Retail giants thinking twice on takeover bids, activities in China


Korea’s retail behemoths Lotte and Shinsegae are taking it slow in China, their first and largest overseas market, while pulling in their horns in the merger and acquisition battles at home.

The two rivals are getting cold feet as the prolonged fiscal and financial crisis in Europe is taking a toll on consumption in other parts of the world including Korea.

Lotte Group chairman Shin Dong-bin suggested a defensive strategy in a meeting with the chief executives of affiliate companies last week.

“We have grown rapidly through major M&As at home and abroad for the past several years,” Shin said.

“It is too dangerous a gamble to just keep going forward at this time of extremely unstable economic conditions and continued uncertainties.”

Shin called on the CEOs to prepare for the worst as the second half of this year is unpredictable.

Lotte Shopping recently lost the takeover bid for Hi-mart, the nation’s largest retailer of electronic appliances, to a private equity fund named MBK Partners despite high market expectations that Lotte’s win would create much synergy. Lotte had offered a lower price and did not respond when it was asked to revise its bid. MBK gave up the takeover of Hi-mart on Tuesday. However, making the bidding start from square one.

Market watchers suspect Lotte must have applied its cautious approach in last week’s bidding for Woongjin Coway as well. GS Group is viewed as more aggressive for the takeover of the country’s largest maker of water purifiers.

Shinsegae E-Mart announced on Monday that it was dropping out from the bid for electronics retailer ET Land.

The decision came days after Shinsegae Group vice chairman Chung Yong-jin held a series of meetings with the top brass of Shinsegae Department Store and E-Mart last week to discuss the economic downturn and regulatory issues.

E-Mart had withdrawn its bid for Hi-mart earlier last week.

The economic uncertainties are prompting the retail titans to take overseas business down a notch, too.

Lotte Department Store decided last month to pull out from its first store in China due to snowballing operating losses and conflicts with its business partner. Lotte opened the department store on Beijing’s posh Wang Fujing Avenue four years ago as a 50-50 joint venture with Chinese retailer Yintai.

Lotte said it will sell its stake in Yintai Lotte Department Store to either Yintai or a third party by September at the latest.

It is the first time Lotte Department Store is withdrawing from a store at home or abroad.

Yintai Lotte Department Store posted deficits of 17.2 billion won ($15.05 million) in the first year of 2008, 34.5 billion won in 2009, 33.6 billion won in 2010 and 28.1 billion won last year.

Lotte attributed the losses to discord with Yintai, which had a different corporate culture and way of running the store, from the very beginning of the joint venture.

“Even replacing a fluorescent lamp in the store required discussions with Yintai,” a Lotte official said. “Running the Beijing store was that inefficient.”

Industry watchers also note that Lotte’s strategy as a high-end department store and choice of premium merchandise did not work in the tourist area.

Nevertheless, Lotte is not giving up on China. Lotte Department Store plans to open wholly-owned outlets in China including its second store in Tianjin in September, and stores in Chengdu, Weihai and Shenyang next year. Lotte opened its first department store in Tianjin in June last year.

China hasn’t been easy for discount store chain Lotte Mart either.

Lotte Mart opened 15 new outlets in China last year, most of which are losing money. Lotte Mart currently runs 96 outlets in China and 95 in Korea.

Shinsegae E-Mart has been suffering in China, too. E-Mart has sold off nine of its 27 outlets in China and shut down two others so far.

Last year, E-Mart’s losses in China amounted to 95.2 billion won and its sales shrank from 4 billion yuan ($630 million) to 2.4 billion yuan.

Its ranking in the Chinese retail sector in terms of sales fell below 100 last year.

Bad locations as well as failure to localize in terms of product lineups and store operation are among the reasons for the Korean discount chains’ slide in China.

In addition to the downsizing, E-Mart appointed a Taiwanese retail expert in December to take helm of the business in China.

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