This year, Lotte Shopping aimed for an operating profit of 600 billion won, but its first-quarter performance is expected to fall short of that target. The success of the upcoming second to fourth quarters with the successful reorganization of the department store and grocery institutional sectors, as well as the performance of the e-commerce platform Lotte On, is anticipated to be a turning point for improving performance. Shin Dong-bin, chairman of Lotte Group, who returned as an internal director of Lotte Shopping after five years, expressed a commitment to responsible management and emphasized the need to strengthen core business competitiveness.
According to financial information provider FnGuide on the 16th, Lotte Shopping's estimated first-quarter performance for this year is sales of 3.503 trillion won and an operating profit of 132 billion won. Compared to the same period last year (sales of 3.513 trillion won; operating profit of 114.9 billion won), sales decreased by 0.3%, while operating profit increased by 14.9%.
However, the operating profit for last year's first quarter included a one-time expense of 23.7 billion won incurred during the voluntary retirement process of some employees in the domestic department store sector. Excluding this, the operating profit is at around 138.6 billion won. As a result, this year's estimated first-quarter operating profit is about a 4.8% decrease compared to last year.
Earlier, Lotte Shopping presented a sales target of 1.4 trillion won and an operating profit target of 600 billion won during its performance announcement in February for the year 2024. Achieving these targets will require profitability improvements in the remaining period.
Currently, most of Lotte Shopping's revenue comes from the department store institutional sector. Last year, the revenue for the department store sector was 3.2036 trillion won, representing 23% of the total, while operating profit was 406.1 billion won, accounting for 86% of the total.
However, an analysis suggests that the prolonged cold wave from January to March this year acted as a stumbling block. Ju Young-hoon, a researcher at NH Investment & Securities, noted, "The first quarter of this year for the department store institutional sector is estimated to have seen poor sales in the high-margin clothing category due to unfavorable weather conditions."
Lotte Department Store is renovating its non-Seoul stores and transforming them into the complex shopping mall brand "TIMEVILLAS" to improve sales and profitability. Although the number of stores, at 32, is approximately double that of competitors (Shinsegae with 13 and Hyundai with 16), the evaluation reflects that the sales per store are lower. Lotte Department Store aims to create a space that captures the attention of the emerging Gen-Z (1997-2006 born) consumer demographic.
Lotte Department Store opened the TIMEVILLAS Suwon store last October and plans to open the Gunsan store this year. Since its opening, TIMEVILLAS Suwon has seen sales increase by 35.4% compared to the previous year, benefiting from the renovation effects. Lotte Department Store ultimately plans to invest 7 trillion won by 2027 to open four new stores in Songdo, Daegu Suseong, Sangam, and Jeonju, while expanding the existing seven stores into TIMEVILLAS through renovations.
The grocery institutional sector, which operates Lotte Mart and supermarkets, has been undergoing intensive restructuring since 2020 by closing low-profit stores. However, at the beginning of this year, it opened the Lotte Mart Cheonho store in Seoul, marking its first new opening in six years. Lotte Mart and supermarkets plan to begin serious expansion while leveraging their strengths in the grocery sector this year.
The e-commerce business represented by "Lotte On" is also working on improving profitability. Lotte On recorded losses of 155.9 billion won in 2022, 85.6 billion won in 2023, and is projected to reduce the loss to 68.5 billion won in 2024.
Lotte On transferred its e-grocery (fresh food) division to Lotte Mart last year and reorganized its structure to create new beauty and fashion departments. While strengthening the vertical specialty store business, which has been steadily growing in transaction volume, it plans to establish a foundation for turning profitable.
Lotte On is also increasing its interactions with sister corporations, focusing on expanding visitor numbers. A representative example is the membership platform L.TOWN, which consolidates benefits from 12 companies, including non-retailing affiliates within the group. Additionally, Lotte On is working to enhance synergy among its affiliates through online discount events, such as the "Online Shopping Festa," in which most group members participate. A representative from Lotte On said, "During the first week of this discount event (April 9-15), visitors increased by 70% compared to the same period last year, and sales grew by 65%, demonstrating success."
Chairman Shin returned as an internal director of Lotte Shopping after five years following last month's shareholders' meeting. Industry insiders predict that Shin's return will enable quicker decision-making than before, thus accelerating the ongoing restructuring of the company.
Chairman Shin said at the beginning of this year during the Value Creation Meeting (formerly the executive meeting), "To quickly restore market trust, we are implementing various measures such as selling tangible assets and re-evaluating assets, but for a fundamental solution, we need to enhance the core competitiveness of the business to improve profitability."
The retail industry expects that the sluggish consumption will become activated in the second half of the year, following the presidential election in June. Yoo Jung-hyun, a researcher at Daishin Securities, noted, "The presidential election held after political uncertainties such as impeachment will positively influence consumer sentiment in the second half of the year," adding that domestic retailers are expected to benefit, with department stores likely to be the biggest beneficiaries.