Lotte Shopping doing e-commerce its own way

Most retailers build new warehouses to strengthen their e-commerce businesses.

Lotte Mart store in Yeongdeungpo District, western Seoul [LOTTE SHOPPING]

Most retailers build new warehouses to strengthen their e-commerce businesses.

Lotte Shopping is trying something different.

It is leveraging its existing stores and utilizing technology so that they become the core of its logistics network.

Lotte On, an e-commerce app made available in April 2020, currently offers two-hour delivery of groceries in limited areas in Seoul and Gyeonggi. The goal is to roll out the service nationwide by the end of next year.

The retail businesses of Lotte Shopping include department stores, discount marts, supermarkets and e-commerce.

Lotte Shopping reported an earnings shock in the third quarter: 28.94 billion won ($25.8 million) in operating profit, down 74 percent on year. Sales were down 2.4 percent to 4 trillion won.

The company struggled with challenges in e-commerce and at department stores in the face of intense competition and spent 60 billion won on early retirement benefits.

Lotte On, a latecomer to e-commerce, has not been able to achieve a strong presence in the online shopping market, which is fast growing. Lotte On had just a five percent share in e-commerce at the end of last year, according to Kyobo Securities.

Conveyor belts at Lotte Mart's Uiwang branch in Gyeonggi to facilitate delivery of online orders [LOTTE SHOPPING]

Delivery

Lotte Shopping is using its physical stores to boost e-commerce.

Instead of building new warehouses like other e-commerce players, such as Coupang, Market Kurly or SSG.com, Lotte is expanding delivery using its existing stores.

The company's current focus is the delivery of groceries. People who order through Lotte On receive groceries from a closest Lotte Mart within two hours.

The service is currently available in limited areas in Seoul, Gyeonggi, Gwangju and Jeju. The plan is to expand the delivery nationwide next year.

Lotte does not have plans to expand early-morning delivery, one of the key offerings in the e-commerce market.

Lotte does have dawn delivery in limited areas from its warehouses in Gimpo, Uiwang in Gyeonggi and Busan. For Lotte to expand dawn delivery, it would have to build additional warehouses because large discount marts are not allowed by law to deliver groceries at dawn from store inventory.

"We don't plan on building new warehouses for dawn delivery at this point," said Kim Jong-woo, a spokesperson for Lotte On. "We can't run business reporting losses. We are more focused on using the assets we already have."

This strategy is unlike those taken by other e-commerce players.

Coupang, the second-largest e-commerce operator after Naver Shopping, is steadily investing to build more warehouses to strengthen dawn delivery. SSG.com runs three warehouses, in Gimpo and Yongin in Gyeonggi. It is currently looking for a lot to build the next warehouse.

Emart is using its stores for e-commerce inventory, with automation for picking up and packing products at 110 stores to facilitate delivery for orders placed through SSG.com.

Lotte Mart runs 21 stores featuring automatic packing facilities, and plans to open four more by the end of January.

Lotte Mart is upgrading some of its stores.

At its location in Jamsil, southern Seoul, it is adding a large wine store.

The branch, named Zettaplex, will have 70 percent of its first floor occupied by the Bottle Bunker wine store. Around 4,000 types of wines will be sold there. Books and products related to wine will also be sold at Bottle Bunker.

Lee Chang-kyun, a spokesperson for Lotte Mart, said more stores will be renovated centered on three categories: wine, home furnishings and pets.

Wines displayed at a renovated Lotte Mart's Ansan branch in Gyeonggi [LOTTE SHOPPING]

Effectiveness

One competitor says the changes made by Lotte are neither groundbreaking nor creative, arguing that the company is a late mover and needs to offer something special to get anywhere in the market.

The group has been increasingly focused on other businesses.

Lotte Chairman Shin Dong-bin started working for Honam Petrochemical, which is now Lotte Chemical, in 1990. Shin considered Lotte Chemical the chaebol's new growth engine, according to Lotte Corporation.

Lotte Chemical finalized a takeover of Samsung's chemical business units for $2.6 billion -- the largest deal ever by Lotte Group -- in 2016. The company announced in July that it is investing 4.4 trillion won in hydrogen projects through 2030.

Lotte has been less enthusiastic about retail.

It walked away from the eBay Korea auction, and did not bid for food-delivery app Yogiyo this year. Yogiyo was expected to help the retailer boost delivery, and eBay Korea, the third-largest e-commerce player as of last year, could have helped boost its market share in online shopping.

Lotte Shopping instead decided to invest around 299.5 billion won to join a bid by IMM Private Equity fund in acquiring roughly 30 percent of furniture company Hanssem in September. It also became an investor in the acquisition of Joonggonara secondhand online site by a private fund, which acquired 93.9 percent of the sales platform. Lotte Shopping invested between 20 and 30 billion won in the Joonggonara deal. .

"Making aggressive investment isn't always the best idea," said Jung Yeon-sung, a professor who teaches at the school of business at Dankook University. "There are different types of online shopping services. Lotte doesn't have to compete directly against online market leaders like Coupang or Naver. It should focus on appropriately positioning itself in the market by concentrating on what it can do well by integrating the online and offline experiences."

BYJINMIN-JI[jin.minji@joongang.co.kr]