Korea’s Shinsegae replaces building unit chief amid property downturn

South Korea’s retail giant Shinsegae Group on Tuesday replaced the head of its construction unit amid the sluggish property market, adding to expectations of further management reshuffles at troubled affiliates and subsidiaries under the conglomerate’s new leadership.

The group said it plans to take stern measures on executives including CEOs with poor management records, who miss earnings expectations or performance targets.

It ousted Shinsegae Engineering & Construction Co. (Shinsegae E&C) CEO Jeong Doo-young and tapped Vice President Heo Byung-Hoon, who has been managing the conglomerate’s finances, for the position while replacing the builder’s sales executives. The changes were the group’s first management reshuffle since Chung Yong-jin, the son of the group’s leader Lee Myung-hee, became chairman last month.

“The appointment of Heo, the group’s key financier, indicated the group’s determination to take full responsibility for the builder’s financial issues,” a Shinsegae group official said in a statement.

Shinsegae E&C has been suffering from liquidity problems as the weak domestic real estate market has hurt its sales. It reported an operating loss of 187.8 billion won ($138.8 million) last year on a consolidated basis, forcing its top shareholder E-Mart Inc., the group’s hypermarket chain, to log its first annual operating loss.

Korea Investors Service Inc., an affiliate of Moody’s Investors Service, lowered Shinsegae E&C’s credit rating to A- from A last month due to losses related to unsold homes, rising construction costs and risks of project finance contingent liabilities.

FINANCIAL SAVIOR

Once the company's shareholders approve his appointment, Heo plans to focus on lowering Shinsegae E&C's debt ratio by securing additional liquidity and preemptively dealing with potential risks to strengthen the company's long-term business competitiveness.

Shares in Shinsegae E&C ended up 1.5% at 10,880 won in Seoul’s main stock market, far outperforming a 0.2% gain on the benchmark Kospi after the reshuffle.

The CEO nominee joined Shinsegae Group in 2018 to serve as vice president of support for the strategy office, head of the department store strategy office and head of finance at the strategy office.

He started his career in 1988 at Samsung Group founded by Chung’s grandfather Lee Byung-chul, working for the restructuring office of the leading South Korean conglomerate and the financial team at the group’s holding company Samsung C&T Corp. He served as chief financial officer (CFO) of the company’s business in the Americas.

Before joining Shinsegae Group, he was a CFO at Hotel Shilla Co., which is managed by Samsung heiress Lee Boo-jin.

FURTHER RESHUFFLES

Shinsegae Group is expected to replace heads of other units with sluggish earnings, industry sources said. SSG.COM and Gmarket Inc., the group’s e-commerce platforms that have been in red for years, are touted as next targets, according to the sources.

“Shinsegae Group is predicted to continue job and business restructuring throughout this year as it is in an emergency management mode due to an earnings crisis,” said one of the sources.

The retail titan said it is set to frequently evaluate executives based on its key performance indicator as Chung ordered the establishment of a performance-oriented personnel evaluation system last November when he reorganized the management strategy office, the group’s control tower.

Last month, E-Mart, South Korea’s largest hypermarket chain, launched a company-wide early retirement program for the first time in its 31-year history, after posting its first annual loss in 2023.

Write to Ji-Yoon Yang at yang@hankyung.com
 
Jongwoo Cheon edited this article.