Category Killing, Korea Style

Three new store concepts developed and opened in two-and-a-half months. It sounds overwhelming for some, but for E-Mart, South Korea’s top discount retailer, it was a recipe for success. One of the concepts, a runaway hit, will have six locations by the end of 2011.

“The focus was not the limited time frame,” says Brian Kim, team manager of E-Mart’s brand strategy, “but executing new ideas for our consumers as fast as we could.”

Rapid growth and customer focus is a key for E-Mart, credited with opening the country’s first discount store in 1993. The company has more than 120 stores in South Korea and two dozen in China, and has such a lock on the domestic market that it purchased Wal-Mart’s Korean stores in 2006.

Its parent company, Shinsegae, is recognized as creating the first Korean department store in 1930; E-Mart was spun off from the Shinsegage department store division earlier this year to streamline decision making.

E-Mart initially wanted to redesign and rebrand its discount stores, engaging Dublin, Ohio-based WD Partners to work with branding partner Prophet, but saw an opportunity in another direction and quickly switched course.

“They’ve ... been doing a lot of touring around the U.S. and Europe and trying to understand what the future holds for E-Mart,” says Allison Westrick, WD Partners’ executive director for design and brand. “They had an interest in ‘category killer’ stores that they could develop in Korea.”

Between August and November 2010, E-Mart created three concepts designed to dominate in a single line of merchandise: E-Mart Traders, a warehouse store complete with exposed ceilings and private label brands; Molly’s Pet Shop, a high-end pet store and hotel that includes a café for customers to dine in with their pets; and Matrix, a glossy electronics shop organized around the ways that technology is used, with a gaming focal point and a complete home theater.

An unqualified success
The biggest hit has been Traders. Shinsegae previously operated a chain called Price Club, a joint venture with Costco that it sold to the U.S. retailer in 1998. In 2005, a local warehouse club formed by the Korean Agricultural Cooperative opened, but Hanaro Club focuses heavily on produce.

E-Mart “recognized the need for more competitively priced, bulk packaged and fresh goods for small business owners in Korea,” Kim says.

“We were confident that providing bulk packaged items at a reasonable price without any membership fees and providing business solutions ... would win the hearts of our sophisticated customers.”

That confidence was well-placed. The first Traders, located a short drive away from Seoul, had daily sales at 130 percent of expectations. Though executives had permission to only test one store, 12 months later three locations are open, and two more will open before the end of the year.

Catering to the customer
If Traders was honing a concept that had been tried before, Molly’s and Matrix were new ideas in a changing Korean marketplace.

“As a retailer, we are obligated to introduce new and better shopping environments to our consumers,” Kim says. “Local players seemed focused on stocking sellable items. We saw the need for more category killers, and thought about creating our own category-killer formats to provide better customer experiences at all touchpoints.”

A high-end pet store like Molly’s was designed to “offer something that didn’t exist,” Westrick says. “Here, there is social activity, training, a beauty studio alongside the standard ... vet services.”

Molly’s also offers on-site pet adoptions. “There has been rising demand for companion pets in Korea,” Kim says, but “most pet adoptions took place in veterinarian hospitals or small street shops. There had not been any one-stop shopping [to] benefit potential or existing pet parents.”

Molly’s has been successful, Westrick says, but it’s uncertain how well it will do on its own: The three new concepts were all built in the same location, largely as a matter of convenience. Future plans are for each to stand alone.

“I’m anxious to see Molly’s, in the next round, get its own flagship standalone place,” Westrick says. “It’s a nice small size, so it can fit into a lot of real estate configurations.”

Future diversification
Matrix also satisfies a niche. Koreans are among the most technologically advanced consumers, but prior to Matrix, “most small appliances were locked in showcases and customers had to ask sales staff just to get the product out,” Kim says. “In Matrix, consumers can freely touch and experience the latest electronics in an urban, casual and approachable store setting.”

Matrix continues to hone its product assortment. “The results have been good, but they’re merchandising consumer electronics in a way that is completely new,” Westrick says. “They’re still working out how big the store needs to be and how much merchandise they need.”

E-Mart is also shifting focus back to its primary discount stores, which are undergoing renovations. This spring, E-Mart vice chairman Chung Yong-jin announced a goal of becoming a top global retail firm in the next decade, a move that will include diversifying the company’s portfolio of retail outlets and channels.

Category killers remain at the top of the company’s plans. Kim believes the changing retail environment in South Korea is right for expansion. “Korean retail development is now introducing Western-type shopping malls ... and category killers to the market. However, it is difficult to develop large-scale shopping malls because the right kind of real estate is not easily available. There is a lack of a proven REIT [real estate investment trust] system, and there are not enough category killers to fill up large spaces in a shopping mall.”

So where does E-Mart go next? “There’s a lot of speculation as to what might be the next set of category killers,” Westrick says. “Honestly there probably will be more than one. They’re really looking to develop their portfolio. If they can open three brands from nothing in three months, who knows what else they can accomplish.”