Lotte-Triggered 'Distribution Industry Restructuring' Domino Effect

Operating Profit Decreased by 28.4% Last Year

Plan to Close 200 Underperforming Stores

Emart Also Undergoing Structural Reform Since Last Year

[Asia Economy Reporters Hyesun Lim, Minyoung Cha, Seungjin Lee] "'Moderation' will not be tolerated." This was the resolute message delivered by Shin Dong-bin, Chairman of Lotte Group, at the first executive meeting (VCM) of the new year on the 15th of last month. A month later, on the 13th, Kang Hee-tae, Vice Chairman of Lotte Shopping (Head of the Distribution BU), announced a rigorous restructuring plan. The role of calming employee unrest was assigned to the heads of each division. Moon Young-pyo, CEO of Lotte Mart, conveyed in a message to employees on the 14th that "the need for structural reform can no longer be postponed," urging, "We are working with a desperate mindset that this is the last chance for the future, so please do not waver."

◆Worst Performance Ever, Closing Over 200 Stores= Lotte Shopping plans to close more than 200 stores (30%) out of a total of 718 outlets including department stores, marts, supermarkets, and LOHB's. This is the largest scale restructuring since the company's founding in 1979. Lotte Shopping recorded an operating profit of 427.9 billion KRW last year, a 28.3% decrease compared to 2018. The net loss for the period was 853.6 billion KRW, more than doubling the deficit from the previous year. Discount stores (marts) and supermarkets recorded operating losses of 24.8 billion KRW and 103.8 billion KRW respectively, dragging down overall performance.

The restructuring criteria are based on 'profit and loss.' Chairman Shin explained during a conference call on the 13th, "More than 80% of the underperforming stores are leased stores," adding, "If they do not generate profit, they will be subject to closure." Among the 412 Lotte Super stores nationwide, about 70 will be closed. At least 30% of the 124 Lotte Mart stores will be shut down, and LOHB's, the health and beauty (H&B) store chain, will reduce 20 out of its 131 stores first. The department stores have already closed about 10 locations, with plans to close one or two more in regional areas. Workforce restructuring is also inevitable, with voluntary and honorary retirement programs planned for mid-level managers.

◆What’s Next for Lotte Shopping? = Lotte Shopping has presented a future business blueprint to transform from a 'distribution company' into a 'service company.' The plan is to revamp the total 3.3 million square meters (1 million pyeong) of offline space into stores that transcend traditional business categories. As a new growth engine, Lotte will launch an integrated online shopping mall called 'Lotte ON' by the end of next month, encompassing all distribution affiliates. Utilizing shopping data from 39 million customers owned by Lotte, the platform will integrate and analyze data to combine the strengths of offline and e-commerce, providing personalized services to each customer. Vice Chairman Kang Hee-tae stated, "It was regrettable that Lotte’s distribution resources were not integrated and utilized according to current trends," adding, "We will strategically complement the strengths of department stores, marts, supermarkets, and LOHB's to operate efficiently."

◆Large-Scale Restructuring in the Distribution Industry= Following Emart, Lotte Shopping’s move into restructuring is expected to accelerate structural reforms across the distribution industry. Emart, which recorded its first-ever deficit in the second quarter last year and a second deficit in the fourth quarter, is undertaking a major structural reform. Emart’s operating profit last year was 150.7 billion KRW, a 67.4% decrease compared to the previous year. This year, Emart plans a large-scale investment of 845 billion KRW to lay the foundation for a turnaround. First, it will invest 260 billion KRW in store renovations, renewing 30% of its 140 existing stores this year. The Emart Wolgye store, which began renovations last year, is transforming into a complex shopping mall by strengthening grocery and specialty dining areas. Future store renovations at locations such as Chuncheon and Gangneung will also aim to move away from the traditional discount store image.

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