Lotte, Shinsegae fail in Southeast Asia, turn toward US

Lotte Group Chairman Shin Dong-bin, left, and Shinsegae Group Vice Chairman Chung Yong-jin / Korea Times file

By Kim Jae-heun

Local retail giants like Lotte Shopping, Shinsegae and GS Retail suffered poor performances in Southeast Asian markets in the third quarter of this year. They have changed their global business strategies to shift toward the U.S. market instead.

Lotte Shopping's supermarket brand Lotte Mart recorded respective 2 billion won ($1.69 million) losses in Vietnam and Indonesia, for a total loss of 4 billion won ($3.38 million). Lotte is operating 49 stores in Indonesia and 14 stores in Vietnam, a considerable number of stores, but its sales has been decreasing. Lotte Mart's accumulated sales between January and September this year showed 911 billion won, down by 13 percent year-on-year.

Shinsegae's E-mart, the country's largest retailer, entered the Vietnamese market in December 2015 but failed to expand there. The retailer further attempted to open more supermarkets there, but the local government kept delaying its approval and E-mart decided to sell off its branch share to THACO Group and only receive royalty fees under a master franchise contract. THACO Group established a joint venture with Shinsegae to introduce E-mart stores when it first entered the Vietnamese market.

After turning its business in Vietnam into a franchise system, E-mart turned its eyes toward the U.S. It started by acquiring five supermarket brands there and plans to open a direct management store in Los Angeles early next year.

"We will strengthen our business in the United States with local supermarkets we took over. There is less regulation there and local customers have higher purchasing power," an E-mart official said.

E-mart is already running 51 stores in the U.S. and will open 10 more in 2022. Shinsegae Vice Chairman Chung Yong-jin visited the United States recently with E-mart CEO Kang Heui-seok to inspect the retail operation.

E-mart's U.S. performance is improving. Its American subsidiary PK Retail Holdings turned a surplus in the third quarter of this year, reaching a 5.3 billion won profit. In last year's third quarter, the company marked an operating loss of 1.2 billion won.

GS Retail, another retail giant operating GS25, one of the top convenience store brands here, entered the Mongolian market last September by signing a master franchise contract with local firm Shunkhlai Group.

It entered the Vietnamese market by creating a joint venture with a local firm in 2018 but has failed to turn a profit there. The joint venture's net loss has kept growing, from 2 billion won three years ago to 6 billion won now.

"One of the reasons that GS Retail never made a profit in Vietnam is because the local government is supporting Vingroup Company, operator of the largest convenience store brand there," an industry source said.

After learning its lesson in the Southeast Asian country, GS Retail is only seeking to establish master franchise businesses including a new contract in Malaysia. It has yet to find the right business partner.

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