Once the nation's retail giant, Lotte Group in urgent need of transformation
전체 맥락을 이해하기 위해서는 본문 보기를 권장합니다.
"Portfolio adjustment may be considered for companies that fail to innovate themselves," he added, alluding to another round of extensive performance-based reshuffling. "A company that only pursues survival has no future."
"In order for investment to lead to actual results, it is crucial that (executives) perform the right actions according to strategies."
이 글자크기로 변경됩니다.
(예시) 가장 빠른 뉴스가 있고 다양한 정보, 쌍방향 소통이 숨쉬는 다음뉴스를 만나보세요. 다음뉴스는 국내외 주요이슈와 실시간 속보, 문화생활 및 다양한 분야의 뉴스를 입체적으로 전달하고 있습니다.
The COVID-19 pandemic, along with the yearslong slow growth trend, has weighed upon most businesses but the burden was especially heavy for those that failed to grow out of conventional operating models.
An example among South Korea’s top businesses was the country’s retail giant Lotte Group which apparently is struggling to cope with the fast-changing market trend.
According to the nation’s bourse operator Korea Exchange, none of the Lotte affiliates were included in Kospi’s top 30 companies in terms of market capitalization as of market close on Jan. 21.
Only Lotte Chemical, Lotte Corp., and Lotte Shopping managed to make it within the market’s top 100 list -- ranked as 33rd, 80th and 93rd respectively.
Considering that the retail group was the country’s No. 5 conglomerate as of end-2019, the latest market cap results fell short of expectations, especially compared to peer business groups.
Lotte Group was the only one among the country’s top five conglomerates to mark a single-digit on-year growth, expanding some 8 percent in overall market cap as of mid-January.
During the same period, other top-tier groups -- Samsung, Hyundai Motor, SK, and LG -- all saw their market cap surge by 35-85 percent. The country’s benchmark Kospi also soared by over 40 percent, reflecting the aggressive stock investment boom here.
In terms of sales, it was not just Lotte which faced contraction in 2020 under the COVID-19 market fallout. While Lotte’s estimated yearly sales for 2020 slipped about 8.1 percent on-year, Hyundai Motor and SK also saw their sales decrease due to a sluggish domestic market.
But the fundamental hurdle for the retail group, observers pointed out, is its old-fashioned business culture and lack of new growth engines -- especially in the fast-growing digital and green sectors.
Founded in 1967 by the late Shin Kyuk-ho as Lotte Confectionery, the group finds its base in the food and beverage industry, as well as the affiliated retail businesses.
It was also the retail parts which added fuel to the group’s visible growth over the past decade on the back of the Chinese tourist boom -- up until 2015.
One of the major turning points for the Korean retail group was the full-fledged management feud between founder Shin’s two sons, Dong-ju and Dong-bin.
The familial conflict highlighted the group’s complicated governance structure which traces back to Japan’s Lotte Holdings, losing favor with the public here.
Even after younger son Dong-bin won control of the group, challenges remained for the group as Shin was sent to detention in 2018 over his alleged involvement in a high-profile power-rigging scandal related to a former presidential aide. He was freed in 2019, as the Supreme Court confirmed a suspended term.
Another landmark hurdle for Lotte was the Korean government’s decision to deploy a disputed missile defense system here -- the Terminal High Altitude Area Defense, or THAAD -- here in 2015. The move, which angered Chinese policymakers, delivered a heavy blow on the retail business by drastically reducing the number of inbound Chinese visitors.
But the group’s struggle carried on for years afterwards, indicating that its dilemma was not only the Korea-China factor.
The biggest variable was the accelerating digitalization of the retail market, which boosted the growth of rookie e-commerce players.
In February last year, Lotte Shopping unveiled a restructuring plan to shut down some 200 underperforming offline stores out of the total 700 within the year. At the same time, it kicked off Lotte On, a new integrated online shopping platform, in an effort to renew its digital channels.
The new service, however, failed to mark its presence while its market rivals thrived amid the contactless shopping trend. According to data management platform information provider Mobile Index, Lotte On’s monthly users came to 1.12 million in December -- a mere 5.2 percent of leading e-commerce operator Coupang.
The fast expansion of rival retail group Shinsegae in the mobile shopping arena also acted as a strain for Lotte.
It was under such circumstances that Chairman Shin Dong-bin sent out a reprimanding message to the leadership at the beginning of this year.
“The sluggish management indexes amid the COVID-19 crisis last year indicate that we failed to unleash our full potential in the market,” said Shin in a video conference with the group’s affiliate CEOs earlier this month.
“Portfolio adjustment may be considered for companies that fail to innovate themselves,” he added, alluding to another round of extensive performance-based reshuffling. “A company that only pursues survival has no future.”
In November last year, the group carried out an earlier-than-expected executive reshuffle, replacing the chiefs of 13 out of its 35 affiliates, many of them being relatively young figures in their early 50s. It also drastically reduced the range of executive promotions, displaying the emergency faced by the retail-focused group amid the pandemic fallout.
The Lotte chief also urged them to break free from an authoritative organizational culture and to embrace innovative thinking.
“The reason that some of our business sectors have struggled despite our previous lead in the market is a lack of action, not a lack of strategy,” he said.
“In order for investment to lead to actual results, it is crucial that (executives) perform the right actions according to strategies.”
Industry observers also agreed that Lotte Group is largely chained to a conservative, hierarchical corporate culture, which makes it difficult for working-level officials to lay out their opinions to the leadership.
By Bae Hyun-jung (email@example.com)
<ⓒKoreaHerald(www.koreaherald.com)무단전재 및 재배포 금지>
Copyright© 코리아헤럴드. 무단전재 및 재배포 금지.