Discount Stores Use Outsourcing, Irregular Markdowns
By Kim Hyun-cheol
Staff Reporter
For shoppers of grocery and other necessities, these days may well be the best time to go to discount stores but make sure you check how these retailers can get you such low prices before rushing on a buying spree.
In a bid to push ahead for a turnaround, big retailers are rolling up their sleeves to execute a series of markdown promotions at ultra-low prices.
Some of them are sold for "incredibly" low prices: Shinsegae E-Mart, the nation's largest franchise, has pairs of jeans tagged 7,900 won (7$) and golf clubs at 9,900 won. At Lotte Mart, customers now can buy a fried chicken at a dirt-cheap price of 3,980 won.
The 7,900-won jeans at E-Mart were manufactured in China between late October to early November, a slack time for clothes makers. For the event, the retailer made an order for some 180,000 pairs of jeans at once, 12 to 15 percent of its annual sales in average.
Through these ways, those products could be supplied at a cost up to 20 percent cheaper than usual, E-Mart said.
The fried chicken, which Lotte Mart sells in its ongoing weeklong promotion, is nearly 800-won cheaper than last month's average price of uncooked chicken, while it's almost the same as the ones in other chicken franchises in weight.
The retailer secured some 70,000 chickens in advance late last year, when their prices were about 20 percent cheaper than now, which made possible the uncanny price tag.
Expansion in direct trades with producers of ingredients is also attributable to the huge markdown for some product label items.
Lotte Mart could drag the per-piece sales price of the sushi sold there last month down to 250 won, by directly importing most sashimi strips from Southeast Asian countries such as Taiwan, Thailand and Vietnam.
"We are now directly purchasing those ingredients from abroad since December last year. Before that, some sales agents did it," a Lotte Shopping spokesman said. "We decided to switch to that way because we reached that conclusion that it costs less."
Probably they are not the biggest cause, but retailers are expected to have enjoyed success this year so far. Both Shinsegae and Lotte Shopping, the largest Korean retailers, are forecast to post more-than-expected showings in the first quarter with overall consumption in the local markets starting to be galvanized.
Sales of Shinsegae in the first two months of the year grew 17.1 percent from the previous year.
"It looks like discount stores are rebounding in performance from this year around along with the entire retailing markets," Yeo Young-sang, an analyst at Shinhan Investment said.
The sprawling of discount stores is likely to continue this year. Lotte, the nation's largest retailer, plans to add more franchises to their domestic sales network.
At its annual shareholder's meeting last month, Lotte Shopping CEO Lee Chul-woo said nine more Lotte Mart discount stores will be launched. Currently it operates a total of 69 of them across the country, with six of them opened last year.
While its cut-price policies might enchant consumers, critics say it would not be a great idea to get overly excited by those promotions.
Last month, Lotte Mart announced it will put on a sale various items with as much as a 50-percent discount. It turned out, however, that some of those products were being sold just at the same price as before.
This goes against a recommendation by the Fair Trade Commission that any markdown should be made from the prices that were previously sold.
E-Mart was also in hot water for irregularities in markdowns.
A consumer advocate said retailers should be more focused on creating ways to be responsible for the quality of their products.
"They are obviously sacrificing quality for ultra-low prices," said Woo Hye-kyung, an official at Consumers Korea, a local civic group for consumers' right.
"It's about time they mulled over how to balance reasonable prices and decent quality, not to be bent on using them as bait for more customers."
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