Luxury fashion platform Balaan files for court receivership amid slump

South Korea’s top luxury goods e-commerce platform Balaan Co. said on Monday it has filed for corporate rehabilitation with a Seoul court as the cash-strapped startup has been hard hit by the rapidly cooling fever for upscale fashion brands in the country.

Balaan is seeking to sell the company soon with a plan to select a manager for a deal this week, its CEO Choi Hyung-rok said.

“The court receivership is a move to stably repay receivables to our sellers and enhance the sustainability of the Balaan platform,” Choi said in a statement. “We aim to significantly improve cash flow by attracting an external buyer before the court approves rehabilitation plans to rapidly increase the stability and growth potential of the business.”

Balaan has struggled amid the slump of the country’s luxury fashion market and shrinking online transactions of high-end products. The company faced a liquidity crisis as it had difficulties in raising funds.

DOUBTS OVER REHABILITATION

Balaan is unlikely to be rehabilitated as the company suffered impaired capital – a balance sheet condition where a company's total capital becomes less than the par value of its capital stock – and it does not have sufficient assets to repay its debts, legal experts said.

Choi’s plan to sell the company to a local cosmetics wholesaler Silicon2 Co. has been effectively scrapped, industry sources said.

Silicon2 agreed to buy convertible bonds privately issued by Balaan for 15 billion won earlier this month.

Sellers to Balaan said they have not been able to collect their money from the platform, where they sold their products, in the first three months of this year because the platform has delayed payments to them, citing system errors.

It was reminiscent of the third-party merchants' nightmare late last year of delayed payments from Qoo10 Pte.'s e-commerce platform units.

Choi tried to ease such concerns, saying the company would normalize soon if it solved short-term liquidity issues.

“Outstanding receivables are less than Balaan’s monthly transaction value,” Choi said. Its monthly transaction value was estimated at around 30 billion won ($20.4 million).

“Starting from this month, we have structurally reduced costs to ensure that we return to the black.”

WHO ARE NEXT?

Balaan’s sales have slid in March, raising worries about its losses, however.

According to Korean alternative data platform KED Aicel, Koreans’ credit card transactions of Balaan were estimated to have fallen 35.9% to 5.9 billion won in the first 22 days of the month from a year earlier.

The KED Aicel estimates total payment values every week based on data from more than 20 million credit card holders.

Balaan is not the only victim of a slump in the South Korean luxury fashion industry amid a slowdown in Asia’s fourth-largest economy.

The credit card transactions of Trenbe, the country’s second-largest luxury goods e-commerce platform, were estimated to have tumbled 60.3% to 1.5 billion won during the March 1-22 period. Its credit card transaction value skidded 20.4% to 3.4 billion won in February.

Such declines are expected to increase its shortfall after suffering an operating loss of 7.9 billion won in 2023.

The credit card transaction of the No. 3 player Must’It was estimated to have lost 59.3% to 2 billion won during the first 22 days of March.

“It is a matter of time for the industry to go bankrupt as the Balaan issues will make it difficult to attract new investment and withstand mounting losses,” said an industry source.

From 2021 to 2024, South Korea’s luxury fashion platforms enjoyed strong growth thanks to local consumers’ craze for high-end items during the COVID-19 pandemic. Their growth accelerated in 2022 when pent-up demand after the end of long social distancing measures quickly elevated the desire for luxury in the country.

Write to Jae-Kwang Ahn, Yun-Sang Ko and Dong-jin Hwang at ahnjk@hankyung.com
 
Jongwoo Cheon edited this article.