As Homeplus Co., which is undergoing a corporate rehabilitation process, moves to close about one out of every three stores, the likelihood is growing that rivals such as E-MART and Lotte Mart will see their windfall gains expand over the medium to long term. E-MART and Lotte Mart have sought to capture offline grocery shopping demand since early this year by strengthening monthly regular discount events in line with the changing competitive environment. With Homeplus Co. stores that were expected to face only temporary suspensions now proceeding toward large-scale closures, competition among companies to secure customers is expected to intensify further.
According to the retail industry on the 5th, Homeplus Co. said in an official letter recently sent to its labor union, "We have decided to close 37 stores that are currently suspended due to low contribution." Homeplus Co. had temporarily halted operations at 37 of its 104 stores nationwide with low profitability since on the 10th of last month. With the closures of those stores set, the number of Homeplus Co. locations will be reduced to two-thirds of the previous level.
As suspended operations turn into closures, changes to the competitive landscape among hypermarkets have become unavoidable. The industry expects that in commercial areas where Homeplus Co. exits, the usual grocery shopping routes of existing customers will disperse to E-MART and Lotte Mart, corporate-type supermarkets (SSM), and online grocery channels. In particular, because demand for hypermarkets that regularly purchase food and daily necessities involves many repeat visitors, assessments suggest that existing Homeplus Co. customers are increasingly likely to switch to alternative stores after considering store location and discount benefits.
E-MART and Lotte Mart have strengthened monthly regular discount events since the start of the year to preempt offline grocery demand in step with the changing competitive environment. E-MART has significantly expanded the scale of its regular discount event "Gorae-it Festa," which has run since January last year. While it was held mainly over weekends for three to four days last year, this year the duration has been extended to seven days and the number of items on promotion has been increased by more than 30%. The event channels have also been expanded beyond E-MART stores nationwide to include E-MART Everyday and No Brand specialty stores.
Lotte Mart likewise expanded "Tongkeun Day" into a regular monthly event held once a month across all Lotte Mart and Lotte Super stores, as well as various group distribution channels such as Lotte Mart MAXX and Lotte Mart ZETTA, starting this year. Tongkeun Day is an event that offers minimum-price-level benefits across all categories, including seasonal flagship fresh and processed foods and daily essentials. Until last year, Lotte Mart held Tongkeun Day only during specific periods such as long holiday stretches.
The windfall gains for E-MART and Lotte Mart from Homeplus Co.'s corporate rehabilitation are assessed to be partially materializing. According to major retailer sales trends released by the Ministry of Trade, Industry and Resources, hypermarket sales fell 18.8% in January this year from a year earlier. They rose 15.1% in February, reflecting the Lunar New Year holiday effect, but fell again by 15.2% in March. The statistics combine four companies: E-MART, Homeplus Co., Lotte Mart, and NongHyup's Hanaro Mart. Analysts say that the decline in sales at Homeplus Co. after the rehabilitation process is dragging down the overall format's figures.
By contrast, E-MART and Lotte Mart held up relatively well. In the first quarter, E-MART's discount store (general hypermarket) segment sales were 3.0327 trillion won, down 0.3% year over year, but operating profit rose 2.8% to 80.3 billion won. Traders also saw first-quarter sales rise 9.7% year over year to 1.0601 trillion won, with operating profit up 12.4% to 47.8 billion won. Lotte Shopping's domestic discount store segment posted first-quarter sales of 1.0406 trillion won, up 2.2% year over year, and operating profit of 8.8 billion won, up 30.9%.
Brokerages believe the competitive easing effect from Homeplus Co.'s restructuring could become more pronounced into the second half. Lee Jinhyeop, an analyst at Hanwha Investment & Securities, said, "Through the first half, the demand departing from Homeplus Co. has not been meaningfully absorbed by a specific format, but over time it will gradually be absorbed by rival hypermarkets," adding, "Given the purposeful nature of demand, hypermarket demand is likely to move to other hypermarkets."