2019 first quarter results · however, dept. stores & hypermarkets both sustained solid sales...
TRANSCRIPT
2019 First Quarter Results
May, 2019
Disclaimer
The financial information in this document are consolidated earnings results based on K-IFRS. The previous earnings results have also been stated in compliance with K-IFRS.
This release includes preliminary figures which are still undergoing independent auditor review. The actual results may differ from those included in this release due to a variety of factors. Lotte Shopping Company undertakes no obligation to update or revise the preliminary information provided in this release.
1
1Q19 Revenue 4.4 trillion KRW (+2.6% YoY)▶ Domestic Revenue: 4.1 trillion KRW (+3.3% YoY), Overseas Revenue: 393 billion KRW (-3.1% YoY)
– Domestic : Dept. stores performed slight SSSG (Same Store Sales Growth) through strong sales growth
in global fashion and home appliances & electronics categories
Hypermarkets showed weak SSSG due to intensified competition in the market
ㆍSSSG: Dept. stores +0.6% / Hypermarkets -3.6%
– Overseas : Dept. stores indicated weak SSSG due to store closures in China
However, Dept. stores & Hypermarkets both sustained solid sales growth in Indonesia and Vietnam
ㆍSSSG: Dept. stores -3.2% [China -8.8%, Indonesia +5.0%, Vietnam +13.6%]
Hypermarkets +4.3% [Indonesia +2.2%, Vietnam +9.8%]
1Q19 Operating Profit 205 billion KRW (-7.1% YoY)▶ Domestic Operating Profit: 197 billion KRW(-16.5% YoY), Overseas Operating Profit: 13 billion KRW
– Domestic : Dept. stores – Operating Profit maintained at YoY flat level via decreased SG&A
Hypermarkets – Operating Profit increase induced by new accounting standard adoption (K-IFRS 1116 leases)
Other business units (Supermarket, Hi-Mart, etc.) – Operating Profit decreased
– Overseas : Dept. stores – Operating Loss turned into profit generation driven by restructuring effort in China
Hypermarkets – Operating Profit increased via strong SSSG trend
1Q19 Net Profit 109 billion KRW
– Non Operating Profit -94 billion KRW (-56 billion KRW YoY, 1Q18: -39 billion KRW)
→ Increase in interest expense impact : -53 billion KRW YoY due to new accounting standard adoption (K-IFRS 1116 leases)
Highlights (FY2019 1st Quarter)
2
※ Introduction of new accounting standard (K-IFRS 1116 leases) – Effective as of 1st, Jan, 2019
- The new lease accounting standard was applied in 1Q19 financial statements whereas 1Q18 financial statements does not
reflect new lease accounting standard
※ New accounting standards of K-IFRS 1116 leases
- To increase the accuracy of liability measurement and comparability between companies, the use rights of tangible&intangible
assets and rents of borrowed assets under the signed contract are recognized as assets and liabilities respectively
Table of Contents
1. Consolidated Financial Results
2. Consolidated Financial Results by Divisions
3. Non-Operating Profit
4. Equity Method Gain & Loss (Major Companies)
3
1Q 2018 1Q 2019 YoY
Revenue 4,334 4,447 2.6%
