

Coupang's revenue growth 2015-2023.

Here's a well-known quote from Jeff Bezos on Amazon's strategy for original content production through Prime Video, which is integrated with Amazon Prime – a model that also holds relevance for Coupang and Rocket WOW:

E-commerce has produced numerous success stories in recent decades. Companies like Amazon, Alibaba, MercadoLibre, JD.com, and Coupang have all grown to become some of the largest companies in their various geographical home fields. These platforms have also evolved into fintech providers and cloud computing operators. But it is logistics, the ability to move goods swiftly and reliably, that forms the backbone of e-commerce businesses like Coupang. Beneath the surface of seamless digital transactions lies a complex and capital-intensive infrastructure – one that takes years, even decades, to build and perfect.

Since Coupang doesn't publicly disclose the number of trucks and warehouses it owns and operates, let's take a brief look at its closest global peer: Chinese JD.com. JD was the first in China to take the bold step of fully integrating its supply chain. The result? JD built China's largest and most reliable logistics network, which includes over 75,000 trucks, 2,200 warehouses, and a delivery workforce of over 300,000. This vast logistics operation has become the company's greatest asset, allowing it to offer unparalleled service levels in China, where trust in product authenticity and quality is a significant concern. The same could be said for Coupang.

Visualizing the size of Coupang's logistics footprint.

Visualizing the size of Coupang's logistics footprint.

Consider the challenge of replicating such an infrastructure and the power it gains as it becomes increasingly digitized and interconnected. By leveraging advancements in AI, JD has for example mastered resource allocation with systems that not only determine optimized routes but also provide real-time tracking of goods and vehicles. JD has even transformed its warehouses into a revenue stream by monetizing third-party merchants who seek prime storage locations to enable faster deliveries.

Coupang has primarily expanded its product range in-house through its first-party sales operations. However, in recent years, Coupang's marketplace initiative has gained more focus in its IR communications. Although they do not yet disclose exact revenue figures from third-party sellers, they stated in the Q2 2024 report that sellers joining Fulfillment and Logistics by Coupang (FLC) increased by 25% quarter-over-quarter and 150% year-over-year. This tells us that Coupang is currently placing significant focus on third-party merchants, positioning itself as a service provider in the area where it arguably is best in the world at – logistics.

It's entirely plausible that the vast fleets of these e-commerce giants will one day handle the movement of nearly every physical item we buy. As these networks grow and become increasingly sophisticated, they could evolve into a universal backbone for the distribution of goods, redefining our expectations for speed, efficiency, and accessibility.

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• Coupang covers over 55 million square feet of infrastructure, and the largest full-time fulfillment and logistics workforce in South Korea.

• Automated vehicles transport items straight to pickers, cutting down walking and lifting by about 65%.

• Within seconds of a customer's order, Coupang's AI-powered management system generates the unique, optimized path each item will follow, down to the exact spot in the specific truck where it should be loaded.

• The AI also coordinates tasks for workers and drivers using real-time data, allocating labor and providing optimal routes. The system even predicts future demand to forward deploy inventory.

• Coupang is gradually swapping out diesel for EVs, which already comprise 50% of its fleet in some of the largest cities in South Korea. Even its EV logistic centers are built in-house from the ground up.

• 85% of Rocket Deliveries don't use additional cardboard box packaging, which is typically required in conventional models to protect products throughout multiple hand-offs. This measure saves the equivalent of 9 million trees annually.

• Coupang deploy reusable Fresh bags for grocery deliveries, which customers can place outside their doorstep to be recollected by drivers on their next delivery for cleaning, sterilization, and reuse.

• Coupang collects plastic packaging for closed-loop recycling, transforming it into new delivery bags. Around 80% of its packaging consists of recycled material.

With the third-largest private workforce in South Korea, Coupang aims for a world where people say, "How did we ever live without Coupang?"

Coupang fulfillment center workers packing orders.

Coupang fulfillment center workers packing orders.

We reached out to Drew Cohen at Speedwell Research, to get his expert take on what really gives Coupang its competitive edge. Here's how he put it:

A business can only optimize for a limited number of variables. The fewer variables they focus on, the more they can optimize for each. (this is essentially the Meta-Optimization idea). Coupang has built their entire organization to focus on 6 primary consumer preferences: 1) delivery speed, 2) selection, 3) price, 4) consistency, 5) trust, and 6) order ease. To successfully compete against Coupang, a would be competitor would have to beat them on all 6 aspects.

