The Korea Herald

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[Power Korea] Leap from chewing gum maker to nation’s No. 1 retail empire

Korea’s fifth-largest conglomerate expands abroad, aiming to join Asia’s top-10 biz giants

By Korea Herald

Published : Feb. 11, 2013 - 20:34

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When Shin Kyuk-ho founded Lotte in 1948, he began with selling chewing gum to children in post-war Japan.

Dispelling doubts over the sweetened chicle business at a time when people were starving, Shin’s bubble gum became a major hit in Japan.

He went on to start a trading firm, a real estate company and outstretched to the retail business, eventually building one of the biggest conglomerates in Japan.

Shin, also going by Takeo Shigemitsu, then expanded business to his native Korea by establishing Lotte Confectionery in 1967.

In the 1970s, Shin built Lotte Chilsung Beverage and Lotte Samkang, making himself head of Korea’s largest food empire.
Shin Kyuk-ho (left) and Shin Dong-bin. (Illustration by Park Gee-young) Shin Kyuk-ho (left) and Shin Dong-bin. (Illustration by Park Gee-young)

Lotte Group invested most heavily in retail and hotels.

Lotte Department Store, which opened in 1979, spearheaded the growth of Korea’s retail industry by providing a pleasant shopping environment, high-quality merchandise and advanced distribution systems.

It made department stores a favorite place for Koreans to hang out and experience cultural events.

Lotte then carried on its retail knowhow to large discount stores (Lotte Mart), supermarkets (Lotte Super) and television-based home shopping (Lotte Home Shopping).

Meanwhile, Lotte Hotel burgeoned into the country’s largest hotel chain as the only homegrown five-star brand that does not have to pay royalties to any foreign companies.

In addition to food and retail, petrochemicals became another major pillar of Lotte Group when it acquired Honam Petrochemical Corp. in 1979.

Honam Petrochemical merged last year with KP Chemical, which Lotte later took over, to be reborn as Lotte Chemical.

Expanding abroad

Having become Korea’s fifth-largest business giant, Lotte, with the founder’s son Shin Dong-bin at the forefront, is now eyeing global markets based on its financial strength and infrastructure at home.

Seeing overseas business as its new growth engine, Lotte set a long-term vision to become one of Asia’s top 10 global conglomerates by 2018.

Despite the global economic slowdown, Lotte’s overseas sales are estimated to have grown to around 10 trillion won last year, from 8.5 trillion won in 2011, or slightly over 10 percent of its total sales.

The conglomerate hopes its overseas sales will account for more than 30 percent of its total sales goal of 200 trillion won in 2018.

At the vanguard of the group’s overseas expansion are Lotte Department Store and Lotte Mart.

The retail mammoth is scheduled to open its first Southeast Asian department store in Jakarta, Indonesia, in May this year.

In China, it plans to open department stores in Weihai in April and Chengdu in August.

Another Lotte Department Store is scheduled to open in Hanoi, Vietnam, in 2014.

Lotte Mart has 140 stores in China, Vietnam and Indonesia, which is more than the 102 in Korea.

Having surpassed 3 trillion won in overseas sales for the first time last year, the discount store chain plans to open about 20 more in those three countries this year.

At home, Lotte seeks growth through outlets. In addition to Seoul’s first intra-city outlet next to Seoul Station which opened last month, it is slated to extend its premium outlet in Gimhae in June and open new premium outlets in Buyeo in August and Icheon in October.

In a bid to create synergy by combining its expertise in construction, hotels and retail, Lotte is building large multi-complexes to house department stores, hotels, malls and offices in Vietnam and China.

The $400 million Vietnam Hanoi Lotte Center is scheduled to open next year, and another one in Shenyang by 2017.

By opening five-star hotels in these multi-complexes, Lotte Hotel aims to become one of the three largest hotel chains in Asia.

“Whereas it is difficult to open department stores and discount stores abroad due to the complexity of distribution systems and regulations in each country, there are relatively fewer barriers for hotels,” said a Lotte official.

Lotte Hotel said late last month that it would invest $9 million in renovating Guam’s Aurora Resort and Spa to reopen it under Lotte’s name.

The company also said earlier last month that it would extend a shopping mall in Cebu, Philippines, to open a business hotel within the building by the end of 2014.

The bottom five floors of J Centre Mall in Cebu will be used as a shopping mall, while the sixth through 23rd floors will be used as Lotte City Hotel Cebu.

Lotte Duty Free Shop is launching in Jakarta this year, while Lotte Confectionery plans to bolster its business in China, India, Vietnam and Russia, and invest more in Southeast Asia.

Lotte Chilsung Beverage is reviewing establishing new overseas business units.

Hamburger chain Lotteria runs about 110 stores in Vietnam’s Ho Chi Minh, Hanoi and Danang. Based on its success in Vietnam, where it started in 1998, Lotteria is speeding up business in China and Indonesia.

Lotte Hi-Mart, which the conglomerate took over last year, is also considering entering Southeast Asian markets where its affiliates are already doing business. The electronics retailer has 332 stores in Korea and plans to open about 10 more this year.

By Kim So-hyun (sophie@heraldcorp.com)