Lotte challenges Costco
Korean retailer claims superior customer service
By Cho Mu-hyun
Lotte Mart, the nation’s third largest discount store chain, is entering the local wholesale market, which has been dominated by Costco.
Lotte’s forays into the market have unnerved the U.S. firm that has been under fire for its unfriendly customer policy. Lotte aims to attract local consumers with affordable membership fees and more family-oriented goods.
The Korean firm announced Wednesday that it will open its first membership-based discount chain called VIC (value in customers) Market in Geumcheon, southern Seoul, Thursday. The launch marks the first time for a domestic retailer to open a wholesale chain _ strictly speaking a club channel as it will deal with both consumers and retailers.
In a statement, Lotte was explicit in its wish to contend with Costco, saying “our new discount store is only 5.5 kilometers away from Costco’s Yangpyeong store, and we expect fierce competition.” Costco representatives were unreachable for comment on the matter.
“This is a good opportunity for Lotte to expand its customer base to include retailers,” said a Seoul-based expert in sales and distribution, who declined to be named. “More and more chains are opening a club channel that offers both wholesale and retail. E-Mart is another good example, with its own club channel E-Trader.”
The Korean firm will contend directly with Costco, which owns seven stores nationwide. Experts expect the domestic wholesale market to become a duopoly, as Lotte’s aggressive campaign will edge that of its rival, which is suffering from numerous complaints from members and client companies since announcing two months ago that it will only accept credit cards issued by partner Samsung Card.
Lotte reportedly has an internal policy to set product prices 10 to 30 percent cheaper compared than counterparts sold in Costco, which a Lotte representative confirmed to be true. “We are indeed placing a price policy to set prices of all the line-up we plan to offer cheaper than our main competitor.”
Lotte opened for early subscribers from Monday to Wednesday to test systems and overall operational smoothness. Annual membership fees will set to 35,000 won for regular members and 30,000 won for business clients, the same as Costco according to its website. The firm says it will offer 3,000 products, one-third of them being quality imports from 45 countries. The new store will open from 9 a.m. to 10 p.m., and target both ordinary consumers and other retailers.
“We continue to focus on our new project, starting with the first store, and plan to launch a second one within the year,” said the representative. “Our long term goal is to build a nationwide chain much like our retailers as we have well placed logistic and product transaction infrastructure.
“Though we have no goal for how many branches we want to build in which locations, we are confident that they will spread fast as we have a well established network and deep know-how.” The representative added that though it is too early to estimate the level of success the new move will bring, he did add that trial openings received so “mostly positive review.”
Lotte is also planning to offer a differentiated service based on a deeper understanding of “Korean sentiment.” Costco customers just buy products stacked in a warehouse, as is usual for wholesalers, but Lotte plans to offer services more common of a retailer than a wholesaler such as nursery facilities, with more employees on standby near aisles.
An office worker surnamed Lee says most people will likely welcome the news. “As a consumer, it is always better for us to have more competition. Costco and Samsung’s monopoly in the market has caused discomfort for shoppers like me for some time now.”
“Though Costco says it has six stores here, the only one that is popular is near rich neighborhoods. I hope Lotte’s new chain helps make more affordable membership fees and a healthy market.”
“We will secure a variety of foreign sourcing routes to sell popular global brands at shockingly low prices,” said Choi Choon-seok, director of Lotte Mart’s product division. “A new road has been paved through our new membership based VIC Market to create new values in price, product and target customers previously unavailable for our large retail outlets.”