The full market liberalization on the Korean economy in 1996 has a significant effect and has restructured the retail industry to be more efficient. Whereas such liberalization has been evaluated generally positive in terms of economies of scale, intensified competitiveness level, technology innovation, and management efficiency, which determining an enhancement in the total factor productivity of retail industry in Korea.The retail industry has now become crucial as one of nation`s growth engine in Korea providing market to manufacturers and logistics and also playing the role of delivery window for nearly 50 million Koreans.
Strategically situated at the crossroads of trade and transport routes in Northeast Asia, Korean market has been attractive as a target country for FDI. In the domestic market, since mid 1990s foreign direct investment (FDI) inflow in Korean service industry has been increasing while its share in manufacturing has been declining. The strong purchasing power has put Korean consumer in the top of range in Asia. The country’s generally wealthy educated base consumers with more sizable middle-income classes are used to exceptionally high customer service levels, and rate price below convenience, quality and choice. The revenue of domestic retail market has been forecasted to attain about KRW183 trillion which increase up to 3.2% from 2008 with the non-store retailing industry and discount stores showing strong growth.
Likewise, large conglomerates, often known as “chaebols”?, own diversified business units, and all of them merchandise everything from discount items to luxury goods through various retail outlet options. Their dominance has been characterized Korean retail distribution industry. It is also worthy to note that retailing in Korea contributes for approximately 10% of GDP and 19% of employment (Suh 2003). Naturally, the capital increase contributed to the rapid economic growth, consequently boosted production and consumer expenditure, causing the consumption increase. Korea has been portrayed as a country with a strong consumer base. The Koreans who are savvy consumers, their spending have remained a major contributing determinant in the growth of the domestic market. Therefore, it would be impossible to demonstrate a clear understanding of the Korean economy without considering the distribution sector.
Upon reviewing relevant literatures, it is widely accepted that Korean retail industry has been mature and very competitive market. In addition, it has acknowledged that only a few foreign retailers dominate the domestic market which creates fierce competition among local and foreign retailers. This resulted in withdrawals of global leading retailers such as Wal-Mart and Carrefour from Korean market. These have produced growing interests of many researchers to examine the cases. The main target of those researchers is to prove that successful penetration in Korean distribution sector does not necessarily guarantee success in business, and also success which is granted in a home country or globally might not exist in Korean market (Joe and Kim 2007). The failure of those multinational retailers has led to growing number of cross-border merger and acquisition (M&A) activities (Yeo et al. 2008). In such unfavorable condition, the strategy of merger might be much preferred such as the merger between Tesco and Samsung which could stimulate the innovation in the retail development in Korea. With regard to retail business competition after liberalization, it requires Korean’s government supervision to intensify the existing regulation for the benefits of retailers, suppliers and customers and helping small and medium-sized (SMEs) retailers to enhance their competitiveness.
The market liberalization in Korea was inevitable helpful for Korean retailers’ success. As it helps to expand their business and seeks opportunities in foreign markets abroad. This trend has allowed Korean retailers a) to take advantage of new opportunities both in products improvement and process; b) to capture information and to learn strategies developed abroad. As a result, the successful retailers have spread their formats, brands, concepts in all over countries. Because of the very reasons, retail business preserved itself as great potential market.
In the mean time, the Korean retail industrial structure has changed and become more advanced nationwide and worldwide stressing to greater competitiveness and higher productivity that make this a particularly interesting thing to study. Prior studies on Korean retail industry however have focused in general on the dramatic increase of Korean retail sector development. However, this study focuses on the exploratory examination of discount grocery stores with special attention to retail internationalization of Korean retailers.
In order to conduct a proper analysis of the Korean retail industry, this study will adopt a qualitative approach. Also, this study will provide a competitive analysis of retail sector in Korea. To address the importance gaps discussed above, the Michael Porter’s framework of competitive and industry analysis known as “the five forces of competition model”? is used on examining the Korean retail industry. This work will allow consideration of how retailing contributes to Korea competitiveness now, how this might change in the future and what needs to be done to maximize the full potential of the sector for the mutual benefit of retailers, suppliers and customers. Furthermore, this study reveals the evolution in the post-liberalization subsequently after the 1997 Asian financial crisis, considering that it is the most important critical point of retail development in Korea.