(Gross Sales) 5,890 5,950 1.0%
Operating Profit 221 205 -7.1%
EBITDA 387 543 40.2%
Profit Before Tax 182 111 -39.2%
Continuing Operations (Profit & Loss)
114 88 -22.9%
Discontinued Operations*(Profit & Loss)
-124 21 -
Net Profit -10 109 -
1. Consolidated Financial Results(Unit: billion KRW)
※ Number of consolidated affiliates: 46
※ Gross Sales = Net Sales + Cost of Goods (Cost of Goods are included in revenue regarding certain product categories)
* Profit & Loss of China Hypermarket is classified as discontinued operations due to completion of sales and store closures
4
1Q 2018 1Q 2019 YoY
Revenue 4,334 (100.0%) 4,447 (100.0%) 2.6%
Department Stores 822 (19.0%) 772 (17.4%) -6.0%
Hypermarkets 1,540 (35.5%) 1,592 (35.8%) 3.4%
Electronics 952 (22.0%) 1,037 (23.3%) 8.9%
Supermarkets 490 (11.3%) 474 (10.7%) -3.2%
Others* 530 (12.2%) 571 (12.8%) 7.7%
Gross Sales 5,890 (100.0%) 5,950 (100.0%) 1.0%
Department Stores 2,108 (35.8%) 2,052 (34.5%) -2.7%
Hypermarkets 1,768 (30.0%) 1,772 (29.8%) 0.2%
Electronics 952 (16.2%) 1,037 (17.4%) 8.9%
Supermarkets 520 (8.8%) 505 (8.5%) -2.9%
Others* 541 (9.2%) 584 (9.8%) 8.1%
Operating Profit 221 5.1% 205 4.6% -7.1%
Department Stores 143 17.4% 159 20.6% 10.9%
Hypermarkets 12 0.8% 19 1.2% 62.6%
Electronics 41 4.3% 24 2.3% -41.3%
Supermarkets -10 - -17 - -
Others* 34 6.4% 20 3.5% -40.8%
2. Consolidated Financial Results by Divisions(Unit: billion KRW)
* Includes consolidated adjustments
5
6
1Q 2018 1Q 2019 YoYRevenue 822 (100.0%) 772 (100.0%) -6.0%
Domestic 793 (96.5%) 748 (96.8%) -5.7%
Overseas 29 (3.5%) 25 (3.2%) -15.7%
China 20 (2.4%) 15 (1.9%) -24.2%
Indonesia 6 (0.7%) 5 (0.7%) -9.1%
Vietnam 4 (0.5%) 5 (0.6%) 17.2%
Operating Profit 143 17.4% 159 20.6% 10.9%
Domestic 160 20.2% 155 20.7% -3.5%
Overseas -17 - 4 17.0% -
China -16 - 5 30.8% -
Indonesia -1 - -1 - -
Vietnam 0 - 0 4.9% -
EBITDA 218 26.5% 312 40.5% 43.3%
Domestic 227 28.6% 301 40.2% 32.6%
Overseas -9 - 12 46.9% -
China -10 - 7 50.1% -
Indonesia 0 - 2 43.5% -
Vietnam 1 24.6% 2 40.2% 92.0%
Overseas Department StoreDomestic Department Store
① Department Store
※ 56 Department Stores (as end of 1Q19): 52 Domestic stores (including 22 outlets), 4 Overseas stores (China 2, Indonesia 1, Vietnam 1)
(Unit: billion KRW)
▶ Domestic SSSG: +0.6% YoY (1Q19)- Home Appliances & Electronics +14.9%, Global Fashion +14.2%,
Men’s & Sports Wear +0.3 %, Food -0.5%, Women’s Wear -1.5%, Accessories -4.5%- 1Q18 one-time revenue regarding Pyeongchang Olympics goods sales
: 45.1 bn KRW (High-base effect)
▶ Overseas SSSG: -3.2% YoY (1Q19)- China -8.8%, Indonesia +5.0%, Vietnam +13.6%
▶ Despite the cost optimization effort (SG&A -22.2 bn KRW YoY),YoY Operating Profit declined due to one-time profit in 1Q18
- SG&A decreased by -8.4 bn KRW YoY by new accounting standard adoption (K-IFRS 1116 leases)
- 1Q18 one-time profit regarding Pyeongchang Olympics goods sales: +14.3 bn KRW
▶ Operating Loss turned into profit generation driven by SG&A reductionin China due to early reflection of restructuring related costs in 4Q18
