Shin Dong-bin: "70% Economy More Serious Than During the Foreign Exchange Crisis... We Must Find a Way to Survive"

On the 14th, Lotte Group Chairman Shin Dong-bin is attending and conducting a meeting at the '2020 Second Half VCM' held in a webinar format at Lotte World Tower in Jamsil, Seoul. (Photo by Lotte Holdings)

[Asia Economy Reporter Seungjin Lee] Shin Dong-bin, Chairman of Lotte Group, urged preparation for the 'post-COVID' era, stating, "Economic activity is expected to shrink to 70-80% compared to 2019 levels, and this '70% economy' has become the new normal."

On the 14th, at the '2020 Second Half Lotte VCM (formerly the CEO meeting)' held at Lotte World Tower in Jamsil, Seoul, Chairman Shin said, "I thought COVID-19 would end soon and an 'after-COVID' era would come, but it seems that 'with-COVID,' living alongside the virus, will continue until the end of next year."

The VCM was conducted in a webinar format due to the impact of the novel coronavirus (COVID-19), gathering in small groups across eight conference rooms set up at three hubs: five in Jamsil, two in Sogong, and one in Yangpyeong. About 90 people attended, including the CEO and executives of Lotte Holdings, heads and executives of four BUs, and CEOs of affiliates.

Throughout Chairman Shin’s remarks, a sense of crisis regarding the overall business was evident. He evaluated, "The IMF crisis in 1998 and the Lehman Shock in 2008 could be overcome by enduring well for one to two years, but the current situation is completely different," emphasizing the need to reconsider past business strategies. He also stated, "Reducing waste in work processes and improving work efficiency is the first task a CEO must undertake."

His comments appear to stem from the sluggish performance of Lotte Group’s core businesses, such as Lotte Shopping and the chemical sector, which is considered a growth engine.

The retail business suffered an 'earnings shock' in the first quarter of this year as department store sales were directly hit by COVID-19. Lotte Shopping’s consolidated operating profit for Q1 dropped 74.6% year-on-year to 52.1 billion KRW. The hotel business is in an even more severe situation, with all air routes cut off due to COVID-19, causing a steep decline in the performance of duty-free shops, which account for a large portion of sales.

Lotte Chemical is in a similar situation. It posted a provisional operating loss of 86 billion KRW in Q1, marking a return to the red for the first time in 31 quarters since Q2 2012. Sales fell 9.6% year-on-year to 3.2756 trillion KRW.

As it became difficult to find solutions in overseas operations due to the impact of COVID-19, Chairman Shin ordered a shift to a domestic business concentration strategy. He explained, "Many production facilities were moved overseas for production optimization, but now rebuilding a reliable supply chain is gaining momentum, and investments are being reshored. It is also a politically unstable time internationally."

Referring to his recent visits to retail stores and other sites, he said, "Going there in person, I saw both strengths and shortcomings," emphasizing, "In such difficult times, the competitiveness of our core business is crucial." Since returning from Japan in early May and completing a two-week self-quarantine, Chairman Shin has been visiting Lotte business sites nationwide, including Seoul and the metropolitan area, every weekend.

Currently, Lotte is undergoing restructuring of its retail affiliates centered on Lotte Shopping, and Chairman Shin’s remarks are interpreted as a call to further enhance the efficiency of this restructuring. Lotte Shopping has announced plans to close about 200 underperforming stores out of approximately 700 operated by Lotte Department Store, Lotte Mart, Lotte Super, and LOHB’s within the next 3 to 5 years.

Finally, Chairman Shin emphasized, "Achieving DT (digital transformation) and discovering new businesses or growth engines is, of course, important, but it is also essential to reaffirm the competitiveness of the businesses we have been doing." He urged the CEOs, "Do not be too discouraged by the difficult economic situation, do not be obsessed with short-term performance, and strive to strengthen competitiveness through innovation in the core business from a long-term perspective."

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