LOTTE HIMART, an electronics retailer, is aiming to improve its performance this year with a subscription service for electronics that started on the 1st. The subscription service allows consumers to pay a fee each month to rent electronics.
◇ It broke the trend of stagnant sales in the first quarter… aiming for a significant rebound with the subscription service
According to the retail industry on the 9th, LOTTE Group is closely monitoring LOTTE HIMART's gamble. LOTTE HIMART escaped from a sales stagnation after three years and seven months in the first quarter of this year. The sales amount for LOTTE HIMART in the first quarter reached 529 billion won, which is a 0.7% increase compared to the same period last year. Although an operating loss of 11.1 billion won was recorded, the deficit was reduced by about 5 billion won compared to the previous year. Thus, a significant improvement in performance is needed.
The subscription service introduced for this purpose has advantages for both consumers and the electronics retailer. From the consumer's perspective, they can switch to new electronics whenever new products are released. From the retailer's point of view, it is beneficial as it shortens the replacement cycle of electronics. In the past, consumers believed they would use an electronic product for at least 10 years after purchasing it once. However, if the exchange cycle is shortened with the subscription service, it is advantageous in terms of revenue generation. The subscription service also provides a stable monthly revenue stream, which is an advantage for the electronics retailer.
However, the monthly payment made by consumers is about 20-30% higher than when making an installment purchase. LOTTE HIMART believes it can address this weakness through its care service. Since ownership does not transfer, the retailer provides care services for electronic products free of charge under certain conditions. Internal cleaning of dryers and washing machines are typical examples. A LOTTE HIMART representative noted, “We have been providing care services since 2023. We expect customer satisfaction to increase when combined with the subscription service.”
In addition to LOTTE HIMART, electronics retailers are focusing on competition in subscription services. LG Electronics started its subscription service with water purifier rentals in 2009 and has expanded its subscription product range to more than 20 items, including TVs and laptops. Samsung Electronics ventured into the subscription service for electronics at the end of last year. Electronics Land expanded its subscription sales channels from its own distribution network to department stores and large supermarkets.
LOTTE HIMART emphasizes that, although it is a latecomer, it can offer a subscription service combining various products. It is not limited to just subscribing to Samsung Electronics products or LG Electronics products; it has included popular brands like Dyson and Roborock in its subscription offerings. This strategy is possible because it is an electronics retailer without its own electronic product manufacturing.
◇ Will CEO Nam Chang-hee's performance improvement efforts shine this year?
LOTTE HIMART explains that the efficiency improvements pursued since the appointment of CEO Nam Chang-hee at the end of 2022 are producing results. After his appointment, CEO Nam organized harmful inventory and streamlined underperforming stores. He renewed stores with growth potential and hired promotional staff directly to enhance sales expertise. He also focused on increasing customer touchpoints by introducing care services for electronics.
However, within the group, some who want to downplay LOTTE HIMART's performance say it is 'merely' this. They argue that it is only the first quarter result with a mere 0.7% sales increase, indicating that it is not a significant affiliate for the entire group.
Nevertheless, more people tend to view positively the breaking of LOTTE HIMART's downward performance trend. The situation of retailers falling into recession is attributed to the rapid rise of online sales channels like Coupang. This is a problem resulting from changes in market structure, making it difficult to change the overall trend. The electronic products sold by LOTTE HIMART have uniform quality regardless of where or when they are purchased, unlike fresh produce, making them vulnerable to the aggressive online shopping channels.
A LOTTE Group official stated, “The rumor that LOTTE HIMART should be sold stemmed from those who expressed that ‘it might be better to sell a business that is truly not doing well’” and added, “Since the direction of a business that had such a pessimistic view has changed, CEO Nam, who leads LOTTE HIMART, may gain more trust within the group.”
CEO Nam is a 'LOTTE man' who joined Lotte Shopping in 1992 and has held various positions including head of the marketing division, head of the merchandise division, head of the grocery division, head of the MD division, and head of the customer division. He was appointed as CEO of Lotte Super from 2020 and settled in LOTTE HIMART in 2022, being reappointed at the end of last year.
Until now, he was mainly evaluated as an expert with more than 30 years of direct purchase distribution experience. However, after successfully restructuring during his tenure as CEO of Lotte Super, he is also recognized for being strong with numbers, as much as the finance line. During his two years as CEO of Lotte Super, he focused on internal restructuring, reorganizing 146 stores and reducing the operating loss from over 100 billion won in 2019 to 5.2 billion won in 2021.
Namsung, a researcher at IBK Securities, commented on LOTTE HIMART's first-quarter performance, saying, “It is certainly a negative figure considering that losses are continuing. However, taking into account the ongoing store closures and the stagnant economy, it can be evaluated as a positive figure.” He added, “The effects of finalizing online and offline restructuring are likely to appear, and the recovery of sales volume in home appliances and global electronics is also occurring quickly.”
Joo Young-hoon, a researcher at NH Investment & Securities, stated, “The end of the continuous sales decline trend is significant,” noting, “It is the result of two years of structural innovation efforts. Additional sales improvement is expected from store renewals in the future.” LOTTE HIMART has set a target of 2.3 trillion won in annual sales and an operating profit of 10 billion won this year, which it announced in February.