- China : No depreciation costs reflected from two stores in Tianjin dueto the asset impairment loss recognition in 4Q18Reversal of provisions (+10.3 bn KRW)
※ Store Closures in China : Tianjin Dongmalu(Dec, 2018), Tianjin Cultural Center(Mar, 2019), Weihai(Mar, 2019)
- Indonesia : Operating Loss improved: +0.5 bn KRW YoY (-1.1 bn KRW → -0.6 bn KRW)
- Vietnam : Operating Loss turned into profit generation: +0.5 bn KRW YoY(-0.2 bn KRW → 0.2 bn KRW)
1Q 2018 1Q 2019 YoYRevenue 1,540 (100.0%) 1,592 (100.0%) 3.4%
Domestic 1,226 (79.7%) 1,245 (78.2%) 1.5%
Overseas 313 (20.3%) 347 (21.8%) 10.8%
Indonesia 242 (15.7%) 261 (16.4%) 7.7%
Wholesale 192 (12.4%) 208 (13.1%) 8.5%
Retail 51 (3.3%) 53 (3.3%) 4.9%
Vietnam 71 (4.6%) 86 (5.4%) 21.4%
Operating Profit 12 0.8% 19 1.2% 62.6%
Domestic 6 0.5% 9 0.7% 48.9%
Overseas 6 1.9% 10 3.0% 76.7%
Indonesia 2 1.0% 4 1.4% 52.7%
Wholesale 3 1.8% 4 1.8% 9.1%
Retail -1 - 0 - -
Vietnam 3 4.9% 7 7.8% 93.2%
EBITDA 59 3.9% 112 7.1% 89.3%
Domestic 47 3.8% 92 7.4% 96.8%
Overseas 13 4.0% 20 5.8% 61.2%
Indonesia 6 2.6% 10 3.7% 51.8%
Wholesale 6 3.1% 7 3.4% 22.0%
Retail 0 1.0% 2 4.7% 406.7%
Vietnam 6 8.7% 11 12.3% 70.9%
Overseas HypermarketDomestic Hypermarket
(Unit: billion KRW)
※ 186 Stores (as end of 1Q19): 126 Domestic stores, 60 Overseas stores (Indonesia 46, Vietnam 14)
▶ Domestic SSSG: -3.6% YoY (1Q19) - Fresh Food 1(Fruit/Vegetable/Dehydrated food) -2.1%,Fresh Food 2(Fresh meat/Seafood) +4.2%, Meal Solution(HMR) -1.3%,Processed Food 0.0%, Home Furnishing -3.9%, Personal Care (Health&Beauty Supplements) -1.8%, Hobby&Fashion -13.3%
- Apparel -12.5%, Toys”R”Us -18.3% → SKU reduction (26,000 → 16,000 items), inefficient area reduction
and expansion of lease-out to mass attraction tenants
▶ Overseas SSSG: +4.3% YoY (1Q19)- Indonesia +2.2% (Wholesale +1.8%, Retail +3.8%), Vietnam +9.8%
▶ Operating profit increased through decreased SG&A (-12.1 bn KRW YoY)- SG&A decreased by -6.3 bn KRW YoY via new accounting standard adoption (K-IFRS 1116 leases)
- Advertising&Promotion fee -2.3 bn KRW YoY (Inefficient advertising reduction) Utility expense -2.1 bn KRW YoY (High efficiency facility investment), etc.
▶ Operating profit increased driven by strong SSSG trend
- Indonesia : Operating profit increased via favorable SSSG trend
(2.4 bn KRW → 3.7 bn KRW, +52.7% YoY)
- Vietnam : Operating profit increased driven by strong SSSG trend
(3.5 bn KRW → 6.7 bn KRW, +93.2% YoY)
※ Royalty fee payment to HQ : Indonesia wholesale 1.4 bn KRW(+0.4 bn KRW YoY),
Vietnam 0.6 bn KRW (+0.2 bn KRW YoY)
② Hypermarket
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③ Electronics (Hi-Mart)
1Q 2018 1Q 2019 YoYRevenue 952 1,037 8.9%
Operating Profit 41 4.3% 24 2.3% -41.3%
EBITDA 53 5.6% 55 5.3% 3.7%
Net Profit 30 3.1% 15 1.5% -48.4%
※ 464 Stores (as end of 1Q19)
▶ 1Q19 Revenue growth: +8.9% YoY
- Total of 464 stores (+1 store YoY)
- Strong sales growth in air-pollution related home appliances
(Air purifier, dryer, air conditioner, etc.)
