Desperate Korean retailers urge workers to voluntarily resign

Economy

Published: 29 Nov. 2023, 19:21 Updated: 29 Nov. 2023, 23:24

Desperate Korean retailers urge workers to voluntarily resign

Employees of Incheon Regional Customs inspect directly purchased overseas goods at a logistics center in Incheon on Nov. 22. [NEWS1]

Korean retailers are pushing for voluntary resignations to slim down their workforces amid a prolonged period of tough trading.

“It’s a winter colder than ever,” said a retail industry insider, who requested anonymity.

Ecommerce platform 11Street, affiliated to SK Group, started asking its workers to resign voluntarily Monday, according to an industry insider on Tuesday. The scheme is open to employees who are over the age of 35 and have worked at the company for at least five continuous years, and offers four months’ worth of wages as severance pay. It is the first time 11Street has opened a voluntary resignation scheme since its launch in 2008.

“The [scheme’s] purpose is to support our employees’ search for a new career path,” said the company, but added that “it is an efficient measure that will allow for the sustained growth and survival for both the company and its members.”

11Street has posted operating losses for the past three years, from 2020 to 2022. Although accumulated losses during the first three quarters of this year shrank by 14.1 percent on-year, the company still remains in the red. Its losses came to 91 billion won ($70.6 million) from the January to September period this year.

The retailer's move to go public along with a plan to sell the company also fell through. 11Street received a 500 billion won investment from Nile Holdings — a consortium created by the National Pension Service, MG Korean Federation of Community Credit Cooperatives (KFCC) and private equity fund H&Q Partners Korea — on the condition of going public by the end of the year, but gave up the plan due to difficult business conditions. Acquisition negotiations with Singapore-based ecommerce platform Qoo10 were also halted.

Companies in the retail and food sectors have been asking for voluntary resignations. [NAM JUNG-HYUN]

Lotte Homeshopping, having long suffered from deteriorating sales performances, asked employees to voluntarily resign in September, which was also the company’s first time to do so. The resignation scheme was open to employees over the age of 45 who have worked at the company for at least five continuous years. The severance packages included two years’ worth of wages, re-employment subsidies and education subsidies for the employees’ children.

“In order to cope with changes in the distribution and media environment, we launched voluntary resignation schemes for the purpose of organizational change,” said an insider at the company.

Maeil Dairies, Korea’s second-largest dairy company by market share, and SPC Paris Croissant, which operates the bakery franchise Paris Baguette, also cut down on staff in August and September, respectively. Executives and employees over the age of 50 were asked to voluntarily resign at Maeil Dairies, while Paris Croissant asked employees who have worked at the company for at least 15 continuous years. Paris Croissant is currently accepting retirement applications.

Maeil Dairies’ operating profits from this year’s first three quarters rose 24 percent on year to 51.3 billion won, but still remain lower than its cumulative operating profits for 2021’s third quarter, which was at 65.1 billion won. Operating profits for Paris Croissant also dropped from 33.4 billion won in 2021 to 18.8 billion won last year, and the company posted deficits throughout this year’s first three quarters. Though specific numbers were not revealed, it became known that the losses come to a hefty amount.

“The bigger problem is that the situation doesn’t seem like it will get better,” said retail industry insiders, while sharing the industry’s current difficulties.

The Retail Business Survey Index (RBSI) for this year’s fourth quarter was at 83, way under the 100 threshold, according to the Korea Chamber of Commerce and Industry (KCCI).

If the RBSI is higher than 100, it means many companies expect the next quarter's retail business to be better than the last. When it is lower than 100, it means the opposite.

“Because of regulations and market saturation, the [current] situation is even worse than during the 1997 Korean financial crisis and the 2008 global financial crisis,” said a food industry insider.

Major retail conglomerates also face major issues. Shinsegae replaced 40 percent of its affiliates’ CEOs in a massive personnel upheaval. Lotte rolled out voluntary resignation schemes one to two years ago for its department store and duty-free shop businesses, the first time for the group to do so, ahead of its home shopping division.

The financial investment industry expects the drop in consumption to continue even in 2024.

“The state of household disposable incomes isn’t good due to the prolonged hike in prices and interest rates as well as higher utility bills, which will lead to a continued slump in overall consumption next year,” said Cho Sang-hoon, a researcher at Shinhan Securities.

BY CHOI EUN-KYUNG,KIM JU-YEON [kim.juyeon2@joongang.co.kr]