In line with this aim, the study proposes two objectives: 1) to analyze the competitiveness of the retail industry in Korea post liberalization through Porter’s 5 Forces and to summarize the key issues facing the industry; 2) to provide recommendation for industry and government. Hence, the main questions of this research are: 1) how has the performance of retail industry been in Korea after trade liberalization? 2) What is the relevance of Porter’s 5 Forces model in explaining the attractiveness of the retail industry in Korea? 3) What’s the implication for the industry and the government? This study outlines a comprehensive overview of the retail industry’s development in Korea and focuses on the discount stores as the most leading retail format. The result obtained in this study could provide valuable insights for global retailers willing to develop and expand the business in Korea. The study will also be a considerable interest not only to individual retail companies in Korea in order to develop appropriate strategies, but also to researchers wishing to extend the knowledge base of Korean retail industry. Consequently, the main hypothesis of this research is: Korean retail industry possesses a competitive structure in both domestic and global market.
Data for this study were obtained from the company websites, research institutes, Korean government and agencies, international institution such as Organisation of Economic Cooperation and Development (OECD), published journals and newspaper articles. The remainder of the study is organized as follows. The literature on Korean retail industry and the 5 Forces conceptual framework are reviewed in Chapter 2. The analysis of Korean retail industry using the framework is described in Chapter 3. Chapter 4 discusses the findings of the study and proposes a number of important implications. Finally, a summary of conclusion is discussed.
Retail sector stimulates production activity in supply chain such as fostering the creation of wider goods and services which have a high value-added and considering the adoption of information technology for production and operation efficiency with quality standards and management skills. Strong retail performance, in turn, helps enhancing international competitiveness and productivity, reduce transaction costs, and finally contribute to economies of scale. This chapter provides an overview of Korean retail industry and retail internationalization.
Korea’s retail industry is regulated by the Korean Distribution Industry Promotional Act, which is enforced by the Ministry of Commerce, Industry and Energy (MOCIE). Prior to the 1990s, the retail distribution sector represented as the most backward and the least productive sector in Korea. In line with global development, Korea’s retail ind ustry has brought extensive changes after joining the World Trade Organization (WTO) in 1996. Within the implementation of General Agreement on Trade in Services (GATS) and the accession to the OECD, Korea was strongly committed to liberalize the retail industry in 1996 which induced multinational retailers to operate business in Korea and buy land in Korea for store construction without limits as to their operation on the number or the size of their establishments. The financial crisis of 1997 also brought notable changes in the emerging discount stores due to consumers’ preference to low price merchandise.
The government liberalized the market to foreign investors in three stages. In 1989, the Korean government opened the wholesale and distribution technology industry. In 1991, the retail industry was opened with a maximum of 10 stores with 1,000 square meters or less of floor space for each foreign-invested company. The third stage occurred in 1993 when the limit of outlets per company was increased to 20 and 2,000 square meters for each store was allowed. As of 1996, the Korean distribution service sector was fully liberalized with no limits on the number of stores and its size (Sternquist and Jin 1998). Thus, in Korea, discount store establishments typically represent with a space of more than 3,000 square meters. In turn, competition in Korean retail markets changed markedly from a manufacturing sector which once was sustained the country’s economic development priority over the past thirty years to emerge rapidly as competitive distribution service industry when foreign retail companies enter domestic market.
The manufacturing sector has become less favorable while the services sector particularly the wholesale and retail has become more important. As illustrated in Figure 2.1, the number of employment in manufacturing sector decreased while that of in services, particularly in the wholesale, retail, hotel and restaurant business increased rapidly.
Furthermore, one of crucial reforms in the wholesale and retail distribution was the expansion of store and space limits for both domestic and foreign retailers which induced rapid FDI inflow following the liberalization. Consequently, the introduction of new types of retail business and the scale of retailers has increased.
Table 2.1 shows that retail market sales has gradually changed from 2005 to 2009. Hence the performance of retail market might show a promising trend in terms of sales as it influence the increase of discount stores, department stores and supermarkets more than TV/internet shopping businesses. Furthermore, Boylaud and Nicoletti (2001) point out that since market liberalization, retail industry is becoming intensely competitive and has a large number relative formats. Table 2.1 provides the composition of retail formats in Korea from 2001-2007 which has gradually increased in the last few years. Initially the department stores have dominated Korean market; however in 2003 the discount stores have outperformed department stores with the increase of 2.1% from year earlier. The proportion of discount stores has continued to surge progressively while the department stores and others have experienced slow growth.