- Significant sales growth in online mall +58% YoY
(1Q19 online sales proportion : 12.0% out of revenue)
▶ 1Q19 Operating Profit growth: -41.3% YoY
- Decline in gross profit margin due to increased online sales and aggressive promotion events
- Operating profit decreased due to increased SG&A
※ Labor cost increased due to basic salary increase and additionalpersonnel employment regarding 52-hour maximum workweek introduction
※ Increase in payment commission such as credit card commission feeand online related service expense due to increased sales revenue
Key Strategy
▶ Online business expansion through product portfolio diversification
(Unit: billion KRW)
Analysis
▶ Omni-store expansion through store renovation
(12 stores as end of 2018 → 20 additional stores opening plan in 2019)
▶ Premium products enhancement focusing on large-size home appliances
- Display system improvement of premium items
▶ Profitability improvement through exclusive product offerings
- HIMADE(PB) : Product competitiveness enhancement
- Exclusive products expansion (NPB, etc.)
▶ Offering Residential related electronic & home appliance
maintenance services (Home care services)
- 20 service items in 2018 → Aim to operate 23 service items in 2019
→ Expand more service items of home renovation and home interior
2017 2019(E)
Non-home appliances
Home appliances
Total
Expansion of non-home appliances such as home interior items, etc.
2018
[Unit : Ten Thousand]
311 5
41
9
91
14
46
100
[Online SKU] 8
9
④ Supermarket
1Q 2018 1Q 2019 YoYRevenue 490 474 -3.2%
Operating Profit -10 - -17 - -
EBITDA -4 - 4 0.9% -
▶ SSSG: +1.9% YoY (1Q19)
- Fresh Food +4.5% (Fresh Meat +13.3%, Convenience Food +10.8%,
Agricultural Food +1.5%, Seafood -1.4%)
- Processed Food&Household Goods 0.0%
(Daily Food +2.4%, Processed Food +1.6%, Household goods -7.6%)
- Total of 555 stores (-15 stores YoY)
▶ Operating Loss increased
- Operating loss increased due to decreased revenue regarding undergoing store restructuring work (Store closures and renovation)
▶ Earnings improvement expected in 2H19 through sales recovery and cost optimization
(Unit: billion KRW)
※ 555 Stores (as end of 1Q19)
Analysis
Key Strategy
▶ Sales recovery strategy - Store closure of underperforming stores and new store openings
▶ Cost optimization
2018 Year End
2019 2019YearEnd1Q 2Q 3Q 4Q
# of stores
557+2
(-4)
+10
(-8)
+12
(-6)
+14
(-6)571
Total 557 -2 +2 +6 +8 571
- Ticket price and sales improvement via high efficiency stores enhancement
- Product structure innovation (Sourcing structure improvement, cooperation with Lotte affiliate companies)
- Sales recovery and profitability improvement through PB expansion
▶ Online business strategy
- Online-only service enhancement
: Expansion of available early morning
delivery areas
: Product portfolio diversification of
HMR specialty online mall ‘Fresh Cook’
- Online distribution center expansion
# of StoresCoverage
Ratio
2018 2019 YoY YoY
Seoul Metropolitan Area
9 14 +5 92.0% +2.2%p
Other Regional Areas
6 7 +1 62.9% +5.0%p
Total 15 21 +6 77.7% +3.6%p
Accounts Description
Labor Cost
ㆍHQ staff downsizing and efficiency
