Securing Over 6 Trillion Won by Selling Land and Buildings... Major Battle with E-Commerce

Offline Store Sales Decline... 'Reversal in 3 Years' Sparks Concern
Emart, Lotte Mart Accelerate Asset Securitization through Store Sales and Leasing
Striving to Strengthen Market Dominance via Store Renovations, eBay Korea Bidding, and New Business M&A

[Asia Economy Reporter Kim Yuri] Large discount stores are accelerating asset securitization to reclaim the mega trend in the distribution market lost to e-commerce companies. Although offline store sales still amount to twice that of online sales, concerns that online and offline sales will reverse in about three years have become a reality.

◆ Securing Over 3 Trillion KRW by Selling Land and Stores

According to the Financial Supervisory Service's electronic disclosure as of the end of March this year, the offline store leasing ratio for Emart and Lotte Mart was 19% and 43.8%, respectively. In Emart's case, at the end of 2016, only 15 out of a total of 153 Emart and Traders stores were leased. Currently, out of 158 stores, 30 are leased. Similarly, Lotte Mart leased 45 out of 120 stores at the end of 2016, but now operates 49 leased stores out of 112.

The funds secured through years of asset securitization by the two companies each exceed 3 trillion KRW. Emart recently sold Gayang Emart (682 billion KRW) and land in Byeollae-dong, Namyangju (74.9 billion KRW). Last year, it also sold land in Jangchung-dong (63.6 billion KRW), Magok (850 billion KRW), and conducted sale-and-leaseback of 13 stores in 2019 (952.5 billion KRW). Including asset securitization efforts since 2017, the total amount is estimated to exceed 3 trillion KRW.

Lotte Shopping also sold all shares of Lotte World Tower and Lotte World Mall last month for 831.3 billion KRW. In November last year, it secured 730 billion KRW by selling land for five department stores, mart stores, and logistics centers. In 2019, it earned 1.0629 trillion KRW by disposing of Lotte Department Store Guri branch and others. Lotte Department Store Gangnam branch was also converted to leased operation, securing 424.9 billion KRW. The disclosed figures alone amount to around 3 trillion KRW.

◆ Online and Offline Sales Reversal Imminent

The reason offline distribution companies have turned to asset securitization is largely due to a sense of crisis following several years of ups and downs. As e-commerce led by Coupang and Naver Shopping rises, the traditional large discount store industry has been on a decline, and cash generation capability has weakened compared to before due to affiliate support. This background has led them to sell underperforming stores to raise 'ammunition.' Through this, they aim to improve the competitiveness of key offline stores and strengthen connections with online channels to reform their core business, while expanding investment in new businesses to ultimately regain dominance in the distribution market.

According to Statistics Korea, last year, domestic retail sales amounted to 475.2 trillion KRW, a 0.4% increase from 473.2 trillion KRW the previous year. Offline store sales recorded 314.1 trillion KRW but decreased by 7% compared to 2019. Meanwhile, e-commerce market sales reached a record high of 161.1 trillion KRW, growing 19.1% compared to 2019. Considering that offline store sales have been declining over the past three years while the e-commerce market has recorded double-digit growth rates, it is highly likely that the online and offline markets will reverse in three years.

An industry insider said, "With limited financial capacity, the trend of converting owned stores into leased ones and using the secured funds for new investments continues. Not only are they strengthening the core business by renovating stores to match changed trends, but recently, they have been actively preparing investment capacity for mergers and acquisitions (M&A) such as the eBay Korea acquisition battle."

◆ Funds Secured to Be Invested in New Businesses and M&A

The ammunition raised is expected to be used to strengthen dominance in the e-commerce market, which currently leads the distribution sector. The industry's attention is focused on the main bidding for eBay Korea scheduled for the 7th of next month. Lotte Shopping and Shinsegae (Emart) see economies of scale as necessary to strengthen the market dominance of their integrated malls, Lotte On and SSG.com. This is why the initially lukewarm eBay Korea acquisition battle has heated up. Above all, there is a widespread sense of crisis that if competitors take away eBay Korea's scale and market influence, they cannot win the leadership battle.

Emart's acquisition of SSG Landers is also a thoroughly calculated business move and a kind of 'new business investment.' The strategy is to have the many spectators gathered at the baseball stadium stay longer at the 'theme park' created by Shinsegae Group, enabling more shopping and dining. The company plans additional investments for this purpose. Lotte Shopping's recent 30 billion KRW investment in Junggonara is in the same context, recognizing the growth potential of the online secondhand trading market. The domestic secondhand trading market was about 20 trillion KRW last year, and Junggonara surpassed a record sales of 5 trillion KRW last year.

An industry insider said, "With the rapidly changing distribution environment, there is a widespread sense of crisis in the industry that they can no longer just sit in prepared marts and wait for customers. They will continue to actively use funds raised through asset securitization to strengthen the core competitiveness of offline distribution, enhance connections with online channels, and promote new businesses such as online market development."

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