At the same time Boylaud and Nicoletti (2001) imply that since liberalization, the entry and the exit rates were high among the retailers. Especially, Korea is a unique country where the local retailers dominate multinational retailers. Having invested vigorously in the competition during initial stages, E-Mart has become the number one retailer in Korea. Wal-Mart and Carrefour meanwhile lost their opportunities to lead the market due to passive investment in the beginning of opening market. The retail environment in Korea made it difficult for Wal-Mart to achieve the growth of level and success it desired. The move was also identical for Carrefour because shortly before Wal-Mart’s withdrawal from the market, Carrefour decided to divest its operation in Korean market. In 2006, Wal-Mart and Carrefour, the first and runner up players in the world, have abandoned their operation in Korea. One of the reasons most frequently cited for this top global retailers to exit were both chains failed to localize their system to meet Korean’s consumer demands, such as providing eye-catching display outlets, focusing on food and beverage sections, and positioning strategically near to urban areas (Sung 2008). Indeed, the global retailers conducting retail business in foreign countries should be aware and adaptive to cultural differences.
In addition, the factor analyses of marketing mix investigated (regarding the firms’ operation) encountered missteps in product, distribution and promotion strategies that those retailers could not overcome even the low-price strategy. This means that “a lower price strategy”? only did not guarantee success. Up to present, only Tesco and Costco, the foreign retailers which have remained inroads into Korean market. Both of them have penetrated the market through merger and acquisition with local retailers. Apparently, Tesco has been proven very successful in Korea because its speed adaptation to local knowledge by joint-venture with Samsung Corporation to launch Homeplus chains. Also, Costco appears to have successfully differentiated itself from typical retail entities by sourcing American products for Korean market in the warehouse format. Most notably, the Korean market has offered great opportunity for U.S. retailers to export their goods due to the country’s lack of resources that makes their consumers have heavily dependency on agricultural imports. It indicates that the “glocal,”? a unique combination between global management and adjusting to local style and market reliance has become strategies for foreign retailers to succeed in Korea market.
Among the rapidly growing retail formats, the discount store is one of grocery retail concept and is one of dominant player in the country. With this retail format, global retailer has occupied in the foreign operation in the form of hypermarket and membership wholesale clubs (WMC). Through its modern distribution facilities and cost effective strategies, discount stores have been known can offer lower prices than conventional market.
Traditionally, the retail sector in Korea characterized in a bipolar retail format of small and mid-sized shops such as “mom-and-pop”? stores and department stores. While department store continues to capture middle up market segment, the survival of “mom-and-pop”? stores and traditional market has been threatened since leading discount stores have embraced another format strategy into smaller store in neighborhood area called ‘super supermarket’ (SSM). As the last update, Samsung Tesco has been now operating over 162 SSM Homeplus Express stores while E-mart has had the least number of E-Mart Everyday stores. The expansion of these large chains into the small store arena has led to concerns regarding competition with small store owners, and the Korean government has considered introducing a bill to regulate the opening of small supermarkets.
Although this distribution format has been around for about a decade, the industry has grown at impressive rates. Korea is possibly the world’s most ‘wired’ country with over 90% households having high speed internet access at home and high penetration of cell-phone. With this infrastructure, TV home shopping as well as online shopping malls have grown at impressive rate. TV Home Shopping has expanded at a slow rate fluctuation from USD 1.4 billion in 2005 to over USD 1.5 billion in 2007 (see Table 2.4). The first two TV home shopping operators were LG and CJ, later joined by Hyundai, Woori, and Nongsusan in 2001. While TV home shopping remains a strong and competitive retail channel, the fastest growing channel has been and continues to be the internet.
Meanwhile, the sales from online shopping malls have grown incredibly by more than ten-fold from USD 131 million in 2001 to over USD 15 billion in 2007 during just the last 6 years (see Table 2.5). Although this sales value has increased significantly, the actual number of malls has only doubled in the same length period (Sung 2008). Indeed, this again is due to a number of large online malls being owned and managed by Korean conglomerates, and/or the TV home shopping networks mentioned above, that are dominating the market, leaving only a finite portion to smaller online malls operated by individuals. On that account, it does seem plausible if the product is featured in the top ten malls listed below to reach the majority of online mall shoppers in Korea.