improvement of store workforce
ㆍDelivery fee reduction via
streamlining store delivery service
Logistics
Fee
ㆍExpansion of integrated delivery
services among small size stores
ㆍDesignation of main logistics centers
in each regional areas and
automated picking system
implementation in distribution
centers
※ Coverage Ratio : Percentage of available delivery area in the region
10
1Q 2018 1Q 2019 YoY
Revenue 530 571 7.7%
Lotte Home Shopping 231 232 0.5%
Lotte Cultureworks 175 201 14.6%
Others 124 138 11.4%
Operating Profit 34 20 -40.8%
Lotte Home Shopping 32 33 4.6%
Lotte Cultureworks 7 8 25.6%
Others -4 -21 -
(Unit: billion KRW)
Cultureworks (Cinema) AnalysisHome Shopping Analysis
⑤ Other Business Units
▶ Gross Profit +4.7 bn KRW, +2.4% YoY
- Strong sales growth in OneTV and online channel: +13 bn KRW YoY
(30 bn KRW → 43 bn KRW, +43.3% YoY)
- Mandatory expansion of TV production time for small-medium
size enterprises impact : -2 bn KRW YoY(-0.6 bn KRW a month)
▶ [Domestic]
- 1Q19 Revenue growth +13.1% YoY ※ Total 96 movie theaters (+5 theaters YoY)ㆍMovie theater business : Increased box office sales (+12.9%)
driven by increased number of visitors(Number of visitors to domestic movie theaters in 1Q19: +7.3% YoY)
ㆍInvestment & distribution business : Increased revenue (+13.6%)driven by major hits from invested films
- 1Q Operating profit increased via increased number of visitorsand major hits from invested films
▶ [Overseas]
- 1Q19 Revenue growth +39.8% YoY ※ Total 42 movie theaters (+9 theaters in Vietnam YoY)ㆍIncreased revenue via new branch openings in Vietnam
- 1Q19 Operating loss increased due to increased SG&A from
newly opened branches in Vietnam (+9 stores YoY)
▶ 2019 2H Outlook- [Domestic] 5 new branches opening (Directly managed, Consignment)- [Overseas] Expected profit growth with local movie releases and 1 new branch opening
▶ Gross Sales +103 bn KRW, +11.9% YoY
- OneTV(TV-Commerce) +54.6 bn KRW, +128.8% YoY
(TV-commerce broadcasting channel expansion)
- Online +30.6 bn KRW, +14.5% YoY
- TV +19.9 bn KRW, +3.3% YoY
- Lower growth rate of revenue compare to gross sales due to increased portionof low-margin products (Rental, environment related home appliances, etc.)
▶ SG&A +3.2 bn KRW, +1.9% YoY
- Promotion fee +2.6 bn KRW YoY (Increased customer reward event)
- Broadcasting fee +1.3 bn KRW YoY
(TV-commerce broadcasting channel expansion)
1Q 2018 1Q 2019 YoY
Operating Profit 221 205 -7.1%
Net Interest Income & Expense -34 -91 -
Gains on Foreign Currency & Derivative Asset -10 -6 -
Other Non-Operating Profit -3 -3 -
Equity Method Gain & Loss 7 5 -25.0%
Profit Before Tax 182 111 -39.2%
Corporate Tax 69 23 -66.2%
Discontinued Operation -124 21 -
Net Profit -10 109 -
3. Non-Operating Profit(Unit: billion KRW)
Non-Operating Profit
▶ Profit & Loss of Discontinued Operations
- 1Q18 : -123.7 bn KRW
※ China Hypermarket business withdraw impact, etc.
- 1Q19 : 21.5 bn KRW
※ Provisions reversal regarding China Hypermarket sell-off, etc.
▶ Interest Income & Expense
- Increased interest expense due to new accounting standard
adoption(K-IFRS 1116 leases): -52.9 bn KRW YoY, etc.
