This article first appeared in The Edge Malaysia Weekly on October 17, 2022 - October 23, 2022

SK magic, the South Korean home appliances rental company, is betting that Malaysians will embrace the dishwasher as an indispensable electrical appliance in their homes.

While the dishwasher is not yet a kitchen essential, SK magic — which is known for its air and water purifiers — hopes to change that with plans to launch a dishwasher catering to Malaysian households in the second quarter of 2023.

“We know that the market for dishwashers is small [in Malaysia] but in South Korea, and Europe, a dishwasher is a necessity in the kitchen. We plan to continue being pioneers in the market and provide convenience to our Malaysian customers,” said Yoon Yo-seop, CEO of SK magic Korea, through an interpreter, at a media briefing to Malaysian journalists in Seoul last month.

The company is now studying the local market and feeding information to its research and development (R&D) team in South Korea that will develop a dishwasher suitable for Malaysian kitchens.

“As we know, the dishwasher is not a common household item that Malaysians gravitate to. We would have to educate the public on the benefits of owning one by understanding consumer needs and offering the best solution to a cleaner and more convenient addition to their homes,” said an SK magic spokesman separately.

SK magic, a unit of SK networks Co Ltd, has learnt from the South Korean experience that the dishwasher has to meet local requirements in order to become a must-have home appliance.

When it was first launched in South Korea, the dishwasher was still very much better suited to Western kitchens as it could not really clean concave tableware such as rice and soup bowls, which are essential in Korean cuisine. Local and foreign brands then adapted the dishwasher to the Korean diet and the home appliance is now a must-have for South Korean households.

The spokesman added that SK magic has been the market leader in developing dishwashers in South Korea. “We also offer dishwashers with countertop options that are more flexible in terms of a local kitchen set-up. The most popular in South Korea is the ‘Triple Care Dishwasher’, which is well known for its three stages of cleaning: cleaning, washing and UV sterilisation. Hence, we believe that the local market could also enjoy the major cleaning process and save more time in doing household chores.”

SK magic is among the top three rental service companies in South Korea and was recently recognised as the market leader in water purifiers. Rental services are similar to an instalment plan that lets the consumer rent an item for a certain period, during which servicing of the product is also included in the rental.

The company’s product offerings, aside from air and water purifiers, and dishwashers, include gas and electric ranges, electric and microwave ovens, food composters and bidets.

For SK magic Malaysia, the dishwasher will be a new addition to its product offering that now consists of air and water purifiers, and windfree air conditioners via a tie-up with Samsung. SK magic’s best-selling home appliance here is Jiksoo Hyper, its tankless water purifier.

With a growing range of products, SK magic has set an ambitious revenue target of RM3.2 billion from Malaysia in five years from the RM230 million it expects to achieve this year.

“It’s a big gap. Our target is to break even with the rental business; the profit generates extremely quickly once we break even, that’s the first priority. Once we achieve that, our next target will be clearer,” Yo-seop explained, adding that SK magic sees accelerated growth in the five years that follow its break-even point.

While SK magic is well known in its home market, Malaysia is a relatively new market as the brand was established here only in late 2018. Disruptions from the pandemic meant that it only really started selling its products in 2021. Still in the red given the high start-up costs for a rental business model — which means high capital expenditure to purchase the electrical appliances — it sees the Malaysian business turning in a profit this year.

Malaysia is the first foreign country that the company has ventured into, in terms of setting up operations here beyond just having a distributor.

“We believe that Malaysia has a good business environment and great infrastructure. In Southeast Asia, Malaysia and Singapore are high-income countries; we believe Malaysia has strong purchasing power with a large group of middle- and upper-class workers,” said Yo-seop.

He pointed out that rental services are already well established in Malaysia. “Furthermore, Malaysia’s infrastructure including the water supply system makes it possible for SK magic’s water purifiers to be sold here.

“[It’s] not possible to set up in lower-income countries. Malaysia has good infrastructure, a strong income level and prioritises hygiene,” he noted.

In fact, SK magic sees Malaysia becoming its strategic hub for the Southeast Asian region. But that depends on how fast the business grows after achieving breakeven, Yo-seop added.

“Being a multiracial country, [Malaysia has] interesting cultures and strong potential for global business. That’s why we selected Malaysia as the first priority for our Southeast Asian business. We believe that our innovative technology will be well loved by Malaysians,” he explained.

Similarly, for SK magic to invest in a manufacturing facility in Malaysia, that will depend on the timing and business environment.

When Malaysia becomes its regional hub, Yo-seop believes it will be bigger than SK magic Korea, in terms of headcount and revenue. “Then we will have an R&D centre in Malaysia,” he said.

