E-Mart and Homeplus are simultaneously promoting… Mart’s new survival strategy


As aging hypermarket stores lose their competitiveness, many retailers are coming up with a comprehensive reconstruction plan. Residents pass in front of the E-Mart Changdong branch (opened in 1993) in Dobong-gu, Seoul on the 23rd. /Reporter Park Jong-gwan

The large mart industry is promoting the reconstruction of old stores at the same time. The purpose is to overcome the crisis that has reached its climax due to a wave of e-commerce (e-commerce) while hands and feet are tied to outdated regulations such as the Distribution Industry Development Act.

Homeplus Gyeonggi-do Ansan branch and Busan Gaya branch are undergoing reconstruction, while E-Mart Lotte Mart E-Land Group is also internally reviewing plans to rebuild old stores. The Korea Chain Store Association decided to propose to the government and the National Assembly a plan to revitalize the development of large mart sites to support this move.

An official from the Chain Store Association said on the 23rd, “We plan to come up with a plan to revitalize outdated hypermarket stores nationwide and propose to the government and the National Assembly.” The decision was made after judging that the crisis at the hypermarket has reached a level that is difficult to resolve at the individual company level.

Distributors are also drawing sketches individually. E-Mart, which has the largest number of stores in Seoul, and accounts for 88% of the total number of stores, considers enhancing asset value through store reconstruction as a key task. An official from Shinsegae Group explained, “We are considering developing an E-Mart store as an apartment with commercial facilities as a mid- to long-term task together with Shinsegae Construction.”

Homeplus Ansan and Gaya stores, which were acquired by real estate developers, were recently closed in order to reconstruct them into residential and commercial complexes. In this case, Homeplus stores will be re-leased (sales and leaseback).

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E-Land Group is considering developing the Kim’s Club Gangnam branch in Jamwon-dong, Seoul. An official from the real estate industry said, “The reconstruction of a large mart that opened 20 to 30 years ago could be an opportunity to revitalize the surrounding commercial area.”

As non-face-to-face consumption becomes routine, sales decrease and 23 stores close in 3 years
Ranked first in the distribution industry → Last

E-Mart Changdong branch in Dobong-gu, Seoul at 2 pm on the 23rd. As it is the oldest hypermarket store in the country, opened in 1993, traces of the times can be seen everywhere.

The store was cramped, so it was an old event stand in front of the entrance, loads piled up everywhere, and an outdoor steel frame parking lot next to the store. The nearby Changdong Station commercial area also appeared to have lost its vitality.

○ Supermarket stores that leave the room

The position of large marts, which had been precarious due to the rise of e-commerce, collapsed rapidly due to the COVID-19 outbreak. Large marts have always maintained the top spot in the sales rankings of offline retailers compiled by the Ministry of Trade, Industry and Energy, surpassing department stores and convenience stores until 2020.

But last year, it fell to last. As of April, the proportion of large marts in the total sales of the retail industry was 14.0%, down 5.6 percentage points from 3 years ago (19.6%).

This led to a series of closures of stores. Over the past three years, 23 hypermarket stores across the country have been closed. None of the three large supermarkets (E-Mart, Lotte Mart, and Homeplus) are planning to open new stores this year.

Supermarket closures are currently underway. E-Mart’s Sihwa branch, which opened in 2000, is expected to close within the year. This is because Seongdam Distribution, which had signed a franchise contract with E-Mart and operated the store, notified that it would not extend the contract at the end of this year. The Sihwa branch has been operated in the form of which Seongdam Distribution borrows a brand from E-Mart and takes charge of the actual operation.

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○ A direct hit on jobs

Due to the nature of large marts, which have a large employment effect, the closing of stores does not end with difficulties only for the company concerned. It can also take a toll on local jobs and lead to economic recession. According to the Korea Retail Association, when one large mart store closes, it is estimated that a total of 945 people will lose their jobs, including those directly employed at that store and those from rental, service, and supply companies.

It is also a problem for stores that have lost their vitality to barely maintain their reputation in their core location. This is because, like E-Mart’s Changdong branch, the power of attracting customers is low, and the entire surrounding commercial district loses its power and becomes hollow. An official from the real estate industry explained, “As large supermarkets opened in places that were previously classified as core commercial districts are aging, the surrounding commercial districts tend to collapse together.”

○ Number of wins for store reconstruction

Distributors who run large marts are recognizing the seriousness of this problem as they are closing their stores or trying to rebuild them instead of partially remodeling them. The industry also claims that the reconstruction of hypermarket stores will be a means to resolve the chronic housing supply shortage.

More fundamentally, there is a foundation for improving performance by enhancing asset value. Outdated stores that failed to keep up with the rapidly changing distribution trends are seeing the effect of increasing the number of customers just by remodeling. The Incheon Ganseok branch, which stayed in the top 10 in sales among Homeplus stores, reopened in February after remodeling and was named in the top 3 top-selling stores. After selling the store to a real estate developer wishing to reconstruct the store, the funds raised through a re-lease (sale and leaseback) method are used to secure competitiveness in e-commerce.

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○ Overcoming opposition from union politics

The biggest problem in the hypermarket industry is that there are reefs everywhere that block the reconstruction of stores. “Two years ago, a local government proposed to redevelop an old store into a residential-commercial complex including youth rental housing,” said an official at a large mart, but the project was canceled because a local lawmaker objected to it because the public opinion was not good.

It is also burdensome for public opinion to give preferential treatment to large corporations. The union, which opposed the sale of Homeplus Ansan branch, moved the Ansan City Council with this logic to lower the floor area ratio of residential and commercial buildings in the commercial area from 1100% to 400%.

The opposition from the union, which has to temporarily move to another store during the reconstruction of the mart, is also intense. It is for this reason that the Korea Chain Store Association has come up with a plan to revitalize the reconstruction at the association level. An industry official said, “If the store is reconstructed after the sale, the profits go to the developer, not the distributor. There is no other,” he protested.

Reporter Park Jong-gwan/Park Dong-hwi pjk@hankyung.com


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