E-mart, Lotte Mart, Homeplus struggle to compete with convenience stores

By Kim Jae-heun

E-mart CEO Kang Heui-seok

E-mart, Lotte Mart and Homeplus have been losing customers to convenience stores amid the ongoing COVID-19 pandemic, as more people are avoiding visiting large stores so as to minimize the risk of infection, according to retail industry analysts Friday.

In contrast, CU, GS25 and other convenience store chains have seen their sales surge over the past two years, as more people opt to buy daily necessities near their homes.

The three large discount store operators have come up with countermeasures to strengthen themselves in the premium grocery sector as well as renovate underperforming stores, but it is uncertain whether these efforts will succeed.

Last year was the first time that convenience stores beat supermarket chains, winning 0.2 percentage points more of the offline retail market share. The “big three” convenience stores ― GS25, CU and 7-Eleven ― accounted for a share of 15.9 percent, while E-mart, Lotte Mart and Homeplus took only 15.7 percent in 2021.

Lotte Shopping CEO Kang Hee Tae

The gap between the two retail sectors has been narrowing for years. Large discount stores have lost nearly 10 percent of their share in the last five years. In 2017, hypermarkets owned 24 percent of the market share, which was 7.1 percentage points more than convenience stores.

COVID-19 has affected sales the most with this recent noticeable decline in business for large discount stores in the traditional offline market.

“The ongoing pandemic has led consumers to purchase their daily necessities at nearby convenience stores. At the same time, e-commerce firms took away our market for processed goods,” a Lotte Mart official said.

The government's measures to manage the spread of infections at multiuse facilities, along with hypermarkets' own closures of unprofitable stores, have contributed to the decline in their sales. Specifically, hypermarkets saw their overall revenue for sundry goods decrease by 14.3 percent, while the revenue for household items dropped by 11.5 percent and home appliances by 1 percent.

E-mart and Lotte Mart are renovating old stores and introducing specialty stores to rebuild their competency in the market.

Lotte Mart renovated its Jamsil branch in Seoul last year, while it transformed its discount stores in Songcheon, Sangmoo and Mokpo into wholesale club stores.

E-mart has already invested 200 billion won in renovating 27 stores. It will utilize its new logistics centers to speed up the deliveries of fresh foods.

Homeplus plans to renovate 17 of its stores this year and change them into big grocery stores specializing in food products.

“As the size of the online market has grown in the retail market, retailers' offline businesses have shrunk. Discount stores, which generate much of their sales in the traditional offline market, were heavily affected in this process. Retailers are well aware of this fact and they are trying to bring back their customers by strengthening their fresh food sectors and renovating old and unprofitable branches,” an E-mart official said.