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Lotte to sell department stores in China after supermarket retreat

A Lotte department store in Shenyang Photo: Getty Images

South Korean retail giant Lotte Group has confirmed a report that it is considering selling some of its five department stores in China, where it is boycotted by consumers for offering its land to the South Korean government for the deployment of the anti-missile Terminal High Altitude Area Defense (THAAD) system which Beijing sees as a big threat to its security.

On Monday, South Korea's Chosun Ilbo reported that Lotte is looking to shut down its five department stores in the world's second-largest economy, with only the hotels, cinemas, theme parks and offices inside two department stores remaining open for a period of time.

In 2008, Lotte opened its first department store in China through a 50 percent stake in a joint venture company it established with local partner Intime Retail Group. Currently, Lotte operates a total of five department stores in the Chinese cities of Tianjin, Weihai, Chengdu and Shenyang. Back then, Lotte, whose overseas businesses contributed largely to its total sales, pinned high hopes on the Chinese market, with a plan to open 20 department stores there in the next decade.

Last year, however, the sales of Lotte's department stores in China plummeted 22 percent to 76 billion won, leading to an operating loss of 70 billion won, largely due to what is perceived as Beijing's retaliation against the installation of the THAAD system in South Korea. In the same year, Lotte saw its overseas sales revenue fall 7.8 percent, the first decrease since 2004 when it started global expansion.

The sale of some of the five shopping malls in China is among options being reviewed, said a Lotte spokesperson, who did not give a specific plan for the retreat.

Lotte has reluctantly decided to sell its money-losing Lotte Mart supermarkets to local rival Wumart Stores in China after it became the center of fierce criticism by the Chinese government and people, which was triggered by a land swap agreement in South Korea under which the South Korean company agreed to provide its own golf course as the deployment site of the THAAD system. Beijing said at the time that it had not issued any orders to boycott Lotte and other South Korean businesses.

According to a report by China's CBNweekly, Lotte has sold 96 Lotte Mart supermarkets in China, with the rest facing the prospect of closure.

Besides the political factor, Lotte's inability to carry out the digitalization strategy also resulted in its big retreat in China, where consumers are becoming more inclined to purchase goods online.

Bloomberg Intelligence analyst Catherine Lim said that most of the Lotte supermarkets and hypermarkets were located outside the residential areas where foot traffic is higher, largely alienating the Chinese consumers.

Statistics released by China's National Bureau of Statistics in January showed that the country's online retail sales of goods and services reached 7.1 trillion yuan in 2017, representing an increase of 32.2 percent over a year ago. The online retail sales of goods grew 28 percent to 5.4 trillion, accounting for 15 percent of the total retail sales of consumer goods, said the Bureau.

Lotte has also taken a hit at home with fewer Chinese tourists visiting its hotel and duty-free shops, said the Lotte spokesperson, who revealed that Lotte Confectionery, which has opened three factories in China, is also reconsidering its business in the world's second-largest economy. South Korean authorities attribute the diminished interest of Chinese tourists in South Korea to China's retaliatory measures banning Chinese travel agencies from organizing group tours to South Korea, even though Beijing denies it.

In June, South Korean Finance Minister Kim Dong-yeon called on his Chinese counterpart Liu Kun for Beijing's cooperation to resolve South Korean companies' predicament in China.

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