Hypermarkets sell, shut stores amid COVID-19 fallout

South Korea‘s hypermarket chain operators are working quickly to sell their discount stores to improve their balance sheet, as fallout from the coronavirus deepens and the domestic retail industry’s makes a shift to online.

As of Friday, Homeplus has agreed to sell three discount stores to undisclosed real estate developers since July, with the proceeds of the sales also under wraps. One is located in Ansan, Gyeonggi Province and the other two are in Daejeon.

At least one more discount store in Daegu is expected to be up for sale privately.

All four locations are to shut down within a year after the transaction. Homeplus said employees and tenants in the stores will be granted “time to prepare for the changes” and options including relocating to nearest stores or repositioning to online business.

Prior to the deals, Homeplus in March sold three discount stores in Ulsan, Gumi in North Gyeongsang Province and Sihwa in Gyeonggi Province to Ryukyung PSG Asset Management‘s public fund for 300.2 billion won ($252.4 million) under a sale and leaseback deal.

The series of transactions came as Homeplus, controlled by Korea’s largest private equity house MBK Partners, is suffering a cash crunch amid ballooning losses. Homeplus‘s cash came to 32.3 billion won as of end-February, shrinking to one-tenth compared to a year prior. Its net loss from March 2019 to February 2020 rose fourfold to 532.2 billion won. The business prospect of offline retail businesses appears to be gloomier in the wake of the coronavirus impact on the economy and social distancing measures that force shopgoers to turn to online shopping.

The same is true for other retailers in Korea.

Lotte Mart, a hypermarket brand of Lotte Shopping, has shut down operations in eight locations since June -- mostly small in size. In addition, three more discount stores, including two in Seoul, will be closed by November.

This comes in line with Lotte Shopping’s plan to shut down at least 200 out of its 700 brick-and-mortar stores including department stores, discount stores, supermarkets, drugstores and more.

By Son Ji-hyoung (consnow@heraldcorp.com)