Lotte Vice Chairman Kang Hee-tae: "Restructuring of Marts and Supermarkets Will Be Decided with CEO Accountability"

Closure of 30% of 700 Lotte Shopping Stores Due to Poor Performance
Profitability as Top Priority... 10 Department Stores to be Closed
"Economies of Scale < Decline in Competitiveness Within Trade Area"
"Aiming for Turnaround Using Strengths of Department Stores, Marts, Supermarkets, and LOBs"

Kang Hee-tae, Vice Chairman and Head of Lotte Distribution BU, and CEO of Lotte Shopping Integrated Corporation

[Asia Economy Reporter Cha Min-young] "As CEO, I will take full responsibility and make decisions regarding the closures of marts, LOBS, supermarkets, and others."

Kang Hee-tae, Vice Chairman and Head of Lotte Distribution BU, who serves as the CEO of the integrated Lotte Shopping Corporation, directly addressed the poor performance and future business plans during the Lotte Shopping '2019 Q4 Conference Call' held on the afternoon of the 13th.

CEO Kang stated, "Lotte Shopping failed to strategically respond to the rapidly changing offline environment," adding, "During the high-growth period, having individual division heads was a good strategy, but now we will transition to a single CEO system to serve as a strong control tower."

Lotte Shopping plans to restructure 200 stores, which accounts for 30% of its total 700 stores. With profitability improvement as the top priority, it has already closed 10 department stores. Marts, health & beauty (H&B) stores like LOBS, and other outlets will also be aggressively reduced.

Kang explained, "When competitiveness within a commercial district declines, we decided it is better to close stores than to spend energy trying to improve them," and added, "We expect an annual operating profit increase of 11 billion KRW from closing underperforming stores."

Accordingly, no new department stores are expected to open this year. However, two department stores are scheduled to open in Uiwang and Dongtan in March next year, and with the Incheon Terminal development project still pending, existing operations will continue with 2023 as the target.

Marts will also implement a more aggressive closure policy compared to two years ago. At that time, Lotte Shopping prioritized the concern that remaining stores would have to bear fixed headquarters costs during store restructuring.

Regarding this, CEO Kang said, "If buying power decreases, we plan to create synergy between marts and supermarkets," and added, "We judged that losing competitiveness within the commercial district is meaningless even if product profit margins or gross profit margins (GPM) improve through economies of scale." He emphasized his responsibility as CEO to take decisive action.

An online-centered integration strategy will also be pursued. The 'Lotte ON' platform, opening in March, will share business systems, and the actual online integration is scheduled to proceed in the first phase between late March and early April. This will integrate department stores, marts, supermarkets, and LOBS.

Regarding dividend policy, he responded, "Due to large-scale losses, dividends are difficult, but considering a market dividend yield of 2.4%, we implemented a dividend of 3,800 KRW per share," adding, "While we cannot guarantee future dividends, we plan to provide investors with at least minimal efficiency relative to their investment."

CEO Kang added, "We will soon set a new strategy for Lotte Shopping that efficiently complements the strengths of department stores, marts, supermarkets, and LOBS," expressing confidence that "a turnaround is possible."

Meanwhile, Lotte Shopping announced through a disclosure on the same day that its operating profit last year was 427.9 billion KRW, down 28.3% compared to the previous year. Sales decreased by 1.1% to 17.6328 trillion KRW, and net loss widened to 853.6 billion KRW.

Operating profit for Q4 was 43.6 billion KRW, down 51.8% year-on-year. Q4 sales were 4.3248 trillion KRW, down 1.7% year-on-year, and net loss expanded to 1.0164 trillion KRW.

This content was produced with the assistance of AI translation services.