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[Exclusive] E-commerce

Kakao to buy fashion app, pushing aside eBay Korea

By Apr 08, 2021 (Gmt+09:00)

Kakao to buy fashion app, pushing aside eBay Korea

Kakao Corp., South Korea's top mobile messaging app operator, is set to acquire a majority stake in Zigzag, a domestic online fashion platform targeting teenagers and twentysomethings, after it dropped a bid for eBay Korea, according to investment banking and IT industry sources on Apr. 8.

Kakao will likely sign an agreement on the share purchase of Croquis Inc., which runs Zigzag, next week at its earliest, valuing the startup at around 1 trillion won ($900 million). The valuation is over 30% more than the fashion app's 2020 gross merchandise value (GMV) of 750 billion won.

The financial terms of the upcoming deal were not immediately known.

Last month, the mobile giant abandoned its bid for eBay Korea, for which SK Telecom, Shinsegae, Lotte and MBK Partners were shortlisted for the final race. Kakao was said to be the first company to express interest in eBay Korea last year, when the US online retailer decided to exit its Korean operations. But it changed tack to acquire a fashion app to offer customized services.

"Kakao switched its strategy to target a niche market, unlike Naver and Coupang," said one of the sources, in reference to the country's two biggest e-commerce platforms. "Giving up the bid for eBay Korea can be understood in that context."

The planned deal will follow retailer Shinsegae's 265 billion won purchase of W Concept last week, the second-ranked online fashion platform.

Zigzag and W Concept are among the big five online fashion startups in South Korea, including Musinsa, Ably and Brandi. Both Zigzag and W Concept target young women with an array of stylish and contemporary brands of clothing and shoes.

One of Zigzag's early investors, Altos Ventures, looks set to net a handsome return from its 3 billion won investment in 2016, following a decent profit from Woowa Brothers, the operator of South Korea's top food delivery app Baedal Minjok, which Germany's Delivery Hero has agreed to buy for $4 billion.

Altos and other venture capital firms, including Seoul-based Stonebridge Capital, hold a combined 40% stake in Croquis Inc., the operator of Zigzag. They will receive new Kakao shares equivalent to their shareholdings in the e-commerce startup. 

Kakao plans to set up a new subsidiary, with which Croquis will be merged, and then list the merged entity. Kakao has been spinning off key businesses such as banking, taxi-hailing services, fintech and entertainment to attract outside funding or list them on the stock market, which drove their valuations sharply higher.

Kakao to buy fashion app, pushing aside eBay Korea

E-commerce is the weakest spot for Kakao, which tops the country's mobile messenger, music streaming, taxi-hailing and webtoon service markets. Mobile gift coupons have been the main revenue source of its e-commerce operations, and these were part of a limited collection, such as for coffee and desserts.

Naver Corp. commands 18.6% of the domestic e-commerce market, followed by Coupang's 13.7%. Kakao's market share is just 2.9%.

Zigzag seems like a right fit for the mobile giant seeking to keep those in their teens and twenties on its platform and to offer a broader range of e-commerce products.

Zigzag was founded by software developer Seo Jung-hoon in 2015. It offers curated selections from the country's fashion mecca Dongdaemun.

To differentiate from other fashion apps, Zigzag offers a comprehensive recommendation feature. When users log onto the app, they are prompted to enter their age and preferred styles, which pulls in customized search results on the first page. The app’s algorithm is designed to offer a detailed recommendation based on the customers' purchase frequency and item searches.

The transaction value on the Zigzag platform, or GMV, has been on the rise from 200 billion won in 2016; 350 billion won in 2017; 500 billion won in 2018; and 600 billion won in 2019.

The sources said Kakao had once considered taking over sector-leader Musinsa, but chose the smaller player Zigzag instead because of the former's high valuation.

Musinsa, the largest of the big five fashion apps, is valued at over 3 trillion won, about twice its GMV of 1 trillion to 1.5 trillion won.

Online fashion malls have been growing rapidly by providing services that satisfy Gen Zers and millennials. The top five players’ combined transaction amount in South Korea surged to around 3.25 trillion won in 2020, up 40% from 2.3 trillion won a year earlier.

Write to Jun-ho Cha and Min-ki Koo at

Yeonhee Kim edited this article.
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