Chinese Chicanery Costs Lotte W500 Billion in Lost Sales

Lotte Group's supermarket operations in China and duty-free sales to Chinese tourists have lost an estimated W500 billion over the last two months due to a spat over the deployment of a Terminal High-Altitude Area Defense battery here (US$1=W1,134).

Chinese authorities shut down most Lotte Marts in China for real or imaginary health-and-safety violations and stopped cut-price shopping tours to Korea. The losses were compounded by a wider boycott that also hit Lotte Confectionery and Lotte Chilsung Beverage. Lotte Mart suffered W200 billion in losses, while other subsidiaries lost W300 billion.

Only 12 out of 99 Lotte Marts in China are still open after the rest were either shut down or closed voluntarily, and they are mostly being shunned by Chinese customers.

Last year Lotte Mart generated W1.13 trillion in revenues in China or W94 billion a month. Losses in March and April swell to more than W200 billion if the wages of its 13,000 staff are taken into account. "We're still paying rent for the store space so we may not be able to last until the end of this year if the crisis drags on," a Lotte staffer said.

Lotte is allowed to cut wages by 70 percent two months after being slapped with the suspensions but has refrained from going all the way for fear of triggering further protests.

As losses mount, the board of directors authorized a W230-billion capital injection in late March and offered another W158 billion in deposits as collateral and is considering further support.

The duty free business, which used to make 70 percent of its revenues from Chinese tourists, racked up sales of W1.3 trillion in March and April last year, but that dropped 15 percent this March and 20 percent in April.

"Losses in April narrowed somewhat due to an increase in Korean customers, but we expect a drop of up to 30 percent starting this month," a staffer said.

Making matters worse, Chinese retailers are avoiding placing Lotte products on their shelves, which is increasingly likely to hurt the food and beverage units.

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