By Lee Hyo-sik
Lotte Group, the country’s fifth largest conglomerate, is merging its subsidiaries to create larger entities as part of efforts to deal with the ongoing economic downturn.
The move is designed to cut operating costs and achieve an economy of scale to better compete with rivals in the wake of deteriorating business conditions at home and abroad.
Lotte is a retail mammoth operating Korea’s largest department store chain, and discount stores and duty free shops. The group also owns a number of food companies producing soda, snacks and other processed items, as well as chemical, construction and hotel businesses among many others.
Lotte Group said Friday that it will merge Lotte Shopping, its retail flagship unit, with Lotte Midopa which operates a department store in Nowon district, northern Seoul, in a bid to integrate the department store business.
Lotte Shopping plans to take the group’s several other retailers under its wing next year.
In August, it absorbed Lotte Square, which managed three department stores in Gyeonggi Province.
``We have decided to integrate our affiliates to reduce operating costs, overhaul organizational structures, improve management efficiency and create synergy. This is what we need to cope with the ongoing economic slump. We expect the business environment to continue to worsen through next year,’’ a Lotte Group spokesman said.
He said the merger has been taking place not only in the retail sector, but also in confectionary, petrochemical, hospitality and other business areas.
Lotte has been reorganizing the group structure over the past few years to realize its ``Vision 2018’’ under which it aims to become one of Asia’s 10 top groups by generating 200 trillion won in revenue.
It has been active in acquiring other companies to boost its size and expand into other sectors, while expanding overseas retail operations in China and other Asian countries.
The group also helped its chemical unit, Honam Petrochemical, acquire foreign rivals and build plants abroad.
However, it has begun leaning toward organic growth by regrouping its units and boosting their competitiveness.
In June, Lotte Chairman Shin Dong-bin declared that the group would go into an emergency mode for the time being to cope with worsening economic conditions, saying that it will refrain from making fresh investments and slash operational expenses.
``Integrating big units with smaller ones is part of Lotte’s emergency management,’’ said Daishin Securities analyst Kim Yong-sik. ``When the economy is good, business groups establish new affiliates to more effectively advance into new businesses. But at a time like this, they do the opposite to stay afloat.’’
Kim said companies know things will further deteriorate, adding they are doing everything they can to secure cash and improve operational efficiency.
``In this regard, Lotte Group is heading into a right direction. It currently operates too many retail and food units. By reorganizing them into a few larger and more competitive entities, they will be in a much better position to weather upcoming economic downturn.’’
Lotte has also begun merging its food units.
Lotte Samkang, one of Korea’s largest food firms, plans to absorb Lotte Ham, a maker of processed meat products, in January. Over the past few years, it took over dairy producer Pasteur and bread maker Wellga.
Lotte Confectionary also absorbed Lotte Pharmaceutical in December, with Lotte Chilsung taking over Lotte Liquor the same month.
Lotteria, the group’s fast food franchise, merged with family restaurant chain Food Star into its operation in 2009, and then donut maker Lotte KKD in 2010 and ice cream maker Natuur in 2011.
Homan Petrochemical has also acquired the group’s smaller chemical firms over the past few years and plans to merge with KP Chemical.