During my vacation, I read a news article about the largest department store in America closing down almost 100 stores. It said that the largest retail outlet decided to shut down 300 stores this year following its closure of 200 stores last year. What's more, the top U.S. sportswear brand is closing down 460 stores nationwide, despite sports is still booming as a big part of American life.

The U.S. is relatively in much better financial condition than other countries around the word, less suffering from sluggish economy or aging population that have affected other countries. Then, how come those retailers are looking to downsize their business? To put it simply, that is because of the advent of e-commerce. The real question is why this is happening now, some 20 years after online sellers like Amazon was first introduced?

The answer lies in the nature of e-commerce business. The key consumer group for e-commerce is the 20s age bracket. However, their relatively low incomes make them unable to drive the market. In general, the main driver of the market is consumers in their 30s and 40s with a stable job, raising children in their own home. Consumers who were once in their 20s have grown old with e-commerce and have now reached their 30s and 40s, meaning that they are the ones driving the market. As a result, the market structure has changed to be more e-commerce-oriented, meaning that online shopping is growing.

What then does this mean for us? Online sales of home goods are growing and, within the next five years, e-commerce will be the main channel in most Korean consumer markets. Soon, a big mobile tsunami will surge upon us. If we keep clinging to the old fashioned way, we will get ourselves in troubles in the future.

There has been growing concern in recent months about our logistics system. While our infrastructure remains good, there are undoubtedly things to be fixed. We, Amorepacific, have continued to upgrade the logistics systems since the mid-1990s. Through the Jump 21 Movement, we were able to synchronize data of incoming/outgoing products with products available in stock. At the same time, we successfully modernized distribution bases around Korea to keep pace with the changing business environment. In the 20th century, logistics was thought of as movement organized between a company and an agent, or a company and a retailer: that’s B2B (Business to Business). In the 21st century, however, it is more about B2C (Business to Customer) delivering goods directly to customers. Consumers don’t visit stores in person, but sit at home and place an order through e-commerce platform such as the home shopping channel. People were initially worried about our Osan Beauty Campus being too big, but the volume of orders has now increased so much that there is not enough room to keep stock of all the different goods in the distribution center.

But our stock management and classification systems still remain rooted in the 20th century. We need to identify any areas where our warehouse management system lags behind and take away any silos that we find one by one. When we first designed the logistics system in the 1990s, we did business only in Korea, but today more than a quarter of our sales come from overseas. Market conditions and our target customers have changed and we thus need to boost our capability for taking orders. Not to mention, the way of picking up goods. The whole process of ordering and selling goods needs to be based on big data. In other words, we need to be able to see where we should locate goods to get them delivered to customers as quickly as possible. Of course, 20th century-style ways of working are not entirely wrong. The department store, retail outlet and sportswear brand that I mentioned earlier were able to reach the top of their industrial field because they have been well run over the years. To give another example, Walmart started as a small local retailer, but soon mushroomed into the world's largest retail corporation. It built its first distribution center in Bentonville, Arkansas in 1971 as part of its own distribution network to ensure a fast turnover of stock and the ready supply of goods at a low price. In the mid-1970s, it made use of a logistics technique called “cross-docking”: uploading goods from incoming trucks and loading them again directly into outbound trucks without requiring any storage in between. The idea of using moving trucks as a warehouse was a break with tradition. Cross-docking enabled Walmart to reduce the cost of keeping goods in warehousing and thus be able to more quickly deliver fresh goods to customers.

Korea has entered a stage of slow economic development. Economic growth has slowed, as has the rate of population growth. Demographics can be calculated accurately based on birth rate and death rate; in other words, today’s low rate of population growth was predicted some 10–15 years ago through the population statistics published back then. As a way of fighting the problem of low growth, we, Amorepacific, have expanded our business worldwide. The sad truth is that it's not easy to find customers in Korea. Now that the rate of population growth has fallen and society is aging, it is difficult to add new customers and retain existing ones. What's worse is that consumption in Korea will fall off a cliff in the next five years. Japan’s population has also fallen by about one million, compared to the time when it was at its peak. But, we cannot sit idle, whining and moaning, without actually doing anything about it. Korea is the location of our HQ and the market testbed for new products and technology. To attract new customers and win back old customers, we have to try many different things. It is important to first try, no matter what. primera's attempt of sending messages to new and old customers in the department store channel this summer was a worthwhile attempt in this context. We must explore new opportunities through Test & Learn.

