Why Can’t Korea Sale Festa Become Black Friday?

November is the month of shopping around the world. Black Friday is the day after Thanksgiving, which falls on the fourth Thursday of November, and it is the biggest shopping day of the year in the United States. In the retail sector, as much as 70% of annual sales are said to occur during this period. Distributors and manufacturers pour out inventory that they had been unable to sell by Thanksgiving.

Sellers and distributors benefit by clearing out inventory, while buyers get to purchase goods at low prices. These days, Korean consumers are also increasingly jumping into direct overseas purchases through online distribution networks such as Amazon and eBay.

In China, Alibaba founder Jack Ma launched the Singles’ Day event with the slogan of overcoming loneliness through shopping. The event began on a very small scale, but in 2017 it drew global attention by surpassing U.S. Black Friday sales in just one day. This year as well, Alibaba Group set a new sales record with total revenue of 83.79 trillion won. Singles’ Day, which sells even apartments and automobiles through e-commerce, is capturing both domestic demand and overseas exports. It is the result of staying one step ahead in distribution innovation. Korean companies and consumers are also actively taking part.

Korea also has such an event. Korea Black Friday, modeled after America’s Black Friday, began in 2015, six years later than China. To revive consumer sentiment weakened by MERS, the government expanded the “Korea Grand Sale,” which had previously targeted only foreign tourists, to include domestic consumers. It is now known as “Korea Sale Festa” (hereinafter KOSAFE).

However, many people are still unfamiliar with KOSAFE, and in practice it has failed to meaningfully stimulate consumer sentiment. What explains why KOSAFE has not become Korea’s Black Friday?

Unlike in the United States and China, where companies took the lead in organizing these events, in Korea the government is in charge. It was pushed forward by the government simply because it had succeeded overseas. Businesses did not participate enthusiastically, and some even joined out of concern that they might face disadvantages if they did not.

When department stores participate in KOSAFE, they are required to bear half of the promotional costs. Although the event has continued for six years, it remains little more than a numbers game to pad the government’s performance record, and it may disappear at any time.

In terms of distribution structure, Korea differs from the two countries mentioned above. In the United States, distributors purchase goods directly from manufacturers. Therefore, pricing power lies with the distributors. In Korea, however, distributors merely rent out space where manufacturers can sell their goods. They operate by collecting commissions accordingly. That is why distributors have little reason to go all out promoting KOSAFE.

Many people wait for Black Friday, but few wait for KOSAFE. If the government merely tries to imitate what is doing well abroad, it cannot expect effective results. This kind of showy administration—assuming that “if it works overseas, it should work here too” without considering Korea’s distribution conditions—only threatens the value of Korea’s brand and wastes administrative resources.

Rather than trying to create something under government leadership, now is the time to remove regulations that obstruct distribution innovation so that distribution companies can take the lead.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: 코세페는 왜 블프가 되지 못하나

Author: Sung-no Choi

Date: 2020-11-16

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=23239