Lotte stuck in dilemma on THAAD

By Kim Tae-gyu

Lotte Group officials breathed a sigh of relief this week as the court turned down an arrest warrant over Chairman Shin Dong-bin’s embezzlement and breach of trust charges.

But the conglomerate faces another challenge with regard to the government’s decision about the advanced U.S. missile defense system ― it may negatively affect Lotte’s revenue from Chinese tourists.

On Friday, the Ministry of Defense selected a golf course owned by Lotte Group in Seongju, about 300 kilometers southeast of Seoul, as the location to deploy the Terminal High Altitude Area Defense (THAAD) system. Lotte instantly came up with a response that the group would positively consider the transaction in light of national security.

“The Lotte Group would feel pressure to accept the government policy in consideration of the ongoing prosecution of its tycoon,” said an industry source who asked not to be named.

“In doing so, however, Lotte may run the risk of being boycotted by Chinese tourists, who are opposed to the THAAD deployment. The group would then have big troubles since it depends heavily on Chinese visitors.”

The Seoul administration plans to install the THAAD system next year to tackle North Korean missile threats but the move raised the ire of China because its radar can also monitor airborne objects in the communist country.

The soured Sino-Korean relationship has already wreaked havoc on the domestic entertainment business, which relies much on their Chinese fans. Beijing reportedly engineers a boycott of Korean entertainment and Korean retail is by no means any better.

According to the Korea Tourism Organization, the number of Chinese tourists in Korea amounted to 3.81 million over the first six months of this year, almost half of the total foreign visitors.

One of the most important Korean attractions for Chinese visitors, or youker, is all of the shopping they can do here ranging from affordable cosmetics to luxury brands, and one of the biggest beneficiaries is Lotte, the powerhouse retailer.

Chinese shoppers were responsible for 70 percent of sales for Lotte Duty Free for the first half of this year. The proportion continued to rise from 59 percent in 2014 to 62 percent last year.

Lotte Department Store also saw its revenue stream from youker jump by 60.7 percent during the first half on a year-on-year basis.

“The last thing that Lotte wants to see would be the departure of Chinese customers. So it would feel anxious about selling the golf course for the THAAD site. Under the worst-case scenario, angry Chinese customers may turn their back on Lotte,” the source said.

“But I wonder whether the group will be able to refuse the government’s request at a time when its owner is under investigation.”