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Retailers

Korean retailers scale back on Southeast Asian operations

GS Retail, E-Mart move away from direct ownership in Southeast Asia, turning focus to advanced markets

By Nov 16, 2021 (Gmt+09:00)

GS25 opened its 100th store in Vietnam in March 2021
GS25 opened its 100th store in Vietnam in March 2021

South Korea's top three retail groups -- Lotte, Shinsegae and GS -- are struggling with increased losses in the Southeast Asian market, once believed as their key pillar for global expansion. They are now turning their focus to advanced markets such as the US with higher purchasing power and a more predictable business environment.

Held back by regulatory uncertainty and weaker-than-expected private consumption in Southeast Asia, Korean retailers have been shifting to indirect investment there through master franchise agreements, and away from direct ownership. 

Southeast Asia had been cited as one of the three growth regions alongside China and the US for South Korean retailers and bakery chains. Since E-Mart and Lotte Mart completely pulled out of China in 2018, they had focused on Southeast Asia for overseas expansion, betting on their large working-age population.

But South Korean supermarket and convenience store chains have yet to make a profit from Southeast Asia, hit by unexpected regulatory risks such as a forced business suspension of convenience stores due to the spread of COVID-19.

LOTTE MART, GS RETAIL

Lotte Mart, the supermarket brand of Lotte Group, reported a shortfall of 2 billion won ($1.7 million) each in Vietnam and Indonesia for the July-September period. It operates 49 stores in Indonesia and 14 outlets in Vietnam, but their combined sales have been on the decline.

Overall, its overseas business posted combined sales of 911 billion won in the first nine months of this year, down 13% from a year earlier. 

GS Retail Co., the operator of the convenience store chain GS25, has yet to make money from its Vietnamese operations since its entry into the country in 2018 in partnership with a local retailer.

Its Vietnamese unit, in which it holds a 30% stake, saw losses widening to 6 billion won in 2020 and 6.2 billion won in the first half of this year. In 2018 and 2019, it reported a shortfall of 2 billion won and 3.4 billion won, respectively.

A retail industry source suspected the Vietnamese government's policy support for Vingroup, the operator of the country's top convenience store brand, could be blamed for the increasing losses at GS Retail's Vietnamese operations.

This year, GS Retail made inroads into Mongolia through a master franchise agreement with Shunkhlai, under which it will receive royalties from the Mongolian company, instead of directly running stores there.

In Malaysia, GS Retail is looking to find a local partner for a master franchise agreement in its foray into the country.

E-MART
Korean retailers scale back on Southeast Asian operations

E-Mart Inc., the supermarket brand of Shinsegae Group, last May disposed of its stake in a Vietnamese joint venture after the local government dragged its feet on approving the launch of additional stores.

It entered Vietnam at the end of 2015. Its operations in the Southeast country are now being run under a master franchise agreement.

E-Mart is now planning to open more than nine stores in the US next year, in addition to the current 51 outlets.

To do so, it has acquired five supermarket brands based on the west coast of the US. Early next year, E-Mart will launch its directly run store in Los Angeles. Shinsegae Vice Chairman Chung Yong-jin visited the US recently with E-mart CEO Kang Heui-seok to inspect the retail operation.

"We will strengthen our US operations through the local brands we acquired and our E-Mart stores as well," said an official of the company. "The US market is attractive because of its lower regulatory risk and greater buying power than Southeast Asia."

E-Mart's third-quarter operating profit dwindled by 28.2% on-year to 108.6 billion won. But its US unit turned to the black in the July-September quarter, earning a 5.3 billion won operating profit versus an operating loss of 1.2 billion won in the year-earlier period.

Its cumulative operating profit in the US reached 20.3 billion won, compared with a loss of 700 million won the previous year.

Write to Han-shin Park at phs@hankyung.com

Yeonhee Kim edited this article.

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