Lotte to end dawn delivery service where Coupang, Kurly lead

South Korea’s retail giant Lotte Group will cease dawn delivery services for fresh food from this weekend, two years after it jumped into the burgeoning market to challenge Kurly Inc. and Coupang Corp.

Instead, the group’s online mall operator Lotte On will focus on the areas where it has been doing well: premium beauty products and luxury fashion brands, the company said.

On April 12, Lotte On launched an online shop for premium beauty products. The website, dubbed On and the Beauty, houses about 80 brands, including French labels Estée Lauder and Yves Saint Laurent, as well as British perfume maker Jo Malone.

On the e-commerce mall, Lotte Department Store’s cosmetics brand managers will upload videos to introduce their products and share makeup tips. If a shopper presses the “Gift” button, the product will be packaged in the same way as it is done at the offline shop of Lotte Department Store and delivered to the designated address.

“It is as if we moved the cosmetics corner just as it is on the first floor of our department store to the e-commerce platform,” said a Lotte On official.

To set it apart from other e-commerce players, Lotte's new online mall will specialize in fashion and luxury brands, starting with beauty products.

The online luxury shop launch was based on Lotte’s conclusion that there was no point in losing money to catch up with the first movers such as Coupang and Kurly in the dawn delivery segment of fresh food and daily necessities.

The rise of specialty online retailers was also behind Lotte's decision to exit from the early morning delivery market. Market Kurly and O House, the country's largest home interior platform, are among the popular specialty shops on the internet.

Business restrictions on large retail stores remain another hurdle to Lotte's expansion of delivery service.

Under the current laws aimed at protecting small shops and traditional malls, large supermarkets must close by midnight and shut their doors twice a month. The laws make it difficult for them to handle online orders placed overnight.

“It is inefficient to build warehouses for dawn delivery services, instead of using our offline stores scattered across the country,” the Lotte On official said.

While retreating from the dawn delivery service for fresh food, Lotte On will step up immediate delivery service, or deliver products within two hours of an order.

Meanwhile, Kurly last month applied for an initial public offering, in which it plans to raise around 1 trillion won ($816 million). Shinsegae Corp.'s e-commerce arm SSG.COM and Oasis, a fresh food delivery app, are preparing to follow suit.

Growing expenses for delivery and packaging have swelled Kurly's losses, which could dampen investor appetite for its IPO.