In order to have a fast delivery operation, the item will need to be housed in a warehouse. However, the only way to get a merchant to do that is by buying the product outright (1P) or generating enough demand to convince merchants to make their inventory exclusive to Coupang (3P). With no demand, you can’t start with 3P, which means you will need to go the 1P route. However, without bulk purchasing, the prices you get will be higher and payment terms worse.

Beyond that, even once you get the inventory, you will need a lot of volume in order to rationalize the cost of a fully owned and self-operated delivery network, which is very expensive. Coupang has over 100 fulfillment centers and over 50mn square feet of fulfillment space, not to mention all of their trucks that are custom made to expedite delivery. Not only would it take millions of orders delivered daily to make such an investment economic, the volumes are also required to create the data to know where to place the inventory and how much to have in-stock in the first place.

Owning the full chain of logistics also allows them to upstream pre-sort parcels, which cannot easily be copied as most operators do not integrate between packaging in the warehouse and the delivery truck, creating inefficiencies with uncombined orders. It also allows them to quickly implement process innovation improvements like opting for bags rather than boxes, which saves costs while also allowing them to reduce the space an order takes up in the truck.

All of this optimization and improvement is only possible with an immense amount of volume, which a competitor would struggle to generate as they will not be able to match Coupang's value prop in the first place without it! Whereas Coupang had the luxury of competing against 2nd tier competitors with inconsistent operations, any one trying to displace Coupang has to compete against a highly optimized operation that happily satisfies some 22mn consumers, 14mn of whom are loyal Rocket Wow members that pay a monthly fee for the privilege of free delivery, among other perks like video streaming and reduced fees on Coupang food delivery.

Matching Coupang’s offerings would not be good enough to win these loyal members' business who have used Coupang reliably for years and know they not only are extremely consistent but trust they will make any issue right with frictionless returns. An upstart competitor would have to figure out how to provide a much better experience than Coupang in hopes of winning over any customers – and even then, they are likely to bleed billions in losses for years in the pursuit.

Coupang's financial development is very impressive, with a 43% CAGR in revenue over the past five years and its first profitable year in 2023. Achieving $24.4 billion in revenue that year, Coupang's growth in both absolute numbers and percentage naturally raises the question: what does the future look like? As Coupang continues to add more services to its offering and optimize its logistics, it makes sense that margins should continue to rise from here.

Coupang targets a long-term adjusted EBITDA margin of at least 10%. This aligns with its focus on efficiency gains and focussing on growing the ads business. Central to understand Coupang's strategy are its operating tenets, which have been included in every earnings report since its IPO on the Nasdaq in 2021. This reinforces the company's long-term vision and reflects specific cultural influences within its management, such as a strong focus on long-term cash flow.

Coupang's five operating tenets.

Coupang's five operating tenets.

Coupang, like Amazon, has one crucial option that can significantly move the needle for margins going forward: advertising. Advertising revenue allows platforms to extract even more value from transactions, especially when shoppers arrive with a clear intent to buy. It's therefore a very natural progression for e-commerce platforms. A top spot in search results is incredibly valuable for sellers. With the largest customer base in South Korea and vast access to user data, Coupang can offer sellers precise targeting options and naturally monetize that.

Every major e-commerce platform in the world, including those previously mentioned – Amazon, JD.com, Alibaba, and MercadoLibre – is now heavily focusing on advertising. An interesting point is that many analysts believe Amazon, which has made the most progress in adopting advertising among these, now generates roughly as much EBIT from its advertising business as it does from AWS. Surprising, isn't it? Amazon's rapid advertising growth – up 27% and reaching $47 billion in revenue in 2023 – is now twice the size of Coupang's entire business. This growth marks a significant industry shift and poses the first major threat to Google and Meta in the past decade.

When it comes to Coupang's advertising, we don't have exact figures since the company doesn't disclose this. However, sponsored ads started showing up in search results a few years ago, which suggests Coupang's ad business is still in its early stages. And as we've seen with platforms like Amazon and Mercadolibre, advertising has become a key contributor to both growth and margins. This of course indicates, maybe even confirms, that Coupang is currently focusing heavily on scaling up its ad business.

At the end of the day, Coupang's financial story is still unfolding. The combination of more efficient logistics, growth in advertising and other services, and its steady grip on customer traffic gives it a unique position – one that will likely lead to improved margins.

Historically, Coupang has made two major acquisitions. The first was in 2013 when it acquired the California-based startup CalmSea, which specialized in predictive analytics for e-commerce. The second and more recent acquisition occurred in January 2024, when Coupang acquired Farfetch for $500 million, a luxury fashion e-commerce platform. This deal aims to strengthen Coupang's presence in the global luxury goods market, leveraging its logistics capabilities to serve high-end customers.

