Affinity, BRV seal Shinsegae e-commerce deal

Affinity Equity Partners and BRV Capital Management have finalized an agreement with Shinsegae that will see them invest a combined KRW1 trillion ($878 million) in the South Korean retail group’s e-commerce business.

Thursday 1st November 2018

By Asian Venture Capital Journal

The transaction – for which a provisional agreement was announced in January – involves two Shinsegae subsidiaries: Shinsegae Department Store and discount store chain operator E-mart. The e-commerce businesses of each unit will be spun off into a dedicated platform, which will receive capital from Affinity and BRV. Shinsegae will match their commitment. The respective shareholdings have yet to be disclosed.

The spin-outs are scheduled for completion by the end of December and then the two business units will merge on March 1, 2019, according to a filing.

Shinsegae Department Store generated KRW1.58 trillion in sales through its 13 brick-and-mortar stores in 2017 and a further KRW82.4 billion through Shinsegai Mall. E-mart has 148 locations in Korea and a further 16 in China. Last year, its offline and online sales were KRW11.6 trillion and KRW863.4 billion, respectively. The parent company launched, an integrated e-commerce channel for all its subsidiaries, in 2014. It logged KRW2 trillion in sales last year, Yonhap News Agency reported.

Online retail sales in Korea reached KRW91.3 trillion in 2017, up from KRW67.6 trillion the previous year, with 57% of the total transacted via mobile devices. Approximately 60% of these sales were generated by online-only malls, according to Statistics Korea, a government agency.

The country’s traditional retail conglomerates have been relatively slow movers in e-commerce, allowing three independent players to steal a march: Coupang, Tmon, and Wemakeprice. They face competition from eBay’s Gmarket and Auction services.

VC investors say that the major stumbling block for Korea’s chaebols is the same as for their foreign peers that are tied to offline distribution channels: offline roots and established cultures make it hard to compete in a fast-moving world like e-commerce. At the same time, these roots – and the supply chain dominance that emanates from them – have enabled the chaebols to control the B2C space.

Affinity recently closed its fifth pan-Asian fund at the hard cap of $6 billion earlier this year. Recent Korean acquisitions include the acquisition of a majority stake in food container manufacturer Lock & Lock for KRW629.3 billion. BRV is a technology and consumer-focused investment firm established by BlueRun Ventures. It primarily operates in Korea, China, and Japan.