Lotte Mart poised to withdraw from Chinese market driven by mediocre business management: analysts

By Yin Han and Xie Jun Source:Global Times Published: 2018/10/15 22:28:39


A Lotte Mart supermarket in Beijing on September 6 Photo: VCG



South Korea-based supermarket chain Lotte Mart will reportedly leave the Chinese market by the end of the year despite improving bilateral relations, a move, if confirmed, had more to do with the company's flawed business models than with political friction, experts said.

They also noted that now is a good time for South Korean companies to invest in China, with politics turning around.

Lotte Mart plans to "completely withdraw from the Chinese market by the end of this year," China Business News reported on Monday, citing an anonymous source.

According to the report, the company has sold 93 of its retail stores to Chinese supermarket chain Wumei Holdings Inc and Liqun Commercial Group. It failed to sell another 12 stores located in cities like Southwest China's Chongqing Municipality and Chengdu, capital of Southwest China's Sichuan Province.

Those 12 stores will be shut down by the end of this year, the report said.

Lotte Mart didn't comment on these reports when contacted by the Global Times on Monday.

Lotte Mart started operations in China in 2004, and it had set up 112 retail stores within 11 years. At the peak, the company had 291 stores around the world, with the Chinese market contributing 70 percent of its revenue, Caijing magazine reported in May.

Lotte's business in China slumped after the company agreed to exchange land with the South Korean government for the deployment of the US missile shield system called Terminal High Altitude Area Defense (THAAD) in February 2017. The move triggered wide-ranging protests and a boycott from Chinese customers.

Lotte Mart is not the only South Korean company that encountered tough times in the Chinese market in recent years. E-mart, a supermarket chain, said in May 2017 it would withdraw from the Chinese market, according to a report by haiwainet.cn.

Telecommunications giant Samsung's market share in the Chinese market has also plunged in recent years. In the mobile phone sector, Samsung's market share in China slumped to about 0.5 percent in the first half of this year, compared with 20 percent about five years earlier, according to a report by aicaijing.com.cn on October 9.

But experts stressed that political friction is not the major reason behind South Korean companies' decline in the Chinese market.

"Though Lotte encountered a decline in business due to the THAAD issue, its withdrawal from the Chinese market was not driven by the relationship between China and South Korea, but its own declining performance amid fierce competition in China," Lü Chao, a research fellow at the Liaoning Academy of Social Sciences, told the Global Times on Monday.

He said the bilateral relationship is "definitely warming" and it is actually "a good chance" for South Korean companies to invest in China. "It is not wise for Lotte to leave China [at this point]," Lü said.

Lü also noted that the China-proposed Belt and Road initiative has opened a vast market and provided opportunities to foreign countries, and "it is not a matter of problems in the Chinese market, but how foreign companies can use and adapt to the Chinese market for development, that counts," Lü said.

Chinese investment in South Korea rose 541.5 percent on a yearly basis in the first quarter as investors showed an increased interest in sectors like real estate and electronic parts, the Yonhap News Agency reported in April.

Chen Yuefeng, founder of retail news website lingshouke.cn, said that South Korean retail companies' performance had been "mediocre" in the Chinese market. They had been unable to distinguish themselves from competitors in terms of talent management and business operations, which left them vulnerable to outside changes, Chen said.

He added, however, that some South Korean companies, especially in the cosmetics sector, have maintained a good business share in China in recent years.

"I think really good business models from South Korea can still succeed in the Chinese market despite political situation," he told the Global Times on Monday.


Newspaper headline: Lotte Mart poised to leave China: report


Posted in: COMPANIES,BIZ FOCUS

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