Shinsegae Group‘s strategic overhaul pays off in profits

[Photo by MK DB]

Shinsegae Group appears to have improved its overall working environment and profitability by focusing on cost-cutting measures and a recovery strategy with the lowest price after six months of overhauls under crisis management.

According to industry sources on Monday, the retail group has been implementing measures to improve profitability in 2024, which is already translating into notable outcomes in some of its businesses.

The group’s big-box store chain E-mart Inc. conducted voluntary retirement for all employees in March and April 2024 for the first time since its founding, which resulted in the downsizing of dozens of staff. E-mart has also cut costs since the beginning of the year by limiting employees’ use of corporate cards except for critical business needs.

E-mart also merged with the group’s supermarket E-mart Everyday Inc., and this organizational integration significantly reduced back-office personnel and system operating costs while also lowering product prices thanks to joint sourcing to create a win-win situation.

These efforts resulted in a significant improvement in E-mart’s results for the first quarter of 2024, with quarterly operating profit of 47.1 billion won ($34.6 million), up 245 percent year-on-year. E-mart attributed its improved performance to the “Every Day Low Price (EDLP)” strategy, which boosted customer visits as products were sold at the lowest prices. The strategy lowered prices for over 130 items by leveraging direct sourcing, bulk purchases, and cooperation with manufacturers.

With E-mart’s turnaround, concerns over affiliate Shinsegae Engineering & Construction Co.’s liquidity crisis are also easing.

[Graphics by Song Ji-yoon]

Most of the company‘s other major subsidiaries also reported strong first-quarter results, with Starbucks posting a 60 percent increase in operating profit to 32.7 billion won. Shinsegae Property Inc., which operates the Starfield shopping mall, posted a 321 percent increase in operating profit to 12.2 billion won. Shinsegae Chosun Hotel posted a 35 percent increase in operating profit to 5.4 billion won compared to the same period in 2023.

But the controversy over the exercise of a put option valued at around 1 trillion won with SSG.com Corp.’s financial investors is a challenge that the group has yet to resolve.

Chung declared a state of emergency management during a group meeting in November 2023, after which he has been directly overseeing the group’s and its affiliates‘ critical issues. Improving the group’s performance has been Chung‘s top priority since late 2023, and he stressed the importance of performance and profitability for sustainability in his 2024 New Year’s address.