Lotte could shut department stores in China

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Lotte could shut department stores in China

Lotte Department Store is considering closing some of its branches in China due to slow sales as the fallout from the U.S.-led Terminal High Altitude Area Defense (Thaad) antimissile system last year continues to hurt the Korean company.

“The company’s business in China has been going through a difficult time, so we’re considering various options,” said a spokesman on Monday. It added that the decision was inevitable considering the low sales in the country. The chance that stores will be closed comes a decade after Lotte launched its first department store there in 2008.

With Lotte Mart having sold off a majority of its Chinese branches during the year’s first half, the closure of its department stores, if realized, will push the conglomerate a step closer to completely withdrawing from China.

Among its five Chinese branches, two in Tianjin and one in Weihai are likely to halt operations first as they are currently being rented. The company is looking for candidates that may be interested in purchasing the businesses. If they do not succeed, terminating the rent contract before expiration could be another option.

Sell-offs for the other two stores in Shenyang and Chengdu will be discussed at a later date. These two are not stand-alone rented stores like the aforementioned three, but part of large-scale complexes in which Lotte Group once planned to establish commercial Lotte Worlds in China, composed of department stores, offices, hotels and amusement facilities. One possible scenario would be removing the department stores and using the units within the complex for different businesses.

The retail conglomerate’s Chinese business was badly damaged last year due to Korea’s deployment of Thaad. The outcry against Lotte was stronger than any other domestic brand because it had agreed on a land-swap deal with the Korean government to provide a golf course in Seongju County, North Gyeongsang, as the missile’s installment site.

Before, China was where Lotte had its largest overseas business. Lotte’s losses after the Thaad crisis are estimated at 2 trillion won ($1.7 billion) in total.

Subsidiary Lotte Mart was hit with the biggest blow: 87 among its 99 branches were forcefully shut down by local officials for more than a year from March 2017. The total loss during this period was an estimated 1.2 trillion won.

The effect on the department stores was smaller with a loss worth 140 billion won in 2016 and 2017. Unlike its affiliate, the stores were not forcefully shut down. But even as Korea-China relations seem to have rebound under the Moon Jae-in government, revenue hasn’t completely recovered to pre-Thaad levels.

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