Musinsa seeks to buy Japan-focused rival fashion platform

South Korea's top online fashion platform Musinsa is in the last stages of talks to acquire a domestic rival that caters primarily to Japanese shoppers, according to people familiar with the situation on April 13.

Seoul-based Dholic Commerce Co. was one of the potential acquisition targets Musisa had reviewed in an effort to speed up its overseas expansion. It finally concluded Dholic would be the right fit for its foray into Japan, while the smaller rival's offline expansion there took a hit from COVID-19.

Dholic has been focusing on Japan for more than 10 years. It operates 14 offline stores there, alongside an online shopping mall selling Korean street clothes that appeal to Japanese customers.

Musinsa will likely purchase 100% of Dholic Commerce from its founder and CEO Lee Dong-hwan and venture capital firm We Ventures at an enterprise value between 150 billion and 180 billion won ($130 million-$150 million).

That valuation compares with the 100 billion won enterprise value for the fashion platform in late 2019, when the VC firm invested 16 billion won.

Musinsa will pay for the acquisition with its company shares, the sources said. Lee controls an 86.63% stake in Dholic, and the VC firm holds another 12.51% stake.

When asked about the negotiations with Dholic, Musinsa said: "We are considering the acquisition, but nothing has yet been determined."

VALUE INCREASE AHEAD OF IPO

With an estimated value of 4 trillion won, the country's No. 1 fashion app boasts over 10 million users, claiming one out of every five South Korean residents as its customers. 

With its active user count approaching 4 million a month, Musinsa is now striving to find a new growth pillar abroad, ahead of its planned initial public offering next year.

The fashion platform became popular among street casual style enthusiasts as it provides a wide selection of foreign casual brands that were hard to find in Korea, alongside its exclusive sales for limited edition shoes.

In its first step toward overseas expansion, Musinsa opened a subsidiary in Japan last year and launched a pop-up store in Shibuya, a retail district in Tokyo. The offline store introduced a Korean streetwear brand for women.

But it has changed its overseas strategy to acquire a company that has a presence in its target market, rather than starting from scratch.

Dholic started as a small online shop back in 2001, when the idea of purchasing clothes online was new. Since the mid-2000s, it has advanced into China and Japan to avoid head-on competition with a wave of new domestic rivals.

For the past 10 years, it has put its focus on Japan, which has a similar purchasing power to that of South Korea and a relatively short distance to ship products from Korea. Dholic has built a transportation system to deliver its products to Japan within three to four days of placing an order.

In Kyoto, Sapporo, Fukuoka and other Japanese cities, it runs six clothing stores and eight select shops, which offer a wide range of cosmetics brands. Musinsa expects those offline stores in Japan could be used as its sales outlets.

Dholic's gross merchandise value, or the total value of goods sold on its platform, reached 110 billion won a year as of 2020. 

Dented by the COVID-19 pandemic, however, its sales dwindled to 94 billion won in 2021, compared with 140 billion won two years earlier.

After the expected deal with Musinsa closes, Dholic's founder Lee will stay on as CEO, the sources said

For the acquisition of another e-commerce app StyleShare Inc. sealed last year, Musinsa paid with its own shares, which could increase the returns for the seller if Musinsa makes a successful IPO next year.

Write to Jun-Ho Cha and Jong-Woo Kim at chacha@hankyung.com
Yeonhee Kim edited this article.