Sales and marketing teams should be able to read data. That may be a strange requirement, but it is not difficult to achieve. If some team members are trained first and then teach the rest of team, everyone can do it in short order. I am not saying that everyone should be like AlphaGo when it comes to reading data. I only suggest that we should work together to make the life of customers and our coworkers easier through data. In other words, we should generate human insights from our data. Though we've done well, we must identify more effective sales and marketing techniques in the midst of the changing digital and mobile environment. Many 20th century marketing theories explain that products and services define a brand. It's true that products and services are foundation of business. High quality products, an inviting store design and a good refund policy are all essential for brand likability.

Yet, in addition to products and services, data is growing in importance when it comes to building a successful brand today. Social media is, in its simplest form, a collection of data. People post stories, review products and services and the history of their purchase to social networking sites and every post has the value of its own; it is data that's generated using a smartphone. In other words, each one of you is a small generator making data. It is not too much to say that we cannot live without data in this networked world. An automated driving system that will soon be popular is just one more example highlighting the importance of data. Automated driving systems drive vehicles based on analysis of traffic, history of accidents, patterns and environment. Now that figments of our imagination, such as self-driving vehicles, have come alive, data is truly changing the world.

Let me give you another example. The most famous hamburger shop in Gangnam, Seoul, is always thronged with customers. It takes at least three hours to place an order. Delicious hamburgers are one reason for its success of course, but most young people go there to take a selfie with its burger and upload the picture on their social media. They like to showcase a happy self-confident persona instead of showing themselves in their true colors. Not only food, but makeup is another great means of self-expression. It is fun and easy to demonstrate new trendy makeup styles online through social media.

In this context, we have to see deeply into what's happening in the digital world. Makeup categories have an infinite potential and we must be relentless in our research and development efforts. We have to adopt different approaches and, if we lack something, we must find a way to achieve it. After all, if we are slow, we cannot win. In today's digital world, speed is important. Digital culture greatly affects our business. It gives good opportunities to us and our brands, small and large. Moreover, we have to keenly observe new culture and purchasing patterns in the hair and makeup category. Once again, I should like to emphasize that we must have a new 21st century mindset to compete in the digital world and create a new platform with fresh, original ideas in order to stay in sync with customers. Korean TV series have been big hits because of the way they have listened to the voice of customers. In other words, the customer has become a kind of co-creator. It is important to keep pace with trends in the mobile world and make products that respond to customer needs.

With the growth of Asian market and duty free market, we have seized a chance and we must not waste this opportunity. We must take and adopt new approaches through Test & Learn whenever we have a chance. There will be good times and bad times. If we, however, give up trying, we will not have a future at all. It's risky to try something new during bad times, but we are doing very well right now and it means that we should be more active in taking on new approaches. Consumption will fall off a cliff and the digital tsunami will overtake us within the next five years. If we do not prepare ourselves, we will struggle. Many companies are going through difficulties these days because they thought they'd be alright and consequently didn’t prepare, even though there have been many warning signs of an economic downturn in Korea over the past ten years. We must open ourselves, listen to what others have to say and prepare for days to come, instead of getting caught up in the moment.

Let's take a look at the pages of history and see why openness is important. The Spanish Empire was the first power to dominate Europe. In 1492, Isabella I united the Iberian Peninsula, which had been divided into Castile, Aragon, Granada and Portugal with the conquest of Granada. The unified kingdom of Isabella I became known as España (Spain). Isabella I’s youthful years were not without turmoil, but everything changed after she met Ferdinand II of Aragon. Henry VI (Enrique IV), King of Castile at that time, thought to extend his power and ally Castile with either Portugal or France by offering the hand of his sister, Isabella I in marriage. An attempt was made to marry Isabella to a member of the powerful royal family of Portugal, but she refused consent. She instead sent a letter to Ferdinand of Aragon, explaining her situation. Upon receipt of the letter, Ferdinand arrived with his army and married Isabella.

