Coupang faces probe over alleged manipulation of search algorithms

South Korea’s Coupang is being investigated over allegations it manipulated search algorithms to prioritise its own products over those of suppliers, according to industry figures with knowledge of the probe.

The Korea Fair Trade Commission conducted an on-the-spot inspection at the ecommerce group’s headquarters in Seoul last month, following accusations it had abused its market dominance by giving greater exposure to its private label products on its platform than those of third parties.

The probe marked the latest setback for the SoftBank-backed company, which has faced public scrutiny even as founder Bom Kim has accelerated Coupang’s expansion plans following a $3.5bn initial public offering in New York in March.

It also came as the company faced criticism over its labour practices and workplace safety after a series of workers’ deaths at its warehouses, and consumer boycotts over its handling of a recent fire that killed one person and destroyed its biggest logistics centre.

Coupang has previously denied responsibility for the deaths and has stood by its fire safety procedures.

“The KFTC is looking into allegations of unfair business practices using its algorithms,” said an industry official close to the situation.

Last year, the KFTC imposed a Won26.7bn ($23.6m) fine on Naver, the country’s dominant internet portal, for tampering with search algorithms on its video and shopping platforms to place its own service above others.

Coupang has also been accused by civic groups of bullying vendors to offer products on its platform at the cheapest prices while disadvantaging those that do not accept its demands.

To protect small merchants, South Korean regulators have stepped up scrutiny of leading online groups for unfair business practices or abuse of market dominance.

The KFTC is expected to soon announce the results of an investigation into a 2019 complaint by LG Household & Health Care, one of Coupang’s suppliers, that the ecommerce group violated the fair trade act.

Analysts said allegations of tampering with algorithms were common in South Korea’s ecommerce sector.

Coupang’s own private label products accounted for less than 10 per cent of its overall sales but the proportion was expected to grow as the company sought to improve margins, analysts said.

“[The allegations] will definitely worsen Coupang’s image,” said an analyst at a local brokerage. “It is a consumer-facing business. The company needs to take them seriously and do something to regain consumer trust.”

Coupang declined to comment on the KFTC probe and allegations raised by civic groups.

Coupang’s US listing pushed Japanese technology group SoftBank to record profits last year.

But Coupang, whose valuation touched $118.3bn immediately following its IPO, has come under pressure from investors after disappointing first-quarter results that showed widening losses despite a sharp increase in revenues.