Retail war deepens

Lotte plans to build giant outlet in Busan

The country’s two largest retail giants will face off again in Busan.

Lotte, the biggest retail chain, and its major rival Shinsegae have engaged in fierce competition for years to gain the biggest slice in industries such as department stores, discount stores and outlet malls in Seoul and nationwide.

Busan is the country’s second largest city with nearly 3.6 million people. Experts said whoever wins in the two-way race will see a big leap in their bottom line amid sluggish growth in the face of the prolonged economic slowdown.

The showdown started with Lotte’s expansion plan centered on Busan. The firm said Wednesday that it reached an agreement with the Busan government to build a giant outlet mall in Gijang, on the northeastern edge of Busan. The mall will be built on a 53,000 square-meters plot by 2015 to become the biggest outlet mall in the country.

“We have high expectations for the mall,” a Lotte official said. “Successful performance of the new store will help make Lotte a leading player in the retail industry in Busan and its surrounding areas.”

Shinsegae that operates one department store and one outlet mall there openly expressed discontent about the plan, citing the location of the envisioned mall.

The land reserved for the Lotte outlet mall is located only eight kilometers away from Shinsegae’s department store and 14 kilometers from its outlet mall. Given that an outlet mall normally attract customers living dozens of kilometers away, the three stores will have an overlapping customer base starting 2015, analysts said.

“It’s still too early to say how much impact the Lotte outlet mall will carry on us,” a Shinsegae official said. “To be honest, however, it’s not good news at all.” The official didn’t rule out positive side of Lotte’s expansion, saying “it will make the pie bigger.”

A Lotte official said it is inevitable that the two retail giants will enter into a tougher marketing environment.

Market observers cautiously raise the possibility that the new mall will further deteriorate the already troubled ties between the two companies.

Their relationship turned ugly in early September after Lotte won the right to purchase a 77,800 square-meter plot belonging to the state-owned Incheon Terminal Complex in Seoul that includes a seven-story building currently occupied by Shinsegae.

The deal worth 875.1 billion won ($786 million) is set to be finalized by January and, if Lotte buys the property from Incheon City, Shinsegae will have to pay rent of some 15 billion won to its archrival each year until 2017 when its lease expires and move out that year. Lotte is expected to open its department store there around the same time.

Shinsegae, calling the deal a “grave violation” of business ethics, has filed a lawsuit against Incheon, demanding the city withdraw the right given to Lotte.

Incheon has decided to sell the state property to help resolve its chronic financial difficulties.

Shinsegae opened the department store there 15 years ago based on a long-term rental contract with Incheon. The Incheon store posted 760 billion won in sales last year, accounting for 14 percent of the entire sales of Shinsegae Department Stores nationwide. <The Korea Times/Park Si-soo>