She ended the war of succession six years after she took the throne and as I mentioned earlier, united Castile and Aragon and defeated Portugal to reign over the Iberian Peninsula. Isabella I of Castile and her husband, Ferdinand II of Aragon together ruled two kingdoms, which later became Spain. Once her royal authority was strengthened, she turned her eyes to the world beyond Spain. At that time, Portugal was in full flourish through trade with the East and Spain, as a late mover, needed something special – something that would stand it apart in order to catch up with the front runner, Portugal. It was then that Christopher Columbus presented himself. He said that the world was round and that by sailing west, he could reach the East, but no one believed him. While wandering from country to country after being rejected by the king of Portugal, Columbus was summoned to Spain by Queen Isabella I. She provided financial support to Columbus and his expedition under the condition that Spain would have the exclusive right over trade of any goods that he would bring back from the East. Columbus was in effect a businessperson seeking finance, and Queen Isabella I invested in his venture.

Columbus eventually discovered the New World, but came back with nothing good; he brought back only disease epidemics. His expedition seemed to be barely a success at the time, but it later made Spain the richest country in Europe. About 100 years after his discovery of the New World, silver mines were found. To this day, silver has a great value as a unit of currency widely used throughout the world. The character “silver” is found in the Korean word eunhaeng, which translates as “bank”. This word originates from Chinese, 銀行, meaning a place for the trade of silver, not gold. A further drive behind the prosperity of Spain in the Iberian Peninsula was diversity. Jews served as administration and financial officials, while law-abiding Muslims engaged in agricultural activities. Toledo located in the center of the Iberian Peninsula was a peaceful city where different religions – Jews, Muslims and Catholics – coexisted in harmony. In the 16th century, Spain became the most powerful country in the world, but at the same time it started to fall. Queen Isabella I forced Jews and Muslims to choose between conversion to Catholicism or expulsion. Due to this policy, Spain lost vital human resources for its social and economic development. As a result, the era of Spain as a global power came to an abrupt end.

Neighboring England, on the other hand, was a small, poor island country. Henry VIII, the second monarch of the Tudor dynasty and one of the most well-known kings of England, married Catherine of Aragon, who bore him a daughter. He, however, wanted a male heir and decided to marry Anne Boleyn, daughter of a diplomat, after divorcing Catherine. England was a Catholic nation under the rule of Henry VIII and he applied to the Holy See for annulment of his marriage to Catherine. But, the Holy See refused his request in favor of Spain, a powerful nation and the most generous donor to the Holy See. Henry VIII came into the Catholic Church and eventually declared the separation of the Church of England from the Roman Catholic Church, which led to the Dissolution of the Monasteries. Once the monasteries were disbanded, all properties and authority of the Catholic Church were transferred to the crown. He finally achieved his desire to marry Anne Boleyn, the second wife and the mother of Elizabeth I. After being crowned Queen of England, Elizabeth I divided national properties to form a solid middle class and their growth resulted in the Industrial Revolution. As she knew how important it was to listen and communicate due to upbringing as a child in disfavor with her father and sister, Elizabeth I listened to the voice of everyone: nobles, middle class and peasants. By doing so, she was able to resolve religious conflict, settle the Church of England and build an institutional framework for parliamentary government. Within less than 200 years after her reign, the small island of England had grown into Great Britain, the empire on which the sun never sets.

As witnessed, the most powerful country in the 17th century faded away in the 18th century and the not-so-strong country in the 17th century became the global superpower in the 19th century. And I think, openness was the key factor that determined their fate. Conflict always arises in the course of adopting different cultures and institutions and, whenever it happens, it is important to resolve it through communication: doing it right can make a big difference in the end. The Digital Revolution is almost upon us. Even at this very moment, people accustomed to mobile are incorporated into the key consumer group. Now that the Asian market is wide open and we are given new chances, we must strive to make people more beautiful through new approaches and innovations.

Lastly, I'd like to remind you all that we observe the laws and regulations not for others, but for ourselves. To follow a code of ethics is the surest way to protect ourselves. As you know, time reveals everything in the digital world. Keep in mind that we have taken up the vocation of spreading beauty around the world: do not hesitate to walk in the path of righteousness. Thank you.