Leadership crisis poised to challenge Shinsegae
Emart's discount store Pierrot Shopping in Seoul is seen empty without customers in this 2018 file photo. / Courtesy of Emart
By Kim Jae-heun
Shinsegae Group Vice Chairman Chung Yong-jin's leadership is being questioned after the group's subsidiary Emart saw its very first deficit in the second quarter of last year.
The operating profit of the country's largest retailer dropped to 489.3 billion won ($422.6 million) in 2018 and last year it saw an operating loss of 29.9 billion won ($25.8 million) between April and June. Emart made 83.2 billion won more business profit in the same period in 2018.
The retailer giant picked poor performance at discount stores as the main cause, which saw a business loss of 4.3 billion won alone.
Recording 18.8 billion won ($16.2 million) operating loss in the specialty store sector also played a part. The deficit occurred mainly in health and beauty store Boots and Chung's most-anticipated dollar-store concept Pierrot Shopping.
Last month, Chung decided to close down all Pierrot Shopping stores in the country. Pierrot Shopping was Chung's most-anticipated business that launched in June 2018 under Emart.
Three months prior to the opening of Pierrot Shopping, the vice chairman said at a job fair that the discount store was inspired by Japan's Don Quijote and he put in everything to make the brand last one year.
The very first Pierrot Shopping store opened at Starfield COEX Mall in Seoul and attracted some 60,000 people in just two months. It achieved 120 percent of their initial sales goal.
Chung invested aggressively to open five more mainly in Seoul in the same year and three more in Gyeonggi Province and Busan in the following year.
However, it only took a year and half for Chung to retreat on his ambitious business.
Emart said pricey rental costs of Pierrot Shopping stores played the biggest role.
“In the second quarter last year, we paid a lot of comprehensive real estate holding tax. We cannot only blame it on that though, there are a combination of factors,” an Emart official said.
However, the retailer's claim loses credibility as it chose to open the stores in the country's most expensive areas such as Myeongdong and Gangnam.
Shinsegae Vice Chairman Chung Yong-jin
A source said the country's biggest retailer like Emart blaming its discount stores' shutdown on expensive rental costs is attributing their business failure to an absurd reason.
“What really happened was that Pierrot Shopping had failed to offer products at 'surprisingly cheap' prices. For an instance, a pack of three masks costs 3,000 won at Pierrot Shopping, which you can buy for half the price online,” a source said.
Japan's Don Quijote was able to achieve success because it supplied 60 percent of the products in the store, which gave price advantages to the discount store over other on and off stores.
Another retailer insider pointed out Chung's ignorance regarding local consumers' shopping preference as a failure of Pierrot Shopping.
“Chung just copied and pasted the whole concept of Don Quijote. Not many Korean consumers find it interesting to get lost in the store and find 'undiscovered treasures.' Meanwhile, the store is noisy and everything is a fuss. It does not fit local customers' tastes,” the insider said.
Last July, Emart closed down 18 Boots stores in the country and it said it will focus on improving the efficiency of the remaining stores.
“The overall operating loss of specialty stores have reached an annual 90 billion won and we will shut down those running out of business gradually,” an Emart official said.
Experts say Chung needs to show better leadership in reviving the sales of offline stores by playing to its strength.
“Look at Walmart, how it successfully brought back customers to offline stores. They focused on marketing items that people have to come to offline stores and buy, such as fresh vegetables and fruit,” said an economic pundit Jung Hyeon-du. “Chung cannot ignore the strength of online platforms so Emart should separate what they should sell in offline stores and online.”
Prof. Jung Yeon-seung at Dankook University said Chung needs to cater to the local customers' consumption style and read the trends.
“To successfully launch a new kind of business in a retailer's market, you have to understand the local's consumption level, cultural level, lifestyle et cetera,” Jung said. “Otherwise it takes only a second for one business to go out in such a fast moving retail market.”