11
4. Equity Method Gain & Loss (Major Companies)
* FRL Korea, founded on 16th Dec, 2004, imports and distributes clothes, accessories, and ornaments of UNIQLO brand in Korea. It operates through a network of 188 stores as
of the end of 1Q 2019. Fast Retailing Co., Ltd.(Japanese company) and Lotte Shopping Co., Ltd. own 51% and 49% stake of this company respectively.
** ZARA Retail Korea Co., Ltd. was established on 29th Oct, 2007 for clothing trades and wholesale/retail sales. It operates through a network of 40 stores as of the end of
1Q 2019. Industria de Diseno Textil, S.A.(Spanish company) and Lotte Shopping Co., Ltd. own 80% and 20% stake of this company respectively.
12
2015 2016 2017 2018 1Q 2018 1Q 2019 YoY
FRL Korea*(Lotte: 49.00%)
Revenue 1,107 1,209 1,330 1,419 245 263 7.2%
Operating Profit 132 127 224 238 20 13 -35.1%
Net Profit 92 105 168 188 10 10 -2.0%
Equity Method Gain&Loss
45 51 82 92 5 5 -2.0%
ZARA Retail Korea**(Lotte: 20.00%)
Revenue 294 341 354 367 83 85 2.3%
Operating Profit -4 21 15 16 -5 1 -
Net Profit -5 17 13 15 -6 -4 -
Equity Method Gain&Loss
-1 4 3 3 -1 -1 -
(Unit: billion KRW)
LOTTE SHOPPING CO., LTD. Appendix
Income Statement
Balance Sheet
Store Network
Overseas Hypermarket
E-Commerce Strategy
13
1Q 2018 1Q 2019 YoY
Revenue 4,334 (100.0%) 4,447 (100.0%) 2.6%
[Gross Sales] 5,890 - 5,950 - 1.0%
Gross Profit 1,853 (42.8%) 1,841 (41.4%) -0.6%
SG&A 1,632 (37.7%) 1,636 (36.8%) 0.3%
Operating Profit 221 (5.1%) 205 (4.6%) -7.1%
EBITDA 387 (8.9%) 543 (12.2%) 40.2%
Profit Before Tax 182 (4.2%) 111 (2.5%) -39.2%
Continuing operations 114 (2.6%) 88 (2.0%) -22.9%
Discontinued Operations -124 - 21 (0.5%) -
Net Profit -10 - 109 (2.5%) -
Net Income of Controlling Company
-36 - 89 - -
Net Income of Minority Interest Equity
26 - 20 - -
Income Statement (Consolidated K-IFRS)(Unit: billion KRW)
14
15
2015* 2016* 2017** 2018 1Q 2019***
Total Assets 40,693 41,916 27,948 26,259 33,073
Cash &Cash Equivalent
3,036 3,185 3,711 2,710 2,815
Inventories 3,266 3,324 1,354 1,267 1,425
Land & Buildings 13,052 13,115 12,677 12,425 12,373
Financial Lease Asset*** - - - - 7,090
Liabilities 23,605 24,652 14,597 13,832 20,667
Borrowings & Bonds 14,084 14,483 7,668 7,795 7,607
Lease Liability*** - - - - 6,607
Equity 17,088 17,264 13,351 12,427 12,406
Share Capital 158 158 141 141 141
Balance Sheet (Consolidated K-IFRS)(Unit: billion KRW)
* K-IFRS. 1018. (Old standard)
** Significant changes in financial numbers due to holding company establishment in 4Q17 (Investment entity of Lotte Shopping was merged into holding company)
*** As of 1Q19, use rights of tangible & intangible assets and rents of borrowed assets under the signed contract are recognized as assets and liabilitiesrespectively due to new accounting standard adoption(K-IFRS 1116 leases)Despite the rise in debt-to-equity ratio, there is no concern of downgrading credit rating since global credit rating companies already have applied the above accounting policies
Domestic 2017 Year End
Total
2018Year End
Total
2019 2019Year EndTotal(E)1Q 2Q(E) 3Q(E) 4Q(E)
DepartmentStore
Full-line Store 30 31 -2 29
Franchise Store 3 2 1 3
Young Plaza 2 2 -1 1
Outlet 21 22 22
Total 56 57 55 55
Hypermarket 123 124 126 126 127 126 126
Overseas 2017 Year End
Total
2018 Year End
Total
