SK mulls selling its fashion unit

SK Group first began in the 1950s as Sunkyoung Textiles, but subsidiary SK Networks is now in the process of selling its fashion business to Hyundai Department Store.

The two parties are working on a business transfer agreement in a closed meeting, according to industry sources, though SK Networks on Tuesday reported in a company filing that it was “considering the sales, but nothing has been confirmed yet.”

SK Networks has a diverse business portfolio encompassing trading, hotels, petroleum products, car rentals and fashion. While its fashion business accounts for a relatively small portion of the company’s total business portfolio, it has been ranked fifth among domestic players in the industry after Samsung C&T, LF, Shinsegae International and Hyundai Department Store, raking in 565.2 billion won ($504 million) in revenue last year.

The potential buyer, Hyundai Department Store, has been strengthening its fashion division after acquiring clothing company Handsome in 2012. The acquisition of SK’s fashion business would push up the company’s ranking in the industry to third, beating out Shinsegae International.

One of the major reasons SK Networks may sell its fashion business is to focus on the company’s strengths. “Samsung’s way of making the company leaner by letting go of non-core businesses has influenced other conglomerates as well,” a source from a related industry said.

Fashion has been only a small contributor to the company’s total sales and has been relatively unstable because it is heavily influenced by changing market conditions.

Company insiders, though, believe the sale could be a mistake in the future.

“The management is stuck with the thought that selling the fashion business is the best solution,” said a high-ranking spokesperson from SK Networks.

“However, it is hard to understand why they are trying to sell the business at a price under its net asset value [346.2 billion won], which doesn’t even consider the fashion division’s potential added value in the future.”

The complaint stems from the fact that even though the fashion business is relatively small in terms of size, it is profitable, whereas other portfolios including trading and mobile device sales account for a bigger part of company revenue but have less potential for future growth.

SK Networks hopes to secure future growth engines through merger and acquisition deals. The company’s revenue has been falling for three consecutive years. Trading, mobile devices, retail and petroleum sales in particular have been on the decline, even though they have been major pillars in company profits.

“The business difficulties that SK Networks is facing are similar to what traditional trading companies face,” said Kim Jung-kyun, an analyst at the Institute for International Trade. “As the easy ways to do business, such as selling products to affiliates, won’t work anymore, the company needs restructuring from the bottom.”

SK Networks Chairman Choi Shin-won is thought of as a possible hero to save the company from its headaches. Choi plans to strengthen the company’s stable business in car rentals while making continuous attempts at merger and acquisition deals.

“As the company’s trading business shows no way out, it is a reasonable strategy for the company to strengthen the car rental business, which proves competitive through mergers and acquisitions,” said Kim Tae-hyun, a senior analyst from LIG Investment & Securities.

In the meantime, SK Network’s plan to acquire kitchen appliances maker Tongyang Magic may fall apart after Choi ordered the company to “pull out of the deal if the price soars above 550 billion won,” adding that there was no need to overspend on the deal. The main bidding for the acquisition is set to begin next Tuesday.

BY KIM JEE-HEE, KIM KI-HWAN [kim.jeehee@joongang.co.kr]