Vietnam could be Lotte Mart’s next target for withdrawal after China?

Lotte Mart Centre in Vung Tau city

South Korean giant retailer Lotte has just announced selling one of its discount store chains to local retailer Liqun Group. This is a major step toward withdrawing from China, the world’s second-largest economy.

Lotte Shopping Holdings Hong Kong Co. will sell 100 per cent of its stake in its Chinese unit that operates Lotte Mart in Shanghai and nearby areas to Liqun Group for KRW291.4 billion ($272.7 million), the Korean firm said in a regulatory filing. Liqun is expected to buy 53 outlets, with the remainder likely to be shuttered.

Two weeks ago, Lotte Shopping decided to sell off 21 Lotte Mart stores in Beijing to local distributor Wumei Holdings Inc. They include 10 discount stores and 11 supermarkets in Beijing at the total price of about KRW248.5 billion ($232.6 million).

The deal with Liqun would leave Lotte with 14 discount stores in China. The Korean firm is in talks with a number of retailers to wrap up the sales of the remaining stores within the first half of this year.

Lotte Mart is withdrawing from China after 11 years of operations in the country. In 2007, Lotte Mart entered the Chinese market by acquiring eight Macro stores from a Dutch distributor. However, in last February, the Chinese government suspended 87 Lotte Mart stores in China.

Last year, Lotte Mart's sales in China decreased by 76.9 per cent to KRW263 billion ($0.24 billion) and its operating loss doubled to KRW268 billion ($0.25 billion). If losses from sales and wages are included, Lotte Mart’s cumulative loss would exceed $1 billion in this period.

Meanwhile, another Lotte Group subsidiary, Lotte Vietnam Shopping JSC operating the Lotte Mart retailer chain in Vietnam, has also been reporting consecutive losses.

Source: The consolidated financial statement of Lotte Group (Unit: million dollars)

Lotte Vietnam Shopping was granted its investment certificate at the end of 2006, was put into operation in 2007, and started to earn money in 2008 with the average revenue growth of around 50 per cent annually. Despite hundred-million-dollar annual revenues, the total losses of Lotte Vietnam Shopping are around $100 million after a decade in Vietnam.

After withdrawing from China, what are Lotte Group’s designs for its Southeast Asian market? Will the group also leave Vietnam after ten years of losses or pour at least part of the $505 million gained from the Chinese exit into Vietnam, where it only has 13 trade centres?

In last March, vice chairman of Lotte Group Hwang Kag-Gyu told Prime Minister Nguyen Xuan Phuc that the group wishes to continue investing and receive support for its business activities in Vietnam. "Lotte is looking forward to continue investing in the future," he emphasised.