Distribution Big 3, Worst Q1... Operating Profit Plummets 80%

3.196 Trillion KRW Decrease Compared to Last Year
Lotte Falls 74.6% · Shinsegae Drops 97%
Significant Impact on Duty-Free Business Division

[Asia Economy Reporter Lim Hye-seon] Due to the impact of the novel coronavirus infection (COVID-19), the three retail giants recorded their worst first-quarter performance ever. Operating profit alone evaporated by 320 billion KRW as department store and duty-free shop sales plummeted due to weakened consumer sentiment and a decrease in air passenger traffic.

According to the Financial Supervisory Service's electronic disclosure system on the 15th, the combined operating profit of the three retail companies?Lotte Shopping, Shinsegae, and Hyundai Department Store?was 70.3 billion KRW in the first quarter of this year, a sharp decline of 81.9% (319.6 billion KRW) compared to the same period last year. Sales amounted to 5.723 trillion KRW, down 11.7% (761.1 billion KRW).

Lotte Shopping, the "eldest brother" of the group, recorded first-quarter sales of 4.0767 trillion KRW and operating profit of 52.1 billion KRW. The decreases in sales and operating profit were 8.3% and 74.6%, respectively. Shinsegae's first-quarter sales and operating profit were 1.1968 trillion KRW and 3.3 billion KRW, down 21.1% and 97.0%, respectively. Hyundai Department Store also saw sales and operating profit decline by 80.2% and 13.7%, respectively, to 449.6 billion KRW and 14.9 billion KRW.

◆ Most Losses from Department Stores = Due to the spread of COVID-19, avoidance of large gathering facilities and deteriorating consumer sentiment led to sluggish department store sales. Lotte Department Store's first-quarter operating profit plunged 82.1% to 28.5 billion KRW. Sales also dropped 21.5% to 606.3 billion KRW. As visits to department stores declined and consumer sentiment weakened, sales were sluggish mainly in high-margin fashion product categories, causing a significant decrease in operating profit. Overseas department stores also saw a sharp decline in sales due to reduced foot traffic, temporary closures, and the closure of the Shenyang store in China (April).

Shinsegae Department Store and Hyundai Department Store faced similar situations. Shinsegae Department Store's sales were 331.1 billion KRW, down 11.7% year-on-year, and operating profit fell 57.7% to 22.6 billion KRW. Although online sales and sales in luxury goods and electronics increased, most categories such as men's, children's, and miscellaneous goods experienced negative growth. Shinsegae Department Store in Daegu also saw sales drop 25.5% and recorded an operating loss of 3 billion KRW.

Hyundai Department Store reported sales of 392.6 billion KRW and operating profit of 34.2 billion KRW, down 17.7% and 65.3%, respectively. A department store official explained, "The decrease in operating profit was due to worsened business conditions caused by COVID-19 and increased fixed costs resulting from sales declines mainly in fashion product categories."

◆ Duty-Free Shops Hit Even Harder = Shinsegae and Hyundai Department Store, which include duty-free shop operations, suffered even greater impacts. Shinsegae Duty-Free Shop's sales fell 30.5% to 488.9 billion KRW, resulting in an operating loss of 32.4 billion KRW. Airport store sales plunged 40.0%, and downtown store sales also dropped 21.0%. Hyundai Department Store Duty-Free Shop posted an operating loss of 19.4 billion KRW. However, due to a base effect from reduced initial investment costs compared to last year and no airport store presence, the deficit margin improved. Sales increased 14.4% to 80 billion KRW thanks to the opening of a new Dongdaemun store.

By company, Lotte Shopping's Culture Works, which operates movie theaters, saw its performance collapse. Due to the closure of some domestic theaters, decreased audience numbers, and postponed new releases, first-quarter sales dropped 49.0% to 102.5 billion KRW. The first-quarter loss was 34.4 billion KRW due to sluggish sales and limited reductions in selling and administrative expenses.

Hi-Mart, an electronics specialty store, also saw sales decline 10.8% year-on-year due to the delay of the new school semester season and decreased sales in the information and communication sector. Operating profit fell 19.6% year-on-year despite improved gross profit margins due to reduced sales.

For Shinsegae, its affiliate Shinsegae International recorded sales of 323.4 billion KRW, down 11.6%, impacted by reduced duty-free operations. Sales in the cosmetics sector also fell 11.1% due to a warm winter and sluggish domestic consumption, while the fashion lifestyle sector declined 10.1%.

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