2019 2019Year EndTotal(E)1Q 2Q(E) 3Q(E) 4Q(E)
DepartmentStore
Russia* 1 1 1
China 5 4 -2 2
Vietnam* 2 2 2
Indonesia 1 1 1
Hypermarket
(Supermarket)
Vietnam 13 13 1 2 2 18
Indonesia 46 47 -1 2 3 51
Wholesale 29 31 2 3 36
Retail 17 16 -1 15
(2) (1) (1)
Store Network
* Including equity method stores (Moscow, Ho Chi Minh)
※ China Hypermarket sell-off transaction completed in 3Q18
16
'16年 '17年 '18年 '18.1Q '19.1Q
Overview
17
Overseas Hypermarket Earnings
Overseas Hypermarket revenue accounts for 21.3% of total revenue as end of FY18,
79% of which came from Indonesia, and 21% from Vietnam
1Q18 1Q19
1Q18
FY16 FY17 FY18
Overseas
Domestic
Indonesia
Vietnam
FY16 FY17 FY18
Lotte Shopping’s Hypermarket business began its overseas operations by entering China, Indonesia, and Vietnam and has been
one of the most active domestic retail companies for overseas hypermarket business. In 2008, Lotte Shopping entered the Southeast Asia
region for the first time as a Korean retailer through the acquisition of Makro in Indonesia and opening the first store in Vietnam.
However, in September 2018, Lotte Shopping has decided to withdraw its China Hypermarket operation to improve overseas business efficiency.
Following the withdrawal of China Hypermarket business, Lotte Shopping has been enhancing its overseas business focusing on
Southeast Asia backed by strong growth trend in Indonesia and Vietnam.
Overseas Hypermarket
Indonesia Hypermarket earnings declined over the past three years due to
sluggish sales trend in retail division. However, 1Q19 earnings has turned
around via closing underperforming stores and wholesale division enhancement
Overseas Hypermarket operating profit has been growing rapidly.
Especially in 1Q19, OP was increased by +76.7% YoY with an OPM of 3.0%
Vietnam Hypermarket earnings has been continuously improving over the
past three years. Especially in 1Q19, OPM reached 7.8%
Market Outlook & Key Strategy
● Market Outlook
1. Stable Economic Growth
2. Rise in minimum wage → Increased purchasing power,
customer emphasis on brand products, health and convenience
3. Online market growth (2018~2022 Estimated CAGR +23%)
4. Increasing market share of small-size stores among offline retails
[GDP] [CPI]
1. Stable Economic Growth
2. Increase in household consumption, customer interest in
malling culture, convenience and value consumption
3. Online market growth based on mobile (2018~2022 Estimated CAGR +35%)
4. Rapid growth of CVS among offline channels (+24% YoY in 2018)
[GDP] [CPI]
1. Sales Network Expansion
2. Product Competitiveness Enhancement
ㆍ Fresh food enhancement(Local buyer expansion, direct sourcing expansion through contracted farm enlargement)
ㆍ PB expansion (Signature item development, non-food category expansion)
Wholesale Retail
StoreOpeningStrategy
Selective new store openings※ Securing investment resources through
selling land in saturated areas
Store closures of underperforming stores
Profit oriented management
Business Expansion
B2B expansion
① Investment in small boutique stores
: Supply of exclusive goods,
delivery/payment system improvement
‘iLotte’ O2O expansion
① Expansion of available online delivery areas : JakartaOnly → Expand to island areas
② Partnership with key players: Delivery (Grab), Fintech, etc.
