Retailers suffer growing losses from ill-timed deals
Major retailers — such as Lotte, Shinsegae, Hyundai and GS — have suffered snowballing losses in the wake of their ill-timed acquisitions of once-red-hot companies during the COVID-19 pandemic era, leaving them in a growing dilemma over whether to pursue an exit strategy, according to industry officials, Monday.
According to the four major retail firms, they faced an accumulated paper loss of more than 500 billion won ($375.6 million) last year due to what is widely viewed as excessive investment in firms that had previously seemed promising during the pandemic years of 2021 and 2022 when investor sentiment reached its peak.
Lotte Group’s affiliates reported a paper loss of more than 188 billion won in 2023, stemming mostly from untimely investments. In 2022, Lotte acquired the management rights to convenience store chain Ministop, but it ended up incurring 64.4 billion won in amortization of goodwill. Lotte Shopping, a key retail affiliate of the group, also lost
over 53 billion won on valuation of equity investment for Hanssem, a home furnishing firm.
This is the case for other retail giants. Shinsegae Group had to endure goodwill amortization worth approximately 160 billion won, hit by the falling value of Gmarket — operated by E-Mart, an affiliate of Shinsegae. The retailer acquired the e-commerce firm for 3.44 trillion won in 2021, with hopes to expand its presence in the then-promising online shopping sector, as the pandemic shock increased demand for e-commerce.
GS Retail also incurred losses of more than 117 billion won last year for its untimely acquisition of
Yogiyo, a food delivery app. The retailer purchased a controlling stake in the company for over 300 billion won in 2021 on hopes for its sustainable growth sparked by then-rising demand for food delivery services.
GS is in an internal dilemma over the falling market share of Yogiyo. According to data from Mobile Index, an app data analysis firm, the market share for Yogiyo is on the decline amid fierce competition posed by Coupang Eats. Yogiyo is the nation’s second-largest food delivery app, but its status is being threatened by Coupang.
As of December 2023, the number of Yogiyo’s monthly average users (MAU) came in at 5.83 million, down by 15.6 percent from the previous year. This was in contrast to the steep growth of Coupang Eats which saw its MAU soar by 35 percent during the same period.
Hyundai Department Store increased its goodwill amortization on Zinus — a mattress manufacturer —to 40 billion won in 2023, doubling the figure from the previous year. The department chain operator acquired a 38.1 percent stake in the company at 879 billion won in 2022 when the firm made headlines for its unmatched popularity in global e-commerce channels such as Amazon. But Zinus’ operating profit ended up suffering a sharp decline of 72 percent in 2023 from a year earlier.
Industry officials said the retailers would have no choice but to wait for the market to bounce back.
“As the economy entered a cycle of downturn in 2022, most companies which made similarly excessive investments during the pandemic are paying the price for their illtimed investment,” an official from a major retailer said. “But there is no clear exit in sight for the time being until the overall market sentiment takes a turn for the better.”