More Korean retailers seek to expand overseas presence

South Korean retailers are competitively foraying overseas, seeking new sources for business growth to replace the much-saturated domestic market, but the latest industry data indicate they will have to wait before any meaningful profit.

According to the survey by the Korea Chamber of Commerce and Industry (KCCI), annual sales by 61 retailers operating abroad have been on the increase since 2010 when they rose 17.2 percent on-year. Their combined sales for 2013 are predicted to increase 39.6 percent compared with the previous year.

On the back of such rosy results, 82 percent of those surveyed said they will expand their overseas business next year.

But their balance sheets say otherwise.

E-Mart Co., a discount unit of the second largest local retailer Shinsegae Co., said in its 3rd quarterly report that it posted 27.5 billion won (US$26.2 million) in net loss from its overseas business in the July-September period, down 9.5 percent from a year ago, when its overseas sales rose 1.3 percent on-year to 194.4 billion won.

E-Mart was the first local retailer to open a store in Shanghai in 1997, but it has since reduced the number of its stores in China to 16 from 27 in 2012 due to cumulative losses.

The country's third-largest discount chain Lotte Mart, which seeks the most aggressive overseas expansion among local retailers, opened eight outlets in China, five in Indonesia and two in Vietnam, all within this year. The discount division of Lotte Shopping Co. made inroads into China in 2007 by acquiring eight Chinese stores from SHV, a Dutch wholesaler.

The chain, which has about 155 overseas stores, also is expected to record a net loss in its offshore business, although the company is keeping hush on the matter.

"Despite the aggressive expansion of key local discount chain operators, they failed to take profits in overseas markets, especially China," Hong Sung-soo, an analyst at NH Investment & Securities Co., said by phone. "It is difficult to predict when the local discounters will reach the break-even point."

Nevertheless, the retailers have to bet on their overseas businesses when domestic sales are shrinking, with last month's sales estimated to have decreased 4.9 percent from the same month last year.

Despite the sluggish performance in China, E-Mart plans to open its first Vietnamese store as early as the first half of 2015.

The KCCI survey showed 53 percent of the respondents plan to launch or expand their overseas business next year in China because of the sheer size of its market. As of November, China is the biggest destination for South Korean retailers. The survey said 37 percent are planning to head to Vietnam and 35 percent to Indonesia.

Local retailers should map out long-term rather than short-term plans when planning business expansions overseas, the KCCI said in announcing the survey results, well aware that it will be difficult to make profits in the short span. (Yonhap News)