Lotte Mart to Slash Operations in China

Retail chain Lotte Mart plans to sell off half of its stores in China and gradually lay off staff amid chicanery and an unofficial boycott there.

Chinese authorities effectively shut down 87 out of 99 Lotte Marts in China since March over real or imagined health and safety violations. The concerted attack on Lotte came after the conglomerate agreed to relinquish a golf course in southern Korea for the deployment of a Terminal High-Altitude Area Defense battery from the U.S.

Lotte's accrued losses from the closures now stand at around W500 billion and are expected to soar to W1 trillion by the end of this year at a rate of around W3 billion a day (US$1=W1,129). A senior Lotte executive said, "We plan to sell off up to 50 of our Lotte Mart stores in China and lay off 90 percent of staff." The conglomerate said it will not completely pull out but has to take drastic steps to ride out the storm.

The stores will be sold off by region. "We're contacting a number of Chinese businesses, but nothing concrete has been decided," a Lotte staffer said.

Lotte Marts are concentrated in four parts of China centering on Beijing and Shanghai. The conglomerate initially intended to sell off only the worst-performing stores but opted to take more drastic measures as Seoul-Beijing relations show no signs of improving.

Lotte Mart employed 12,000 workers in China until the end of last year, but the number has now fallen to around 9,500. Lotte still paid full wages in the initial months after the closures but recently reduced that to 70 percent.

Lotte Mart now spends W25-30 billion a month on wages and rent without doing any business. In Korea, Lotte Mart generated W5.9 trillion in sales last year and an operating profit of W27 billion. That means it has been spending a year's worth of operating profit on wages and rent in China every month.

The conglomerate twice injected W700 billion in emergency funds into the supermarket operations in China this year -- once in March and once in August. The money infused in March is gone, raising fears that the second infusion will not last until the end of this year.

Seoul-Beijing relations appear to be worsening after the full deployment of the THAAD battery last Thursday in the wake of North Korea's latest nuclear test. A Lotte staffer said, "We now have to cope with changing business conditions and cut down the size of our operations."

Meanwhile, Shinsegae's E-Mart supermarket chain also decided to close down its stores in China and is in the process of selling off assets.

E-Mart opened its first store in China in 1997 and expanded to 26 by 2010. But it has been suffering from slow sales and only has six stores left. E-Mart suffered W21.6 billion in losses in China last year and W150 billion over the last four years. It is in the process of selling five of the stores in China to Thai giant CP Group.

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