[News Focus] Lotte seeks to exit China after investing $7.2b

Despite its hefty investments in China over the years, Lotte Group appears to be seeking a complete departure from the market that was once highly lucrative, after failing to recover from a boycott campaign which was instigated by diplomatic bickering between Seoul and Beijing. 

The retail conglomerate was the main target of the diplomatic feud between China and South Korea over the deployment of an anti-missile Terminal High Altitude Area Defense system in 2017 on its golf course at the Lotte Skyhill Country Club in Seongju County. 

Despite some signs of thawing last year, Lotte continued to face hardships amid already worsened public sentiments, increased competitiveness of local brands and the popularity of e-commerce.

Since entering the Chinese market with Lotte Mart store in 2004, the group has invested 8 trillion won ($7.2 billion) to operate its 22 affiliates spanning from retail and food to tourism.

Lotte Department Store, one of the group’s major business in China, saw an operating loss of 140 billion won from 2016 to 2018.

On Wednesday, Lotte said it plans to sell its food production facilities in China as losses have piled up. 

Lotte Confectionery and Lotte Chilsung Beverage’s four out of six factories in Bejing, Qingdao, Henan and Qingbai will close down in the first quarter this year, the company said. 

This comes less than a year after Lotte’s supermarket chain Lotte Mart announced the complete exit of its 112 stores from China after operating for 11 years. 

Lotte Mart’s 2017 financial report showed that its loss in China reached 268 billion won and its combined loss from the second half of 2016 came at nearly 1 trillion won. The company cited the boycott of Korean products by Chinese shoppers over the THAAD missile controversy as the main reason for the losses. 

Lotte will also close down its department store in Tianjin later this month, only leaving three Lotte Department Stores across the country in Weihai, Chengdu and Shenyang. 

In 2008, Lotte Department Store entered the Chinese market by forming a joint venture with a local department store. Its first store opened in Beijing and expanded business by opening more outlets in major cities including Tianjin. 

Market insiders cited the competitiveness of Chinese brands for Lotte’s weak performance.

“When you look at Chinese products these days, for example cosmetics from local brands, they are relatively high quality products and sold at a cheap price. Unlike in the past when Chinese consumers only preferred Korean or overseas brands, the consumers now enjoy choosing from various options including local brands,” said an industry insider surnamed Kang, who has worked at a Chinese beauty company for three years. 

Experts also noted that the business slump in China for Korean companies has been expedited by Chinese consumers’ active use of e-commerce sites.

“China’s e-commerce landscape has evolved rapidly as millions of consumers are turning to quick, easy and convenient shopping platforms, largely driven by the middle and lower middle class. The bulk of e-commerce shoppers are and will continue to be the most significant shopping group in China,” said Lee Jung-hee, economic professor at ChungAng University in Seoul. 

By Kim Da-sol (ddd@heraldcorp.com)