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GS Retail, Home Shopping merge to become retail giant

Nov 11, 2020 (Gmt+09:00)

South Korean conglomerate GS Holdings has decided to merge two of its retail units — the country's No. 1 convenience store chain operator and a leading home shopping player — to better compete with online rivals such as SoftBank-backed Coupang Corp. and Naver Corp.

The combination between GS Retail Co. and GS Home Shopping Inc. will be completed by July of next year, according to the company’s regulatory filing on Nov. 10.

GS Retail will be the merged entity with 9 trillion won ($8.1 billion) in assets and an annual transaction amount of 15 trillion won, falling behind Coupang and Lotte Shopping Co. by assets.

GS Retail operates a vast network of over 15,000 offline retail businesses including convenience stores, supermarkets and hotels. GS Home Shopping runs various channels including mobile commerce and TV home shopping with around 50 million users and viewers combined.

“The merger will create a powerful online and offline distribution network. It’s a move to secure a leading position in the distribution industry, where it's survival of the fittest,” said an official from GS Retail.

GS25, a convenience store chain run by GS Retail

SURVIVAL OF THE FITTEST

Intensifying competition within the distribution industry is considered as the reason behind the merger. Coupang manages around 170 logistics centers and promises hyquick delivery, essential to survive in the fast-changing industry. Naver, an operator of a leading e-commerce platform, recently entered a partnership with CJ Corp. to shore up its shopping business and plans additional investments to ramp up its logistics operations.

In comparison, GS Retail currently manages around 50 logistics centers. But its key advantage against industry peers is its offline stores spread nationwide. The merger is expected to help the retail group further boost its logistics business, using its convenience stores to process orders from TV home shopping and mobile apps.

Global e-commerce heavyweights such as Amazon and Alibaba have already expanded their offline presence by setting up convenience stores, grocery pick-up stores and bookstores, among other things.

“GS Retail has enough financial resources to make additional investments in logistics operations,” said a GS Retail official. Upon completing the merger, GS Retail is expected to have around 1 trillion won available for investment.

Other leading domestic retailers such as Shinsegae Group and Lotte Group are likely to follow suit, combining their online and offline portfolios, according to market analysts.

Popular clothing brands sold by GS Home Shopping

MIXED PRE-MERGER SHARE PRICE OUTLOOK

Following the merger, some 4.22 shares of GS Retail will be swapped for a single share in GS Home Shopping. Securities firms have raised mixed views regarding the impact of the merger on share prices before then .

Yuanta Securities predicted shares to turn negative in the short term as weak growth potential for GS Retail’s non-convenience store and home shopping operations will lower its valuation against competitors and dilute growth.

Mirae Asset Daewoo said two quarterly results, evident around next July, will likely set the share price tone.

Meanwhile, IBK Securities Co. stated that the merger will help secure future growth drivers and push up the company’s valuation.

No securities firm has so far adjusted its price targets for GS Home Shopping or GS Retail on the back of the merger announcement.

In afternoon trade on Nov. 11, GS Retail's shares closed up 2.5% at 35,000 won while GS Home Shopping's share price rose 0.6% to 144,100 won.

Write to Dong-hui Park at donghuip@hankyung.com

Danbee Lee edited this article.

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