The number of convenience stores operating in Korea has increased due to the stores opening in some cities outside Seoul. The increase in complexes within Seoul and its suburban, such as office, subways stations, parks, hospitals, dormitories, etc. has induced the development of convenient shopping. The GS 25 formerly known as LG 25 is the largest convenience store chain in Korea which has a market share of 46.81% in 2007 (see Table 2.7).
The internationalization of retailing operations is considered as one aspect which is included in retail internationalization conception (Brown and Burt 1992; Dawson 1993; Moore and Fernie 2004) among several other aspects as Clarke and Rimmer (1997) states such as “international sourcing, financial investments by retailing firms in retailing chains operating in other countries, and the cross-border transfer of retail know-how, managerial skills and marketing experience”?. This has emphasized that coping with operating retail business overseas acquires core competencies appropriate for future success.
Table 2.1 describes profiles of the world top 10 largest retailers engage in international operation in 2005 which ranked in terms of their sales volume. Among the world’s largest retailers, Carrefour has led the business with operation in 31 countries in 2005. Furthermore as the world’s largest retailer, Wal-Mart and Carrefour by far accounted for 10% and 3% sales respectively in 2005 (Nord?s et al. 2008, 13). Although there was a dynamic outlook of others to international expansion, it is noted that there were 2 world big companies, Kroger and Target which still depended on their home market, the US. This promising trend means that the internationalization strategy on retail industries has been importantly concentrated by most world largest retailers; it can be more developed in the future to other strong domestic players to more profits in the international market or to respond the limitation in the domestic market.
Apparently, the emergence trend in the retail sector worldwide has shown dramatic improvement. Although the bias started in European countries, it has spread to other continents in particular Asia. With those opportunities, a new developed country like Korea will improve their economy domestically and from the successful experience in home country, Korea has challenged the retail competition in the global market. In the shock of 1997 financial crisis, the domestic retailers are seeking to leverage new opportunities with global retailers at home and abroad. Large retailers has led FDI outflow into foreign countries increased rapidly and the competition between global retailers has intensified.
They undergo increasingly the foreign operation due to the domestic market has reached saturation or limited possibilities for expansion. The international operations have contributed a growing share of their total sales. With the internationalization of retail operation, the sourcing practices have progressively increased as its cost of production is lower which has become primary consideration of the retailers. Sourcing locally is being more structured for a better logistics coordination with compromise to the quality and local taste as well as driving for the consolidation of closer relationship with local suppliers, mainly for food products.
The Korean Government has also encouraged the expansion of FDI which is aimed to control and stabilize the domestic market. Most of successful businessmen are making investments overseas due to the relatively high domestic cost including the labor costs and land prices. Thus going international has been inevitable choice for large Korean retailers to look abroad for business expansion. If domestic stores are added on further, it could lead to higher distribution costs and lower efficiency. Big Korean retail chains may prefer to focus on other markets, such as China, rather than stay in Korea when faced with expansion limitations and China for Korean businessmen has been significant as overseas destination to advance into new markets.
Furthermore, as Burt (1993) and Pelligrini (1994) point out, the nature of investment primarily in domestic market and later international target market will be similar psychologically proximate to domestic market. Likewise, there will be a borrowing concept or technological system base adapted in the new established market. Considering that a source of competitive advantage of retail can be exploited by a secondary market, Vernon (1966) argues that tertiary market or more advanced market should consider innovations in a different method. Moreover, research by Alexander and Myers (2000) suggests that the concept of technology designs in initial market is a basis to advance the market expansion which may affect the international market. Indeed, there will always be opportunities of entering international market to drive technological innovation and services and further to accelerate respond to meet the changing market condition.
The notion of “lean retailing”? itself has become an emerging trend in the last decade which previously has motivated apparel and textile industries. Similarly, since its development worldwide, the internationalization of retail concept is built on the concept of lean retailing. The lean retailing strategy can be regarded as spending less of everything to achieve high advantages for better control over the supply chain. According to Evans and Harrigan (2003,1), the lean retailing may represent model for the interaction of time and location and the linkage between retailers and local suppliers in host countries to the nature of retailing and its operation.
