Were E-mart, Lotte Shopping, Hyundai Dep. really profitable in Q1?

By Park Gyu Jun

Lotte Shopping, Shinsegae Group and Hyundai Department Store ostensibly achieved satisfactory results during the first quarter, but their specific earnings reports showed that some of them performed poorly even in their main businesses.

High demands for luxury, fashion items benefit dep’t stores

In general, the big three Korean retailers seemed successful in their first-quarter performances.

The operating profits of both Shinsegae Inc. and Hyundai Department Store soared over 30 percent year-on-year, while that of Lotte Shopping rose more than 10 percent.

The results were mainly attributed to the growing demand for luxury items at their department stores.

Lotte Department store, the business bellwether, saw a 2.6 percent increase in its operating profit, while the operating profits of both Hyundai and Shinsegae department stores jumped by 30 to 40 percent.

‘Big 3’ retailers lose money from duty free biz

However, all the three retail giants suffered losses in their duty free store businesses.

Shinsegae Duty Free posted a 2.1 billion won ($1.6 million) operating loss.

Hyundai Department Store Duty Free’s deficit was much bigger, as it lost 14 billion won.

Analysts attributed their losses to the falling demand for duty free stores during the COVID-19 pandemic and the rising commissions paid to Chinese resellers, also known as Daigong.

“Because of the falling demand, duty free stores have no choice but to pay commissions to Chinese resellers to reduce their inventory,” a securities industry insider said. “It means that they have made much smaller profits from sale of each product.”

The market leader Lotte Duty Free suffered a 75.3 billion won loss, as it wrote off its unsold cosmetics and other products.

“Our deficit mainly resulted from our decision to write off the unsold products we had purchased before the beginning of the COVID-19 pandemic in early 2020,” a Lotte Duty Free official said.

Transmission fees weigh on home shopping firms

The three retailers also performed poorly in their home shopping and e-commerce businesses.

The first-quarter operating profits of both Lotte Homeshopping and Hyundai Home Shopping declined 10 percent year-on-year, as they started paying larger transmission fees to broadcasters.

Lotte, Shinsegae face bigger losses from e-commerce biz

As for the e-commerce sector, Lotte’s e-commerce unit saw a 45 billion won deficit, while Shinsegae’s SSG.com lost 25.7 billion won.

Both of their losses increased from the previous year, due to their growth-oriented strategies that increased costs.

Between them, Lotte ON’s situation was considered worse.

Unlike SSG.com that showed a 26 percent year-on-year growth in sales, the e-commerce unit of Lotte Shopping saw a 4 percent decline in its revenue.

‘Flagship’ discount stores become unprofitable

Regarding their discount store businesses, the sale of Shinsegae Group’s E-mart only rose 0.5 percent year-on-year, while its operating profit decreased nearly 19 percent.

This was because the operating profits of E-mart and Traders dropped 18 percent and 33 percent, respectively, even though No Brand and other specialty stores began making profits.

“Because too many people were self-quarantined in March, the sales of picking-and-packing centers and SSG.com increased, while it was inevitable for offline stores to suffer a temporary slump,” a securities industry insider said.

In contrast, Lotte Mart’s operating profit rose sharply to 16 billion won from 1 billion won.

However, the result could be misleading, as the discount store operator shifted its online store’s deficit to the e-commerce unit.

During the first quarter, Lotte Mart lost 16.6 billion won from its online store business.

In addition, the sale of Lotte Mart’s offline stores decreased 0.8 percent year-on-year.

*This was translated from the article originally written in Korean. For more accurate information, please refer to the original version by using the link below. In case of discrepancies between the two versions, the Korean version shall prevail.

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