Balaan halts service amid liquidity woes

Amid snowballing liquidity concerns, South Korean luxury goods retailer Balaan has partially shut down its services, limiting new payments on its platform.

Following concerns of a potential liquidity crunch, card issuers and payment gateways withdrew their services from the e-commerce platform as of Friday. With the company's in-house payment service, Balaan Pay, now paused as well, customers cannot make any new payments.

As of March 24, Balaan was unable to settle payments with some of its sellers, citing a system glitch. Though the company said it would announce when operations could be normalized by Friday, it then delayed the notice and failed to reveal a specific timeline.

“We will explain what has happened as well as further plans by next week,” Balaan CEO Choi Hyung-rok said in a statement Friday.

“We are considering multiple options for restoration in our efforts to resolve settlement issues and normalize service as swiftly as possible, by leaving all possibilities open,” Choi said.

Industry sources assume Balaan is facing a cash shortage due to slowed sales and aggressive marketing.

Founded in 2015, Balaan's market value peaked at 300 billion won ($204 million) in 2022 amid the rapid growth of the luxury goods market. But as competition intensified, its market value depreciated to around 30 billion won.

The retailer accumulated an operating loss of 72.4 billion won between the fiscal years of 2020 and 2023. Though it has not yet revealed its financial statement for 2024, Balaan is expected to have recorded another year of loss.

Balaan's payment delay could escalate to a major liquidity crisis, such as that of e-commerce platforms Tmon and WeMakePrice last year. The two cash-strapped platforms were unable to disburse payments worth nearly 1.3 trillion won and eventually filed for court receivership.

As concerns over Balaan's possible liquidity crisis increased, other luxury retailers have announced that their liquidity is sufficient in a move to reassure customers and sellers on the platforms.

According to luxury retailer Must It, though its settlement amount stands at 3.3 billion won, it has enough current assets — worth around 11 billion won — to pay the amount off.

Another retailer Trenbe also announced that its current assets stand at 8 billion won while its cash equivalents, excluding the settlement amount, stand at 4.5 billion won.