Lotte Chairman Shin Dong-bin emphasized a "major shift in management policy toward qualitative growth" and told the heads of key affiliates to manage indicators centered on profitability.
Lotte Group has already prioritized "business that leaves a margin" over "bulking up" in the distribution institutional sector in recent years, but with Shin's strong resolve added, efforts to improve profitability are expected to gain further momentum. However, since expense cuts are ultimately a desperate measure during a downturn, there are concerns that, in the short term, it will be hard to avoid a weakening of market dominance due to store and channel reductions.
According to Lotte Group on the 16th, Shin held the 2026 first-half VCM (Value Creation Meeting, formerly the presidents' meeting) the previous day at Lotte World Tower in Jamsil, Seoul. At the meeting, Shin called for shoring up fundamentals by adopting ROIC (Return on Invested Capital) focused on strengthening profitability and efficient investment, rather than external growth driven by existing sales, as a principle.
Lotte Group has already shown results trends at major retail affiliates of reducing sales while focusing on improving operating profit. Lotte Duty Free posted sales of 2.0295 trillion won and operating profit of 40.1 billion won in the first to third quarters last year. Compared with a year earlier, sales fell 17.1%, but operating profit swung to the black.
This was thanks to sharply reducing transactions with "daigong" (Chinese shuttle traders). Daigong buy goods abroad, including in Korea, then resell them in mainland China for a markup. Duty-free stores were able to easily expand sales and manage in-store inventory via daigong, and, because of those advantages, they had once greatly expanded the scale of transactions even by paying referral fees—effectively a kind of rebate.
However, after the COVID-19 pandemic shook the business model that relied on daigong, Lotte Duty Free became the first in the industry last year to declare a halt to transactions with them. As a result, Lotte Duty Free turned a profit with 15.3 billion won in operating profit in the first quarter last year and remained in the black for three consecutive quarters through the third quarter.
Lotte Department Store is also focusing on improving profitability over sales. In the first to third quarters last year, Lotte Department Store recorded sales of 2.3238 trillion won and operating profit of 270.7 billion won. Compared with a year earlier, sales fell 1.2%, but operating profit rose 22.9%. This was the result of closing inefficient stores and concentrating on core stores.
Among the nation's bottom 20 department stores by sales last year, Lotte Department Store owned as many as 15 locations. In response, Lotte Department Store is concentrating its budget on core stores such as the main branch, Jamsil, Incheon and Nowon, while sequentially winding down inefficient outlets. It decided to close the Masan branch in Jun. 2024 and the Bundang branch this Jan., and additional closures are seen as possible.
Convenience store Seven-Eleven is also pushing aggressive store rationalization. On a cumulative basis for the first to third quarters last year, Seven-Eleven posted sales of 3.6586 trillion won and an operating loss of 44.2 billion won. Sales fell 9.4% from a year earlier, but the operating loss narrowed 23.4%. This was the result of withdrawing underperforming stores with heavy fixed-cost burdens and focusing on commercial districts with higher profitability.
Seven-Eleven acquired Ministop in 2022, securing about 2,600 stores nationwide and rising to No. 3 in the domestic industry. However, during the conversion of Ministop locations to Seven-Eleven after the acquisition, more expenditure than expected occurred, increasing the burden. In response, Seven-Eleven has been reducing its number of stores in recent years in a bid to return to profitability.
While sales are decreasing and profitability is increasing across retail affiliates overall, Lotte Mart and Super, where sales and profitability are deteriorating together, require strong structural reforms. In the first to third quarters last year, Lotte Mart and Super's sales totaled 3.8812 trillion won, down 5.6% from a year earlier. During the same period, operating losses came to 28.3 billion won, swinging to a deficit.
President Cha Woo-cheol, who took office as CEO of Lotte Mart and Super through year-end personnel moves last year, aims to drive a turnaround by integrating management of Lotte Mart and Super, stabilizing the e-grocery business and expanding global operations centered on Southeast Asia. Lotte Shopping also expects to strengthen fresh food and delivery competitiveness from the second half, led by the Busan automated logistics center (CFC), slated for completion in the first half of this year.
However, some in the industry worry that prioritizing shoring up fundamentals over growth could lower market dominance. In particular, in the core businesses of marts and department stores, rivals E-MART, Shinsegae and Hyundai Department Store are ramping up investment.
An industry official said, "In retail, customer touchpoints are crucial, so if the investment gap is prolonged, it's easy to cede share to competitors," and added, "When structural reform efforts start to bear fruit, a precise judgment will be needed on which channels and commercial districts to again increase investment intensity."