Lotte battle prompts Koreans to shop elsewhere

The ongoing fraternal battle for control at Lotte Group is taking its toll on sales at stores run by the major retail giant.

The group was already in bad odor with the public after a series of accidents at the giant tower it is erecting in Seoul, the Lotte World Mall in Jamsil.

Now the sons of founder Shin Kyuk-ho are engaged in a highly public fight over control, the kind of “Dallas”-like rich family battle that is despised by average Koreans.

And in the case of Lotte, there’s a unique dimension: the family has deep roots in Japan, which is off-putting in a country where anti-Japanese sentiment runs deep because of brutal colonial rule.

As they fight for control, owning family members, including the patriarch and his sons Dong-joo and Dong-bin, were heard speaking either Japanese or awkward Korean on news programs, fuelling public hostility.

A Japan-based holding company and an obscure packaging company called Kojyunsya - also based in Japan - are at the top of Lotte’s complex ownership structure and are the focus of the fight between the scions.

Such a negative public reaction can really hurt Lotte because it’s so deeply involved in the retail business and also makes a lot of money on its own products, like confectionaries and other snacks.

And in the fiercely competitive retail industry in Korea, there’s always a different department store or supermarket to choose to shop in.

Sales at Lotte retail shops show that the public is staying away out of distaste for its governing family.

As the impact of the Middle East respiratory syndrome outbreak faded, sales at Lotte Mart, the discount supermarket chain, jumped by 16 percent between July 15 and 20.

But after the family dispute broke out at the end of last month, sales growth was stuck at 0.8 percent between July 29 and Aug. 3.

Hwalbindan, an anti-Japan civic group in Incheon, launched a boycott campaign on Tuesday exhorting Koreans to stop buying Lotte products and services.

The group cited Lotte’s corporate structure as the reason for the campaign.

“Lotte has an abnormal governance system. It has its body in Korea, but its head is in Japan,” the group said.

“It is channeling money that they earn in Korea to Japan. So it is fair to say that Lotte is a Japanese company.”

This is not the first time that Korea has seen a consumer boycott fuelled by anti-Japanese sentiment.

An association of small merchants refused in 2013 to sell Lotte’s products to condemn the Japanese government for holding events commemorating “Takeshima Day.” Both Korea and Japan claim a set of islands in the East Sea called Dokdo by Korea and Takeshima by Japan. Korea controls the islands.

At the time, the Shinzo Abe administration said that it was marking the day in 1905 that Japan incorporated the Dokdo islets into its territory.

The boycott went nationwide, targeting a wider range of truly Japanese brands, such as Mild Seven cigarettes and Asahi beer.

The Financial Consumer Agency, a Seoul-based consumer rights advocacy group, also began a campaign on Tuesday to boycott Lotte products and services, citing its opaque corporate governance and dynastic control of the Shin family.

“It is too obvious that Lotte’s business practices go against the rules of the free market,” it said in a statement, “To ensure change, consumers should boycott services and products provided by all Lotte affiliates, including Lotte Card and Lotte Department Store.”

Although Japan’s Lotte Holdings and Kojyunsya, a major shareholder of Lotte Holdings, ultimately control Lotte’s sprawling businesses, little is known about the companies.

Since they are both unlisted companies in Japan, they are not required to reveal much company information.

In response to the public uproar, politicians are proposing their own fixes.

Rep. Shin Hak-yong of the opposition New Politics Alliance for Democracy said Wednesday that he will introduce a bill aimed at banning intra-company shareholding with overseas units of companies within this week.

The general public in Korea was aware that Lotte had connections with Japan, especially the start and growth of its businesses. But the ownership structure was not well-known, nor the fact that the two sons of the founder were born and raised in Japan.

Kim Se-hee, a 29-year-old office worker, was among them.

“I knew that Lotte operates in Japan,” she said. “But I assumed the Korean headquarters runs the Japanese operations.

“I thought the Shin family were pure Koreans, and the fact that they don’t speak Korean and might be affected by Japanese culture made me uncomfortable.”

The family feud and broader image problem may have a negative impact when Lotte Duty Free’s licenses for two downtown duty-free stores are reviewed by customs authorities in November. Lotte Duty Free has a total of three duty-free shops in Seoul.

In its review, the customs agency looks at a company’s public relations as a factor in the renewal of a license.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]