ㆍ Global sourcing expansion (Sourcing diversification and expansion
of direct sourcing from overseas factories)
1. Sales Network Expansion
2. Product Competitiveness Enhancement
ㆍ [Offline] New store openings in major cities, store-size diversification
ㆍ [Online] Partnership expansion of mobile delivery app ‘Speed L’
(Launched in June, 2018)
- Providing speedy delivery service of fresh food
- Partnership with Grab(delivery)
※ Currently offering speedy delivery service (1 hour delivery) for the first time in Vietnam Hypermarket industry as of Sept, 2018 through partnership with Grab
ㆍ Fresh food improvement
(Expansion of direct sourcing and local sourcing in Hanoi area)
ㆍ PB expansion (Customer credibility improvement via PB sales improvement)
ㆍ Meal Solution(HMR) enhancement (Bakery, Sushi, Delicatessen)
- Completed bakery store consultation (5 stores → all stores in 2019)
- Sushi enhancement through cooperating with Lotte Legend Hotel chef
Overseas Hypermarket
18
● Key Strategy
※ iLotte : Lotte Group’s local online shopping mall (Currently operating a 50:50 joint venture company ‘Indo Lotte’ between Lotte and Salim Group of Indonesia
ㆍ38 million Lotte membership membersㆍNation-wide offline network (12,900 stores)
(CVS 9,500 stores, Supermarket 1,600 stores, etc.)
ㆍLaunched Lotte Group’s integratedlogistics company (Merged Lotte Global Logistics and Lotte Logistics)
Online Integrated Log-in Service ‘Lotte On’ and Key Strategy
19
[Lotte World Mall] [Dept. Store]
- Connecting 7 different Lotte applications- Integrated log-in service, UI, searching,
and recommendation
● Online & Offline Marketing
● Lotte ON (Launched on 28th, Mar, 2019)
Aug, 2018 Mar, 2019 Mar, 2020
ㆍ Logistics, delivery, payment system integration
ㆍ Advanced customized searchingㆍ O4O innovation stores, etc.
● Integrated APP (Scheduled to release on Mar, 2020)
- All Lotte products available in one application, - Integration of payment system, recommendation, searching and customer service- Efficiency improvement through open market platform
establishment, online CS operation, and big data integration
Description
Customer Management
ㆍCustomer data integration (Offering membership service)
ㆍLock-in customers via paid membership program introduction(Free delivery service, offline store benefits, etc.)
Products
ㆍProduct portfolio expansion (Fashion, Home appliances&electronics, etc.)
ㆍOpen market platform introduction (e-Market Place)
ㆍC2C Business (flea market, etc.) app development (E.g. Japan Mercari)※ Currently operating flea market in Lotte.com → Separate APP establishment
Technology&
Administration
ㆍVoice Commerce platform establishment via AI device introduction
ㆍCustomized shopping offering through advanced shopping advisor
ㆍBackoffice integration of 7 channels (Department Store integration completed)
E-Commerce Strategy
- 「LOTTE ON」 (1st, April ~ 21st, April)
→ Took 1st place on portal site real-time
search on the first day of the event
- Advertisement in offline stores
Performance YoY
Monthly Active Users (Mobile) 3.9 million users +60.3%
Gross Merchandise Volume 468 billion KRW +23.7%
Number of new subscribers
415,000(Monthly)
Month overMonth
+12.4%
● ‘Lotte ON’ performance (1st, April ~ 30th, April)
※ 2018~2023 CAPEX(E) : 800 bn KRW(Integrated APP 200 bn KRW, AI 80 bn KRW, Logistics 520 bn KRW)
Lotte Shopping has launched an integrated log-in service APP of 7 different online channels in Mar, 2019, and the fully integrated retail
APP will be introduced in 2020 with an advanced service offerings. We aim for further growth through O4O strategy, linking online and
impressively superior offline infrastructure, voice-commerce implementation, and providing differentiated shopping convenience to customers