Lotte Shopping Continues Structural Improvement Amid COVID Shock... Restructuring Expected to Accelerate

Lotte Shopping Discount Stores to Close 16 Locations This Year
Department Store Division Also to Close 5 Stores
Some Supermarkets and LOPES to Be Streamlined
Poor Q1 Performance Due to COVID-19
Online > Offline Shows Remarkable Results

[Asia Economy Reporter Cha Min-young] Lotte Shopping, which officially announced a structural improvement plan this year to "close the bottom 30% underperforming stores," will shut down a total of 17 large stores, including marts and department stores, within the year. Given that the competitiveness of the online sector compared to offline was confirmed through performance amid the unexpected COVID-19 outbreak in the first quarter, the '2020 Operation Strategy' containing the restructuring plan is also expected to gain momentum.

According to Lotte Shopping on the 15th, the discount store division will close 3 discount stores in the first half of this year and an additional 13 stores in the second half, closing a total of 16 stores within the year. This means a reduction from 125 stores at the end of last year to 109 stores by the end of this year. In the department store division, besides the Young Plaza Cheongju branch closed in the first half, a total of 5 stores, including 4 in the second half, will be closed. As a result, the total number of stores is expected to decrease from 58 last year to 53. The stores targeted for closure are expected to mainly be small to medium-sized department stores and small urban outlets. Additionally, brand restructuring will be carried out concurrently for some supermarkets and health & beauty (H&B) stores such as LOBS, which have low profit contributions.

The one-time closure cost due to store restructuring is estimated at 160 billion KRW. However, there is also an expectation that this could be conservatively reduced to 100 billion KRW. In particular, Lotte Shopping plans to minimize early termination costs by directly recruiting tenants for stores currently leased, such as Lotte Mart.

This strong downsizing was formalized through the 2020 Operation Strategy announced by Lotte Shopping in March. Prior to this, Kang Hee-tae, head of Lotte Group's Distribution BU and CEO of Lotte Shopping integrated corporation, actively communicated externally by directly explaining to securities analysts during Lotte Shopping's Q4 conference call in February. Lotte Shopping plans to close about 200 inefficient stores (approximately 30% of the total) out of around 700 stores including department stores, marts, supermarkets, and LOBS. Shin Dong-bin, chairman of Lotte Group, also expressed the necessity to start restructuring to transform Lotte Group, which has been focused on offline business, into an omni-channel company. In an interview with Japan's Nihon Keizai Shimbun (Nikkei) in March, Chairman Shin said, "We will abandon all successful experiences in physical stores," announcing the largest-scale store restructuring in history.

Meanwhile, the need to tighten belts at the company-wide level increased due to the COVID-19 adversity in the first quarter. Lotte Shopping disclosed that its consolidated operating profit for Q1 fell 74.6% year-on-year to 52.1 billion KRW. Sales decreased by 8.3% to 4.0767 trillion KRW, and a net loss of 43.3 billion KRW was recorded. Same-store sales at domestic and overseas department stores plummeted by 21.8% and 37.6%, respectively. Sales at Lotte Hi-Mart and Lotte Cultureworks also dropped by 10.8% and 49.0%, respectively.

However, discount stores performed relatively well as both online and offline sales increased. Domestic same-store quarterly sales at discount stores fell by 6.5% year-on-year, but operating profit increased by 10.6% due to reduced selling and administrative expenses. Overseas discount stores (1.5%), domestic supermarkets (3.6%), and domestic home shopping (16.0%) also saw sales growth.

A Lotte Shopping IR official said, "Although domestic retail companies faced many difficulties in the first quarter due to avoidance of large gathering facilities and deteriorating consumer sentiment caused by the spread of COVID-19, we plan to continuously strengthen the e-commerce business environment by utilizing Lotte ON, Lotte Shopping's integrated online platform," adding, "This year, we will proceed with additional efficiency improvements based on the profitability of department stores, marts, and supermarkets."

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