South Korean retailers expanding in ASEAN

Date : 17 November 2017

Many of the leading South Korean retailers are turning to ASEAN countries for expansion. We review the latest developments for Korea's five leading retailers. 

THAAD may have long-lasting impact on Korean businesses

Relations between South Korea and China soured when a former Lotte golf course was used as the base for US THAAD missile-defence system earlier this year. As the saga unrivalled, many South Korean retailers operating in China were impacted, while a ban on Chinese travel agencies selling package tours to South Korea had impacted sales and the economy further.

Tensions have eased slightly following a recent presidential speech by Xi Jinping, and trading conditions have picked-up. However, there is an inherent feeling of caution after such a prolonged dispute.

Shinsegae

Profitability at home and expansion overseas will become even more important when Shinsegae's E-Mart withdraws from China. At home, they are quickly expanding and rebranding their convenience outlets, With Me, now known as E-Mart 24. Click here to see some of the key differences in rebranded stores. E-Mart 24 has also ventured into unstaffed stores, with currently four nationwide. We are seeing an increasing number of unstaffed stores worldwide, especially in China and Japan in Asia. South Korean retailers are also embracing new technologies, Lotte's flagship unstaffed store in Seoul which utilises an innovative HandPay system is a prime example  

Overseas, E-Mart has recently opened their second store in Mongolia. They are also planning a second store in Vietnam in 2018, with further expansion expected to build on the success of their first store. The shift towards south-east Asia is also evident in their recent announcement to enter Cambodia by 2019.

Lotte

Of all the South Korean retailers operating in China, the adverse impact of the THAAD dispute arguably affected Lotte the strongest. Lotte Mart in China is currently listed for sale and around 75% of their stores remain closed until further notice.

With the profound consequences in China, we have seen a stronger emphasis in Vietnam and Indonesia, not only in food and grocery retailing but also in multi-complex construction projects and ecommerce development. They are building, for example, a large-size shopping mall that will operate 200,000 sq m in Hanoi, which is scheduled to complete by 2020. In Indonesia, Lotte and Salim Group recently launched their ecommerce joint venture iLotte. The fast-growing economies of Vietnam and Indonesia makes further expansion in these countries an exciting opportunity.

Homeplus

Homeplus is still recovering from overall sluggish sales, which triggered Tesco to sell its shareholdings to MBK Partners in 2015. They recently suffered one of the largest corporate fines in the South Korean history and remain under pressure. Their full attention and focus is on their network in South Korea, with no immediate plans to venture overseas. We believe their online portal will have an important role in supporting the future growth of the business.

GS Retail

Multi-format retailer, GS Retail, is well-known for their GS25 convenience outlets (over 11,800 nationwide) and GS Supermarket stores. They do not operate in China, but they are also looking to expand in south-east Asia like other Korean retailers. GS Retail recently opened their third GS Supermarket in Indonesia, after entering the country back in October 2016.

The first foreign venture for GS25 will be in Vietnam, where the retailer plans to launch their convenience banner by end of the year. GS25 will look to offer something different in an increasingly competitive market. Earlier this year, 7-Eleven entered Vietnam and there is strong competition from local and international convenience store operators in the market already.

BGF Retail

BGF Retail operates over 11,800 CU convenience stores in South Korea. Like GS retail, they do not operate in China, but has a more cautious approach to overseas expansion. Earlier this year, they signed a franchise deal with an Iranian firm that will push their convenience stores overseas for the first time. Nonetheless, the geographical location for expanding overseas, as well as a market that suits their brand, will be equally important in the future.

Our view

Trading conditions for Korean retailers operating in China will continue to be tough in the short term. What has happened does raise further questions in terms of future strategy in China. We expect Korean retailers to take a more balanced approach in terms of investment, with some shifting their focus to the emerging giants of south east Asia.

The growing number of single and two-person households in South Korea is driving the growth of smaller format stores. The use of technology in a strong m-commerce market will lead to increased modernisation of mom-and pop stores and drive in-store efficiencies. We believe 2018 could see the country's two leading convenience store chains, GS25 and CU, trial unmanned stores and new technologies to deliver better shopper experience and grow even further.  

 

Sign up here for our free newsletter to get the latest updates on South Korea and the leading retailers.