Lotte Group at major crossroads

By Kim Yoo-chul

Korea's retail giant Lotte is at a major crossroads, but Chairman Shin Dong-bin is determined to take the group's key businesses to the next level.

The Lotte chief acknowledged the need for more investments and, according to people with knowledge on the matter, said he had the appetite for increased investments but under new leadership.

A day before a scheduled board meeting of Lotte Corp., Lotte's holding arm, Hwang Gak-kyu, considered as the group's long-time No. 2 man, was stripped of his role as group vice chairman. The decision came as a surprise as the conglomerate has long been reluctant to sack top executives without a specific reason or timing.

At the time of the announcement, the Lotte chairman didn't say anything about Hwang's apparent sacking. But it seems quite evident that Shin was quick to recognize that moving on to that “next level” requires leadership with a different mindset and skill sets.

Lotte Group's business profiles have been disastrous since 2015. In an apparent retaliatory measure after Korea's decision to deploy a U.S. Terminal High Altitude Area Defense (THAAD) anti-missile system, Lotte Mart's China business took a hit and was forced to shut down. Chairman Shin spent eight months in prison over his involvement in a bribery scandal with the impeached former President Park Geun-hye.

Plus, the spread of COVID-19 directly hit the group's core affiliate Lotte Shopping, as the shopping unit's operating profit during the second quarter of this year remained a negligible 1.4 billion won.

It's understandable that the shift to hardened, strategic top leadership is sometimes challenging as the leadership will be reluctant to make visible changes that could unsettle the culture.

But the important point is that like a lot of owners of the country's top conglomerates, Chairman Shin is seeing his group as an intrinsic part of its being and feels a stronger responsibility for its development and future. In line with such thoughts, the sacked Hwang might have burdened Chairman Shin who was seeking ways for the group to see substantial progress.

Retail wasn't good before, and the growth of online commerce already eroded Lotte's top-line revenues even before COVID-19 hit. These hits have forced its related affiliates into an ongoing cycle of heavy discounts and cash-intensive promotions just to stay afloat. When the pandemic impacted physical retail, Lotte's rivals moved their businesses online quickly. While people still crave in-person human contact, online retail is emerging as the “next trend” for retailers, and Lotte is asked to catch up.

Hwang's sacking also means “new faces” will back up Chairman Shin's own initiatives and efforts to help the conglomerate rise to the “next level.” But it has to strengthen corporate compliance and be quick to adopt an enhanced management decision style as Lotte is still influenced and controlled by Japan Lotte Holdings.

“Lotte is at a major crossroads. Shin knew what the main problems are and the only thing for Shin is how to address them properly and effectively to help the group move forward,” one official familiar with the issue said, Tuesday.