Musinsa drops plan to buy Japan-focused rival fashion platform

South Korea’s top online fashion platform Musinsa withdrew a plan to acquire a local rival that focuses on Japanese shoppers.

The move indicates that South Korean unicorns, startups with a valuation of more than $1 billion, have begun accumulating cash instead of expanding their businesses as rising interest rates dampened the initial public offering market, drying up liquidity in the venture industry, sources said.

Musinsa has recently decided not to acquire Seoul-based Dholic Commerce Co., according to industry sources on Wednesday.

The country’s top fashion app operator had been in the last stages of talks to buy Dholic from its founder and CEO Lee Dong-hwan, who holds an 86.63% stake, and venture capital firm We Ventures in order to start overseas businesses with the acquisition. Musinsa had negotiated its smaller rival's purchase with an agreement on its corporate value of around 100 billion won.

“We considered the takeover of Dholic for a foray into the Japanese market, but we decided not to proceed in the process of re-establishing our strategy for Japan,” said a Musinsa source.

CASH INSTEAD OF EXPANSION

Dholic, which started as a small online shop back in 2001, expanded its presence in Japan with a localization strategy. Its gross merchandise value, or the total value of goods sold on its platform, reached 110 billion won ($87 million) annually as of 2020 with six offline clothing stores and eight cosmetics shops in Kyoto, Sapporo, Fukuoka and other Japanese cities. But the business tumbled amid the COVID-19 pandemic.

Musinsa had targeted Dholic as a bridgehead for its overseas business, an urgent task ahead of its planned listing next year. The leading domestic fashion platform had aimed to accelerate its global market presence by acquiring a solid player in its target market, rather than starting from scratch.

Musinsa’s withdrawal came as investor sentiment in the local startup sectors rapidly soured, industry sources said.

Prominent startups have been expected to pile up cash instead of expanding their business portfolios with ample liquidity as uncertainties surrounding macroeconomic conditions have grown alongside rising interest rates and surging inflation, they said. The uncertainties have also hit the domestic IPO market that helps investors collect their investments and profits.

Write to Jun-Ho Cha at chacha@hankyung.com
Jongwoo Cheon edited this article.