Lottes Whiz Kid Suffers Letdown in Moscow
By Jane Han
Staff Reporter
Maybe it's a clash in style, a cultural gap or just a rough landing. Whatever the reason, it doesn't explain the fact that Lotte Group's heir apparent and retail whiz Shin Dong-bin's $200 million Moscow mall is not nearly the ``shopping central'' it claimed to be when it opened in the Russian capital last September.
Four months into operations and the retail giant's first-ever overseas establishment suffered a 7 billion won loss by January. Since then, foot traffic has remained slow, and sales continue to sink below target. But what's worse is that the seven-story, 23,130 square meters atrium seems to be fundamentally jarring with locals.
``Maybe Russian shoppers aren't getting what they want,'' said an official of a Korean bed manufacturer, one of the original 26 homegrown brands that opened for business in Lotte's Moscow chain. This number recently dropped to 21, however, as some companies refused to take further financial losses.
An unnamed official of Bean Pole, a local clothing brand housed there, said, ``The past couple of months have been tough and sales are disappointing,'' but implied that he believed Lotte had a solid plan to help business pick up.
But the country's No. 1 department store operator ― which recently revised down its annual sales target for the Moscow outlet from $140 million to $120 million ― seems to think differently of Lotte Vice Chairman Shin's pet project.
``We did thorough market research and we're planning to keep consistent with our `Korean-style' shopping center scheme,'' said Lim Hyung-wok, a Lotte spokesman, who added that this agenda is at the core of the company's expansion.
The emphasis is understandable, however, considering the amount of time and effort Shin put into the project that dates back more than 10 years. His father Shin Kyuk-ho, Lotte Group founder and chairman, first planted the seeds of the Russian business, but most of the detailed work was handed to his son.
Critics familiar with the Moscow operation, however, say this forceful strategy is what's fueling the problem.
A merchandiser for one of the tenant businesses in Lotte explained that Russian shoppers are traditionally used to fancy buildings and a laid back atmosphere, so they don't feel comfortable in Lotte's ``extremely simple structure, in which they are constantly followed by excessively polite sales staff.''
Even the head of Lotte Russia admitted that this cultural difference was tough to overcome. ``It took months to train Russian sales staff to bow their heads to customers,'' said Kim Sun-kwang in a recent media interview.
Small shops, an underground parking lot and less emphasis on luxury brands compared to high-end retailers there are among other factors repelling local shoppers.
Discounting the issues, however, Lotte says the same ideas will be implemented in its future global expansion projects. The first of them is a Beijing department store set to open later this month.
Thereafter, it plans to roll out more chains in China, Vietnam and India to ultimately become a top 10 player in the global department store market by 2010.
An excited Shin said at the opening press conference of the Moscow outlet last September, ``We will consistently raise the proportion of revenue that comes from international operations in the coming years.''
This is a similar strategy taken earlier by Lotte's main rival Shinsegae, which recently kicked off its 12th hypermarket outlet in China.
Market analysts say Lotte's initial slip was expected, but its needs a speedy comeback in order to catch up with Shinsegae.
Lotte Shopping's annual revenue in 2007 stood at 10.085 trillion won, while that of Shinsegae reached 10.103 trillion won.
``Every business goes through a trial and error period, but if Lotte keeps up with its `my way' strategy, the outcome is foreseeable,'' said Yoo Bin-na, a consultant at a foreign commercial property developer.