By Kim Yoo-chul
Staff Reporter
Shinsegae is a giant in the Korean retail industry but it's barely visible in overseas markets, a fact that has industry watchers wondering how long the company will keep blowing money to establish a presence outside its home country.
In setting its annual target, Shinsegae set a goal of 1 trillion won (about $870 million) in operating profit, and claimed that much of the growth will be generated from overseas markets.
However, with the company continuing to stumble in its attempts to go global, the optimism for a lucrative 2010 appears to be fading.
Shinsegae enjoyed growth last year following the opening of two major domestic outlets, and the focus for this year was getting better numbers from its Chinese outlets.
However, some industry watchers believe that Shinsegae's forays in China could be eventually marked as ``sunk costs'' down the road, as the company continues to wait for a breakthrough that may remain elusive to the end.
Shinsegae operates four affiliates in China, which failed to meet a sales target of 400 billion won for 2008, managing a combined 353.6 billion won, according to statistics from Korea's Financial Service Commission (FSC).
The company's net loss from its Chinese operations is now over 15.3 billion won, although company officials insist they are close to breaking even.
``The key point is that Shinsegae now wants to focus on the local business rather than external growth. The losses from its Chinese business certainly appears to be making the company more conservative,'' said a senior industry official, who didn't want to be named.
The struggling China business also seems to be resulting in skidding stock prices, according to local analysts, with the stocks lagging in price earnings ratio (PER) compared to the KOSPI average.
``Shinsegae's business in China won't give the company a boost this year. Economic indicators linked to consumer confidence are still mixed and the Korean market itself is looking more and more like a `red ocean,''' said an analyst from a local brokerage.
Shinsegae, led by co-chief executive officer and vice chairman Jung Yong-jin, operates over 120 supermarkets all over the country and is the nation's largest retailer with an annual turnover of 10 trillion won in 2009.
Net profit for last year was 568 billion won compared with a profit of 573 billion won a year earlier, while the sales curve wasn't impressive, either.
The retailer, which operates E-Mart mega discount stores and Shinsegae department stores, among other outlets, is planning to invest about 800 billion won to expand its discount stores and to enhance its competitiveness in the Chinese discount store market.
Shinsegae plans to increase its number of discount stores by six or seven to total some 30 in China this year.
Shinsegae will have to compete with Lotte Shopping for supremacy in the retail industry. Lotte aims to close the gap by pushing acquisition plans at home and abroad.
Lotte Shopping plans to increase its number of overseas Lotte Mart outlets by 20 by the end of this year, while Lotte Department Store will open four more branches outside Korea including by the end of 2014, according to Lotte officials.
``The local retail-related market is already saturated. Shinsegae aims to recover the price competitiveness of its E-Mart outlets. But that's not enough,'' the executive added.
``But the more serious problem is that Shinsegae is facing a dilemma over a rapid expansion of its China business due to uncertainties in China's retail-related markets. That's why it is turning into its main corporate focus on the local market,'' he said.
In March last year, Shinsegae opened the country's largest commercial complex ― Shinsegae Centum City ― in Busan.
This was followed in the autumn by the opening of a large store in western Seoul. ``These openings helped push sales up in 2009. We will follow up the moves in a short-term strategy,'' a Shinsegae official said.
Lotte Group has also turned up the pressure on rivals including the United Kingdom's Tesco by expanding its retail empire, purchasing department and discount stores from local rival GS Retail for about $1.2 billion.
This poses an increasing challenge for E-Mart.
``Shinsegae should apply strengthened localized strategies if it wants to revive its sagging momentum in China," said the company official.
``It shouldn't attempt to guarantee the sustainability of corporate growth by focusing only on the local market.''