Lotte Shopping plans to shut down as many as 200 department stores and large-format supermarkets in South Korea, marking one of the biggest retail network culls in the nation’s history.
Lotte Group operates more than 700 stores under its Lotte Mart, Lotte Department Store, Lotte Super and drug-store chain LOHB banners, which means its closure plans will affect almost one in three stores.
There are no reports that Lotte will scale back its international business, which is largely in Southeast Asia after it began withdrawing from China last year.
“The focus of our business strategy in 2020 is a heavy downsizing to enhance efficiency and profit,” the company said in a statement.
“The food sections at underperforming small- and mid-sized department stores will be changed into supermarkets selling fresh groceries.”
The rationalisation plan follows news that South Korean convenience stores are outperforming supermarkets and hypermarkets in financial terms.
Lotte Shopping’s net loss grew by 83.6 per cent year on year to US$721 million last year, on an operating profit down 28.3 per cent to $361.7 million. Sales slipped 1.1 per cent to $14.9 billion, largely driven by a 5.8-per-cent decline in supermarket sales. Department-store sales dropped by 3.1 per cent.
Kang Hee-tae, who heads Lotte Shopping, said its major stores were performing poorly and market conditions remain tough. He cited an increase in the minimum wage and falling Chinese tourist arrivals as contributors to the poor result. But analysts in Seoul say Lotte Shopping’s problems are in part caused by a shift to online shopping, where consumers can often pay less for goods.
According to Yonhap, South Korean retail sales rose 4.8 per cent last year, with online sales growing 14.2 per cent based on a sample of 13 e-commerce players. Overnight fresh-food deliveries were a contributor to the online growth.
“The top priority at Lotte Shopping is to resolve fundamental problems and deliver clearly positive results,” said Kang.
Besides store closures, the company plans to restructure some of its operations. For example, the fashion zones at its Lotte Mart stores will in future feature stock curated from the company’s department stores and likely feature more branded apparel rather than discount garments.
The company also plans to use big data to refine and personalise its services to customers instead of running hundreds too many loss-making branches.
Lotte Shopping is not alone with its challenges in a changing South Korean market. Last August, rival Emart posted its first-ever loss, of $24.7 million, for the June quarter, its worst result since it was spun off from Shinsegae Group in 2011. It reported a 53-per-cent drop in full-year net profit to $189 million.
The company said it planned to raise $820 million by selling assets and will buy back stocks to boost shareholder value.
Emart has since embarked on a plan to downsize its Electro Mart gadgets chain and its Boots drugstore franchise and it is closing all its discount Pierrot Shopping stores, which are modelled on the Don Don Quijote concept from Japan.