GS Retail, which runs South Korea’s GS25 convenience store chain, is facing questions over its profitability after it posted contracted numbers in its earnings last year.
According to its regulatory filing, GS Retail logged KW30.9 billion (US$28.4 million) in operating profit last year, down 19.3 per cent from 2016. Its net profit also skidded to KW10.7 billion, a dive of 92.4 per cent.
It has had slumps in its core business of convenience stores, which account for 70 per cent of its earnings.
GS Retail last year posted KW1.57 trillion in sales from its convenience stores, up 6 per cent from 2016. The number of GS25 stores also increased from 12,199 to 12,429 last year.
Despite this growth, the operating profit at its convenient stores declined by 6 per cent to KW37.1 billion during the same period. Per-store sales also shrank by 9 per cent.
Saturated market
Analysts say GS25’s weakening profitability is related to the saturation of the domestic convenience store industry, reports The Korea Times.
There are about 40,000 convenience stores in Korea. Between them, the main players – GS25, CU run by BGF Retail and 7-Eleven run by Lotte affiliate Korea Seven – have more than 30,000 outlets. This means there is one convenience store to every 1250 Koreans.
Meanwhile, at the start of the year the government hiked the minimum wage rate by 16.4 per cent to KW7530, which is expected to add extra burden on franchise owners.
Also, GS Retail has seen poor performance for its health and beauty products store chain. It has been the sole operator of Hong Kong-based Watsons in Korea since February last year.
GS is hoping its earnings deadlock will be broken by its hotel and leasing subsidiary Parnas Hotel. This runs the Grand Intercontinental Seoul Parnas, the Intercontinental Seoul Coex and other hotels and malls in Seoul. It is also in charge of leasing Parnas Tower in Gangnam.
Parnas Hotel logged KW75.4 billion in sales last year, up 15 per cent. Its operating profit also improved to KW17.1 billion, up 141 per cent as the leasing rate at Parnas Tower rose to 98 per cent.
As part of its efforts to diversify revenue sources, GS Retail signed a memorandum of understanding with internet company Kakao last month for the development of a chatbot for the retailer.
The company has also opened its first convenience stores outside Korea – in Vietnam’s commercial capital, Ho Chi Minh City, last month.