The lean retailing has critically supported business practice by using information technology systems to reduce inventory cost, minimize inventory risks and yields more profit. With low inventories, stores will not be stuck with large amounts of unsold goods even if demand collapses. In turn, with frequent restocking of inventory, stores will maintain stocks’ capability. Lean retailing requires: First, Bar codes, which allow retailers to check out the progress of product value chain from raw material until final delivery to sales stores. Furthermore, Abenarthy et al. (1999) observe that the Bar code can provide precise product identification and be the basis for inventory management. Second, Electronic Data Interchange (EDI) is a linked networks system for business-to-business communications, including purchase orders, shipping invoices and funds transfers. The function is not only to reduce paper use when mailing, but it also reduces costs, time delays, and errors associated with the process (Baum and Perrit 1991). Finally, distribution centers which have replaced the warehouse have rapidly channeled goods from suppliers to sales locations.
The distribution center involves the just-in-time (JIT) supply, and efficiently reduces the inventory process by providing information in real time to suppliers. Since no goods are stored there, the process is transparent due to no degraded goods in distribution center. Under this condition, it can be implied that the work method of distribution center is unique. Typically a retail store received 40 different trucks transporting the goods, but now needs only 5 trucks. It is because the distribution center can draw thousands of goods from suppliers/manufacturers, and then sort them by retailer’s orders. Overall, the lean retailing concept has restructured the entire distribution system and help to manage retail efficiency. The advanced techniques in merchandising and inventory management through enhancing ICT investment infrastructure in this globally competitive market as represented by the lean retailing practices have allowed retailers to emulate success.
The flourish of retail business is subsequently followed by the strong growth of private label (PB) products. In the recent years, PB or ‘store brand’ has become an important component in retailer’s brand. PB is branded and controlled exclusively by retailer. PB is manufactured by retail chains or third party manufacturer. As they deployed effectively, they increase traffic to retail store and lead to consumer store loyalty (Jin and Suh 2005). The PB has enabled the smaller ventures as suppliers to build the partnership with the retailers. The retailers determine the types of products they would consider to make the distinction from the existing products. On the supplier’s side, this collaboration presents an opportunity to simplify the distribution channel, while on the retailer’s side; the PB products will drive more profit margins by selling them under their own brand names at a lower price.
According to Kumar and Steenkamp (2007) there are three types of PB as follows: generic, copycat brands and premium store brands. Generic brands appear with lower price and no frills. This might be popular in the situation of inflation when people hunt products with lower price. Copycat brands may try to imitate a manufacturer product in a cheaper price. Premium store brands is a product that have value added and has price near or higher than manufacturer’s brand.
The frugal consumers have considered PB as industrial/manufacturer brand or store/distributor brand which has pushed the growth of PB. According to ACNielsen (2008), among the Asian countries which have undergone the remarkable growth of PB are Thailand, Taiwan, Malaysia and South Korea with the average growth of PB accounted for 48%, 30%, 21% and 17% respectively. ACNielsen also finds that the entry of global retailers in those emerging countries is strongly affected the introduction of PB. The development of PB and its impact on retail sales are not only based on the retail structure such as national brand shares, retail concentration, advertising, economies of scale and scope and talent brand matters, but also the consumer’s attitude toward the PB products (Jin and Suh 2005). Therefore, examining retail structure and consumer’s preference toward the PB products is necessary to support the retail internationalization’s process.
Most supermarkets chains offer consumers PB products that is manufactured and mass merchandised. Most products that are sold in PB are consumer goods that have characteristic of low risk manufacture, easy to be produced and basic necessities. The most categories of products that have been have been covered full line in PB are: First, products that are made from paper such as kitchen napkin, facial tissues and toilet tissues. The next category is daily necessities of non-food such as cotton and dental floss. And final category is basic needs such as rice, sugar, oil, fresh canned, frozen and dry foods, snacks, ethnic specialties and pet foods. Furthermore, the PB is to leverage the merchandise of generic gods that are less consumed. With the attached PB on the products, the consumers will have confidence to purchase them.
By far, all of the literature reviews highlights the importance of continued research in this area. This study will cover how those global issues affected to Korean retail sector.