This move represents two strategic expansions for Coupang: 1) Extending its presence beyond South Korea, and 2) Entering the luxury goods market. Notably, South Korea ranks among the highest in per-capita luxury spending, suggesting that this acquisition could further solidify Coupang's grip on the Korean consumer.

The acquisition also provided Farfetch with critical capital to stabilize its operations amidst financial challenges. Prior to this, Farfetch explored options to address its cash needs, including a potential minority stake acquisition by Richemont (owners of Cartier, IWC, and Vacheron Constantin, among other luxury brands). However, Coupang's $500 million offer ultimately secured the deal, allowing Farfetch to continue as a private entity under Coupang's ownership.

Now, you might wonder if Coupang has made any other attempts outside of South Korea besides its acquisition of Farfetch. Absolutely, it took its first big step in Japan. Coupang launched in Japan in June 2021, focusing on essentials like food and daily goods in Tokyo. Things however didn't go as planned, and by March 2023, Coupang decided to withdraw from the Japanese market.

Meanwhile, Coupang has also dipped its toes into Taiwan and Singapore. Taiwan is actually becoming a pretty serious endeavor; it has opened two fulfillment centers there, with a third on the way in the second half of 2024. Interestingly, Taiwan is the only country besides South Korea where Coupang has launched its signature Rocket WOW membership program, which of course signals that this is a serious expansion attempt.

In Singapore, Coupang has been a bit more experimental, setting up logistics and hiring locally to see how things play out before making any major moves. The conclusion we can draw so far is that both Taiwan and Singapore definitely remain in Coupang's game plan, but nearly 100% of its focus continues to be on South Korea.

Farfetch’s revenue and EBIT development 2015-2022.

Farfetch’s revenue and EBIT development 2015-2022.

One key lesson is that increased capital investment doesn't necessarily mean that a business is less valuable just because it affects short-term free cash flow. When CapEx serves to lower risk, build a durable moat, or substantially boost future earnings potential (in a best-case scenario all three), it can be highly valuable. For investors, the challenge lies in evaluating whether a CapEx cycle is truly beneficial. Often, markets penalize companies with lower valuations for rising CapEx – likely due to short-term focus – overlooking long-term advantages that these investments may offer.

It's easy to overlook the value of a business that is so heavily reliant on physical assets. In an ideal scenario, investors are looking for businesses that don't need heavy investments to grow or sustain their market share. Capital-intensive companies often trade at lower multiples compared to their lighter counterparts as a result. However, capital intensity can also create and reproduce strong competitive advantages.

As you'd likely agree, a company's valuation isn't solely based on future cash flow; that future cash flow must also be adjusted for risk. Coupang's logistics infrastructure creates substantial barriers to entry, giving the company an edge in a hyper-competitive market where price wars can quickly erode margins. On the risk side of the equation, the physical infrastructure is therefore of massive importance.

As e-commerce continues to grow globally, we're likely to see a consolidation of power among a handful of dominant players in each region. These companies will not only control vast logistics networks but also play leading roles in fintech, cloud computing, and other areas that extend beyond traditional retail given their data advantages and large customer bases.

The question for Coupang, and indeed for all e-commerce giants, is how to maintain a competitive edge when logistics networks begin to reach maturity. One intriguing possibility is the further automation of logistics, where robots and AI-driven systems replace human labor, driving down costs and speeding up deliveries even further. There is however an interesting question about the perceived marginal benefit to customers when reducing delivery times from say 7 hours to 1 hour. Fortunately for Coupang, network effects at such a large scale are incredibly difficult to compete with, creating strong barriers to entry – even if a competitor were to succeed in building a similarly efficient logistics operation.

Coupang's journey from a Groupon-inspired startup to South Korea's e-commerce titan is a classic story of resilience, strategy, and a relentless focus on the customer. With a bold bet on building a logistics network from scratch roughly 10 years ago, Coupang has now embedded itself into the everyday lives of half of the Korean population. An accurate description is that Coupang didn't just capture a market; it created a new standard for what e-commerce can be.

This success offers a simple but powerful takeaway: you don't need to be first to win, but you do need to meet consumer needs better than anyone else. Coupang's competitive edge lies not just in providing products but in delivering them with speed and consistency, in a way that's perfectly attuned to the demands of South Korean consumers. As the company continues to expand into areas like advertising, it's following a familiar path set by other e-commerce giants while staying true to its strengths – hinting that the best is yet to come for this business.