The company hit a milestone revenue of KRW1 trillion in 2020, producing 1.2 million units of home appliances, and has 7,000 direct and indirect staff. The Malaysian business currently has 2,000 direct and indirect staff.

One reason South Koreans have taken to the dishwasher is the promise of convenience in a fast-paced lifestyle. Sales of dishwashers shot up during the pandemic due to growing hygiene awareness and also because more people cooked at home.

For SK magic, health and convenience are values that the brand identifies with and it markets its products as necessities for a healthy lifestyle while offering convenience.

Within the sleek and minimalist look of its water purifiers are the technology and innovation put together by its R&D team at SK magic’s smart factory in Hwaseong, about an hour away from Seoul. Here, identifying customer pain points pushes its 130-strong R&D team to come up with innovative new products and improve on existing ones.

“The driving force behind the innovation is understanding customer pain points. Through continuous market research by the marketing and R&D teams, we find out customer pain points and are constantly thinking of ways to resolve them,” said Yoon Hakjin, SK magic vice-president and head of the Hwaseong factory.

The plant, covering close to a million square feet, makes the carbon blocks used in SK magic products’ filters, in addition to assembling bidets, dishwashers, stoves and ovens, and water and air purifiers. It is highly automated, driven by the need to increase productivity and consistency in product quality while ensuring worker safety. For example, its carbon block filter line has a maximum annual production capacity of 5.4 million units but is manned by only 10 workers.

SK magic allocates 3% to 5% of its revenue to R&D annually.

Like its peers, SK magic depends on agents to sell its products. In South Korea, 70% of sales are from the rental business with 30% from outright sale.

As to why direct selling was the preferred distribution channel, Yo-seop said, “Right now, for water and air purifiers, they are products that need servicing. You need to replace the filters to get clean water and air. So, that product and service is what we call the rental business/service. We chose direct selling as it requires people-to-people servicing. In South Korea, we have a water purifier that self-services, the filters are sent to customers and they can replace the filters on their own.

“What makes rental special is that it’s not just about selling products outright — it comes with that extra care in order for service staff to provide clean water and clean air to our customers,” he added.

Indeed, having the service personnel in customers’ homes allows the former to build relationships and trust, and sell more products along the way.

Why didn’t SK magic expand to Malaysia earlier when competitors like Coway and Cuckoo have long established a presence here?

SK magic was formed when SK networks acquired South Korean home appliance manufacturer and renter Tongyang Magic Inc in 2016 for KRW610 billion (US$558 million). The vendors were the NH Private Equity-Genwood Private Equity consortium, which booked in a gain of over KRW300 billion from the sale.

SK network, which is the trading unit of South Korean conglomerate SK Group, was the highest bidder and offered to combine the Internet of Things technology of wireless sister company SK Telecom and chipmaking capabilities of SK Hynix to give SK magic an edge over its competitors. (Since the merger, SK magic and SK Telecom have announced a partnership in March 2021 that allows customers to subscribe to the former’s rental products through 3,500 SK Telecom stores in South Korea. But there is no collaboration effort with SK Hynix at the moment.)

Tongyang Magic did have a presence in Malaysia before the merger. Now, it is part of SK magic. Even though it is building a brand in a market led by its competitors, SK magic is confident there is room for it to grow in Malaysia.

“We have competitive differentiation; our key values are health, convenience and eco-friendliness. [Our] water purifier is based on the tankless technology and our dishwasher reduces water usage compared with general cleaning and is equipped with sterilisation function. I believe others don’t have these,” said Yo-seop.

As the brand prides itself on being one that cares deeply for the environment, it is developing products from eco-friendly materials, such as recycled plastics. Aside from that, SK magic has the backing of one of the largest corporate groups in South Korea with interests in energy, ICT (information and communications technology), manufacturing and logistics services.

On the threat of inflation on household incomes affecting its sales, Yo-seop said that SK magic is seeing customers becoming more sophisticated and health-conscious, seeking convenience and demanding customised services and products. Furthermore, its target customers are those in the middle- and upper-middle-income group who are less likely to be affected by inflation woes.

For the Malaysian business, its average monthly rental was RM125, based on 2021 sales.

As for the depreciation of the ringgit and won against the US dollar, Yo-seop said the company is doing its best to reduce and manage costs.

“We used to think that when the exchange rate weakens, it’s bad for importers and good for exporters, but as we import parts from all over the world, we’re also affected. We’re looking at different sourcing channels … for example, importing from Indonesia,” he said.

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