[2024 Retail Review - Hypermarkets] 'Shaken' by Consumption Recession & Strength of SSM... E-Mart did Well Through Main Business Reinforcement

[Korea Financial Times, Park seulgi] Hypermarkets, the representative of the offline retail industry, are facing increasing difficulties. Consumption stagnation is prolonged due to persistently high prices, and fewer people are visiting hypermarkets due to social issues such as the rise of 1-2 households and low birthrates. In particular, they have been caught between SSMs (corporate supermarkets) and e-commerce, and have been unable to exert their power.

In the midst of this crisis, hypermarkets have been focusing on restoring their competitiveness this year by strengthening fresh food, integration work, and price competitiveness. Although it was difficult for everyone to see the light in an environment that did not improve, E-Mart did well. E-Mart, which lost money for the first time since its founding last year, succeeded in improving its performance this year through its strategy of strengthening competitiveness in its main business.

This year, E-Mart focused on strategies to strengthen its competitiveness. The company's 'Price Break Declaration', which sells products at the lowest prices at all times, store renewals, and the integrated purchases and integrated marketing of three companies, E-Mart, E-Mart Everyday, and E-Mart 24, attracted consumers.
In particular, E-Mart's strategy of strengthening price competitiveness played a big role in expanding sales. Throughout the year, E-Mart offered products at reasonable prices through its distribution know-how, including direct sourcing, bulk purchasing, and cooperation with manufacturers. In addition, E-Mart has made efforts to differentiate its products by launching pre-launch products in strategic partnership with CJ, which has led to increased sales.

In July, E-Mart and E-Mart Everyday merged in order to streamline costs to improve profitability. The resulting ‘integrated E-Mart’ created expanded purchase volumes to increase cost competitiveness and achieved operational efficiency through integrated logistics

At the same time, the company was trying to reduce costs by streamlining its workforce. In March of this year, E-Mart held its first company-wide voluntary retirement program, and in December, it held a second voluntary retirement program.

As a result, E-Mart has significantly improved its profitability this year. In the first three quarters of this year, E-Mart's cumulative sales reached KRW 12.7148 trillion, up only 1.8% from the previous year, but its operating profit was KRW 1950 billion, up 31% from the previous year (KRW 1487 billion).

E-Mart is also planning to open new stores, including those specializing in groceries, as part of its efforts to strengthen its main business competitiveness. Starting with 'E-Mart Food Market Suseong' in Suseong-gu, Daegu, which opened on the 13th of this month, it plans to open a store in Godokgangil, Seoul next year. Traders, which plays a filial role in E-Mart, is also planning to open a Magok store in the first half of next year and a Gwol store in the second half of next year or the first half of 2026.
Lotte Mart, which enjoyed improved profitability last year due to its integration with Lotte Super, has been somewhat sluggish this year. The atmosphere inside and outside the Lotte Group was chaotic, and the closing of inefficient stores as part of cost efficiency efforts is said to have come back as a boomerang. Lotte Mart operated 125 stores in 2019 before the pandemic, down to 111 this year.

This year, Lotte Mart experienced stable growth in the first quarter, but sales declined in the second quarter. In the second quarter, sales fell 7% year-on-year to KRW 1.3191 trillion, and operating losses widened to KRW 16.2 billion. In the third quarter, the company reported KRW 1.4421 trillion in sales and KRW 45.1 billion in operating income, down 4.9% and 11.6%, respectively. Cumulative sales for the first three quarters of the year were KRW 4.1101 trillion, down 4% from a year earlier, and operating profit was KRW 71.7 billion, down 2.4%.

However, there is also an assessment that this year's poor performance is due to a backward-looking effect. Lotte Mart, which began integration work in 2022, posted its highest operating profit in 2023 as the effects of integration began to appear.

Although growth has slowed, Lotte Mart has continued to renovate stores and special stores such as ‘Grand Grocery’ this year. It has renewed six stores this year alone, including Suwon, Uiwang, Gunsan, Jinju, Dongbusan, and Wonju. As of the third quarter, the sales growth rate of the renewed stores was 5.6%. Compared to the growth rate of -4.6% at existing stores, the effect of the renewal was significant.
In the future, Lotte Mart also plans to strengthen the competitiveness of grocery products and expand the synergy between marts and supermarkets. In addition, it plans to launch a next-generation e-grocery app by introducing the UK’s Ocado Smart Platform next year and build a customer-tailored online grocery shopping environment.

The ‘crisis’ of Homeplus, acquired by MBK Partners, is not a story that came out yesterday or today. Since MBK acquired Homeplus in 2015, the company has closed more than 20 stores or sold and subleased them, weakening its competitive position. The number of Homeplus stores has dropped from 140 in 2019 to 129 as of the last third quarter . Of those 129 stores, 11 are on the verge of closing.

Homeplus generated KRW 7 trillion in sales by 2019, but has since fallen to KRW 6 trillion and is struggling to regain the KRW 7 trillion mark. At least, in the last fiscal year (March 2023-February 2024), the company posted sales of KRW 6.9314 trillion, which is close to KRW 7 trillion.

A large deficit are also a challenge. Homeplus has been in the red for three consecutive years. After turning deflict in 2021, Homeplus posted an operating loss of KRW 133.5 billion that year, followed by KRW 260.2 billion in 2022 and KRW 199.4 billion in 2023. The company has been steadily organizing its stores, but it has not been able to get out of the red. The net loss grew from KRW 445.9 billion in 2022 to KRW 574.3 billion in 2023.

Meanwhile, Costco Korea, a warehouse-type store, posted KRW 6.5031 trillion in sales and KRW 218.6 billion in operating profit in the most recent fiscal year (September 2023-August 2024). Although Homeplus's sales are about 400 billion won higher, Homeplus is closing stores while Costco is opening new ones, so it is expected to take second place to Costco at this rate.

In a difficult environment, Homeplus has focused on expanding customer contact in various ways by utilizing an online and offline two-track strategy. In particular, it accelerated the conversion of seven stores into mega food markets, including Gyeongju, Geumcheon, Ulsan, Cheongju, Seogwipo, Gimhae, and Jeonju Hyoja, and at the end of November, it introduced a specialized store that further evolved into 'Mega Food Market Live' at the Gangseo store.

In addition, the company recently partnered with Delivery Nation to introduce 'Mart Direct Delivery' service, the first of its kind among large marts to offer reservation delivery, and is working to enhance its online competitiveness.

Park seulgi (seulgi@fntimes.com)