Large Mart's Second Half Survival Strategy... Future-Oriented Renewal vs. Expanding Overseas Wings

Emart Focuses on Profitability Improvement to Offset First Half Slump
Lotte Mart Expands Overseas Stores and Integrates Sourcing with Supermarkets

Major domestic large-scale marts have unveiled similar yet distinct survival strategies for the second half of the year. Large marts, which face the challenge of attracting customers amid changes in the distribution environment, are collectively focusing on renewing key stores to transition into experiential stores. In addition, Emart plans to put all its efforts into improving profitability to make up for poor performance in the first half of the year. Lotte Mart aims to continue operational efficiency through integrated sourcing with supermarkets while strengthening its overseas business, which has shown increased contribution to performance with the full-scale onset of the endemic (periodic outbreak of infectious diseases).

Visitors are shopping at No Brand inside The Town Mall Kintex branch, which was renewed and reopened last month.
[Photo by Emart].

According to the distribution industry on the 15th, the endemic wave that began in earnest this year has rapidly normalized external activity demand, such as increased dining-out demand and expanded overseas travel, which negatively affected large marts' performance in the second quarter. Emart recorded an operating loss of 25.8 billion KRW on a separate basis in the second quarter. The deficit widened by 6.7 billion KRW compared to the operating loss of 19.1 billion KRW in the same period last year. Total sales amounted to 3.939 trillion KRW, down 0.5% from the previous year. This was analyzed to be influenced by large-scale renewal investments, the closure of the Gayang store in September last year and the Seongsu store in April this year, and increased energy costs due to rising electricity rates. Including these factors, Emart’s consolidated operating loss was 53 billion KRW, marking an earnings shock. Expectations were lowered to an operating loss level of around 20 billion KRW just before the announcement, but the actual figure fell far below even the lowered expectations.

Emart plans to make every effort to improve profitability in the second half to compensate for this. For operational efficiency, it will focus on managing 'growth potential stores,' including stores that have completed renewal, stores that can attract sales from closed stores, and stores expanding their trade areas. Optimization of store space will also continue. Since July, including The Town Mall Kintex, which is 'Emart without Emart,' direct management stores have been reduced and tenant (rental store) spaces expanded. Inefficient picking and packing (PP) spaces will also be reduced. Energy consumption costs, which have increased, are targeted to be reduced by 3% in the second half through measures such as shortening business hours.

However, renewal investments in discount stores will be viewed as investments for the future and will continue. The eight major stores, including the Yeonsu store converted to The Town Mall in the first half of this year, saw sales increase by about 10% after renewal. The Kintex store, renewed as The Town Mall on the 21st of last month, welcomed about 300,000 visitors by the 10th of this month. Sales increased by about 27% compared to the same period last year. Based on this, existing store sales at discount stores in July rose by 1.6%. Despite the early Chuseok holiday last year, which led to the start of holiday gift reservation sales from July 21 and included some holiday performance in July, this year’s sales surpassed last year’s. Emart said, "The effect of renewal stores strengthened with experiential content will be fully reflected in the second half’s performance," adding, "We will make large-scale investments in store renewals that transform existing offline stores into customer experiential spaces in the second half as well."

Lotte Mart Vietnam Vincom Store Exterior [Photo by Lotte Mart].

Lotte Mart also sees store renewal as essential to attracting customer visits and will renew six stores in the second half. In particular, it will introduce the wine specialty store Bottle Bunker at its key store, Seoul Station. Following the Jamsil store of Zeta Flex, Lotte Mart opened the 2nd and 3rd stores in Changwon and Gwangju, and plans to open the 4th Bottle Bunker at Seoul Station this year.

Lotte Mart recorded an operating loss of 3 billion KRW in the second quarter, reducing the deficit by 4 billion KRW compared to the same period last year (-7 billion KRW). Sales were 1.422 trillion KRW, down 1.3%. Thanks to the integrated sourcing effect of marts and supermarkets that has been ongoing since the end of last year, operating profit improved significantly, especially in the food product category. In the second half, it plans to continue the project to improve cost of sales through sourcing organization integration to improve profitability. It is also focusing on expanding the influence of private brand (PB) products such as 'Oneul Joeun' and 'Yorihada.'

Lotte Mart’s operating profit in the first half of this year was 29 billion KRW, a 200.8% increase compared to the previous year, achieving significant improvements in both domestic and overseas businesses. In particular, overseas business operating profit showed strong results with 14 billion KRW in the first quarter and 11 billion KRW in the second quarter, totaling 25 billion KRW. Existing store sales increased mainly in Vietnam, which recorded 14 billion KRW in operating profit in the first half, leading to profit improvement. In the second half, the strategy is to actively expand overseas presence, including the newly opened Lotte Mart in 'Lotte Mall West Lake Hanoi' in Vietnam.

Exterior view of Bottle Bunker Zeta Plex branch [Photo by Lotte Mart].

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