Hyundai Department Store's 'Aggressive Investment' vs. Shinsegae and Lotte's 'Pause'

The Three Major Distribution Conglomerates: Investment Focus for This Year

[Asia Economy Reporter Lim Hye-seon] Despite the unstable domestic economy caused by the COVID-19 pandemic, Hyundai Department Store is investing over 1 trillion KRW in operating facilities this year. While competitors have been restructuring and downsizing due to last year's poor performance, Hyundai Department Store is pursuing expansion to catch up with the leading companies.

◆ Hyundai Department Store’s Aggressive Investment This Year = According to the distribution industry on the 12th, Hyundai Department Store plans to invest 1.1 trillion KRW this year, about 37% more than last year’s investment of 800 billion KRW. Hyundai Department Store will expand its duty-free and outlet businesses this year. In particular, it is putting all its efforts into the duty-free business, a long-cherished project of Chung Eui-sun, Chairman of Hyundai Department Store Group. Hyundai Department Store obtained a downtown duty-free license in 2016 and opened the Gangnam Trade Center store in November 2018. On the 20th of last month, Hyundai Department Store opened its second downtown duty-free store in Doosan Tower, Jung-gu, Seoul, expanding its presence from Gangnam to the Gangbuk area. Additionally, with a bold bet, it secured the DF7 (Fashion & Accessories) zone duty-free business rights at Incheon Airport Terminal 1, successfully entering Incheon Airport. Hyundai Department Store aims to grow downtown duty-free sales to 2 trillion KRW within three years.

The outlet business will also aggressively increase new stores. Premium Outlet Daejeon (53,586 m²) and Namyangju (62,150 m²) will open in June and November, respectively. There are also plans to open City Outlets in Hwaseong, Gyeonggi Province, and Cheongju, Chungcheongbuk-do. The department store business is focusing on the Yeouido Park One store, scheduled to open next year.

Hyundai Department Store will invest 500 billion KRW this year in outlets and department stores. It will pour 140 billion KRW and 190 billion KRW into Hyundai Premium Outlet Daejeon and Namyangju stores, respectively. The Yeouido Park One store is scheduled to receive 110 billion KRW in investment.

Unlike distribution companies that have shrunk due to severe economic downturns, Hyundai Department Store can pursue "aggressive management" thanks to its solid financial soundness. Hyundai Department Store recorded an operating profit margin of 13.29% last year. Although profitability has declined compared to 21.30% in 2017, it is still high compared to competitors like Lotte Shopping (0.24%). Being the only one among the three major conglomerates not operating a mart business, it has been less affected by the growth of e-commerce. Hyundai Department Store’s strategy is to increase offline channels, which it "knows well," rather than the "online business it is less familiar with," to realize economies of scale and increase profits.

◆ Shinsegae and Lotte Take a Breather = Shinsegae Group’s distribution affiliates, Shinsegae Department Store and E-Mart, which underwent harsh restructuring last year, are focusing on renovating existing stores.

The investment amount for department stores and marts this year is 1.196 trillion KRW, similar to last year’s 1.0167 trillion KRW. E-Mart, which recorded shocking quarterly losses last year, has already closed many underperforming specialty stores such as Pierrot Shopping, Electromart, and Boots. This year, it plans to invest a total of 845 billion KRW, of which 30% (260 billion KRW) will be used for store renewal, maintenance, and system improvements to strengthen fundamentals. The plan is to enhance store competitiveness through renovations and improve profitability through product structure innovation. Additionally, it will invest in the Starfield Anseong, scheduled to open this year. E-Mart also plans to strengthen its U.S. business base. Shinsegae Department Store plans to invest 351 billion KRW this year. Shinsegae is focusing on the renewal of the SC First Bank building for the opening of the Daejeon Science Complex in 2021 and the "Main Store Town" project.

Lotte Shopping, having declared large-scale store restructuring this year, will take a conservative approach to investment. After posting a trillion-won loss last year, Lotte Shopping plans to close 200 stores, including department stores, marts, and supermarkets, within three years. This year, it will focus on improving operational efficiency and profitability through "downsizing." According to the third-quarter report last year, Lotte Shopping plans to invest 764 billion KRW this year, with 557.4 billion KRW for department stores and 188.7 billion KRW for discount stores (marts). After deciding to close 200 stores for downsizing, Lotte Shopping is known to have internally readjusted its investment scale. However, it plans to actively invest in the online business. Lotte Shopping launched its e-commerce business division in 2018 and has invested about 3 trillion KRW in online business. Through the integrated online shopping mall "Lotte ON," which combines seven shopping channels, it aims to increase online transaction volume to 20 trillion KRW by 2023.

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