In today’s dynamic environment, the competition is more intense and coming from all aspects of worldwide businesses. Apparently in Korea, Korean retail markets are seeing competition growing both from local and global retailers. The aim of this analysis chapter is to describe Korean retail industry through Five Forces Model of Industry Competitiveness of Michael E. Porter. The Porter methodology uses five basic forces, which are diagrammed in Figure 3.1. Porter stated that there are five categories of forces that ultimately drive an industry’s competition and eventually determine the profitability of that industry (Porter 1979).
In this study, the forces are represented by different actors along the supply chain. The determinants of power are the suppliers/manufacturers and the consumers, while the existing competition is presented by retailers between large and small retailers. New entrants in distribution are multinational retailers. Substitute can be represented by relatively new retail format, online shopping malls.
Traditionally, the retail sector in Korea characterized in a bipolar retail format of small and mid-sized shops such as “mom-and-pop”? stores and department stores. While department store continues to capture middle up market segment, the survival of “mom-and-pop”? stores and traditional market has been threatened since leading discount stores have embraced another format strategy into smaller store in neighborhood area called super supermarket (SSM).
Korean retailing is characterized by large discount stores belong to large conglomerates, often known as “chaebols”?. They own diversified business units, and all of them merchandise everything from discount items to luxury goods through various retail outlet options. Due to the increase of discount stores, the competition is more intense and all existing firms compete to expand aggressively to make more share than most of their rivals. The local small-scale merchants strongly resisting the SSMs because the SSMs not only offer a great range of products at low price, but they are also conveniently located inside residential area with close proximity to individual homes.
With regard to the penetration of large retail stores operating to a niche market, SSMs has led to the fiercer competition in neighborhood market. The Korea Chainstores Association, which represents large distributors, and Kosamart Co., representing small merchants urged the government intervention to mediate a solution while a few large firms are going to ahead with launching SSMs in some areas. Table 3.1 shows the number petitions between the small-medium merchants and large firms which have urged the Small and Medium Business Administration (SMBA) to raise the issues as mediator to the local government. The domestic competition between retailers is problematic such as SSMs’ establishment inside residential areas which one hand, SSMs benefits consumers with the range of quality product at affordable prices and somehow lower prices than traditional and small shops. On the other hand, the SSMs stores might pose a threat to small merchants because those neighborhood market chains operated by large retailers could discourage their business operations. The giant retailers also have viewed that the expansion of SSMs has contributed to the job creation in the communities. The SMEs has expected that government can protect them through regulation on business hours and on sales of key products. In addition, they also hoped that there will be a new legislation restricting the opening of new stores.
However, Lee (2009) states that the limit to establish SSM is biased against the WTO’s General Agreement on Trade in Services falling under Article XVII of GATS national treatment rule reads: “Government should not modify the conditions of competition in favor of local service supplier.”? It also states in Article XVI of GATS market access that “There should be no measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service.”? Therefore, practically, regarding the implication of zoning policy which prohibits a common land-use to limit the establishment of new companies such as retail store would constitute a violation of WTO Agreement. This implies that the Government of Korea as a member of WTO must make any effort to establish policies that could strengthen competitiveness and enhance neighbourhood retail environment rather than outlaw the development of SSM.
As Kim (2008) points out the local government has put a lot of concerns to support the existence of traditional markets because of the merchants have become their sponsors when a voting at an election. That has become the reason why the local authorities have put concerted efforts to improve the traditional markets and to control the discount stores’ establishments. As a matter of fact, the expansion of discount stores would continue and the liberalization has made the market at issue.
With full liberalization of Korean service market since 1996, a number of foreign retailers entered into the market, which was ended up accelerating the structural changes of Korea’s retail landscape. Several multinational retailers came to Korea such as Carrefour (France), Makro (the Netherlands), Promodes (France) and Wal-Mart (US), however they were not successful in competing with domestic market. Makro has abandoned Korea after selling its local branches to Wal-Mart, while Promodes was taken over by Carrefour. Carrefour Korea was later bought by E- Land- owned Homeever, and even Wal-Mart Korea was acquired by Shinsegae-owned E-Mart. As last update, only Tesco (UK) and Costco (US) have remained.
Many experts foresaw that those multinational firms would dominate the industry in short time in terms of their ability to raise more capital and solid brand recognition. But when the experts saw its development in a decade later, they were all astonished and amazed because of the competitive structure of Korean retail industry (Suh 2004). Even though those top global retailers were equipped by the sophisticated management strategy and expertise in their foreign operation, at that time they were still experiencing severe competition with local retailers. As shown in Table 3.2, three biggest local chains, E-Mart, Lotte and Homeplus were increasingly going steady with their operation, while Wal-Mart and Carrefour experienced difficulty in terms daily sales per unit space which meant location quality.
Local retailers have strategically located their stores since early stage liberalization. Accordingly, when the liberalization began the Korean retail industry has approached a saturation point. Due to most Koreans purchase smaller units in frequent basis, store location has become major factor to be easily accessible in a walking distance to the store. Wal-Mart Korea had only 16 stores nationwide with only one store in Seoul area and could not enjoy the economies of scale. Besides, they apply western retail style in the bulk warehouse format to Korea with their strategy of “everyday low price”? (EDLP). In contrast, even with the low-price strategy, the products in warehouse display could not attract Korean consumers. Korean would rather to purchase goods in a more convenient, spacious and pleasant environment which provide fine quality products. Also, they did not focus to food and beverage section which was considered undesirable to Korean consumers. Korea is a country with high context culture, the consumers assume to see local products in the stores. To illustrate, it can be seen that in most discount stores display Korean brands which have dominated among the western and imported products. Also, Koreans are recognized to have different consumer preferences; they pick items only when fresh, like fresh vegetables and fresh food. That is why the traditional markets still survive along with the stiff competition against the modern market. In brief, top global retailers have exit Korean market due to failure to localize their system in order to meet Korean’s consumer demands, such as providing eye-catching display outlets, focusing on food and beverage sections, and positioning strategically near to urban areas (Sung 2008).
Korea is well-known as one of the most advanced broadband adoption worldwide with over 70 percent population. The internet shopping or cyber malls have already outperformed TV home shopping in sales (see Table 2.4 and 2.5). The purpose of this online shopping is to yield huge profit and to attract wider customers, especially females. Furthermore, internet shopping has created threats to existing non-home shopping retail business. The industry provides to the consumers demands for a large array of food products at low-cost. As major discount stores have widely embraced online shopping, this business needs flexible delivery. Due to their nationwide presence they offer deliveries to the shopper from local stores at a convenient time. Like E-Mart online shopping mall, since retail distribution center is located at their offline sites, customers can exchange products that were purchased online at local branches around the country as well (Chang 2006).
In this section, the focus is about marketing strategies which retailers use for getting more customers with their various events, sales promoting and pleasant shopping atmosphere.
As purchasing power increases, there have been lifestyle changes of interest in western style, well-being products and shopping environment for Korean consumers. A research by Jin and Kim (2003) indicates that the Korean shopping motives has related to the time and money during shopping trip. Furthermore, Dawson et al. (1990) found that consumers who allocate more time during the shopping trip has arisen wishes to explore the shopping environment. Since they have more money they will spend more time and money during shopping time. Discount stores have regarded consumers as the kings as they are improving their services and shopping atmosphere to please the customers. The food court, nursing room, kids’ longue, dry cleaners, ATM machines, and parking facility are easily found in almost discount stores. Apparently, E-Mart uses a promotion strategy like fancy display and also an employee who welcome the customers with a deep bow. Moreover, the competitive factors to Korean discount stores’ success over multinational discounters are instant cooking demo for Korean traditional cuisine in front of customers and providing fresh vegetables (Jin and Kim 2003). Despite this strategy, however, all discount stores develop strategies for better products and more comfortable stores, and also tried to attract consumers with various events and sales promoting.
To not to lose the chance in Korean market, Homeplus has conducted a mature concept for their marketing strategy by introducing a more developed concept known as “third-generation”? concept for the Jamsil branch in 2007, and would renew all existing outlets as represented by the Jamsil branch. The concept has been describing as having aesthetically appeal along with services related to services. Whereas the third-generation concept is continuation of previous concepts: first-generation discounters look more like a warehouse, second-generation stores are equipped with a cultural center, a food court, and a children`s play area.
Demographic proximity is one factor that motivates Korean consumers to come to the store in addition to low prices and conveniences (Jin and Kim 2003). As Koreans come to discount stores more frequently, launching stores at lucrative locations and to be easily accessible is so essential. Besides, they do not like to purchase things at one time; they usually come to the store frequently at least to buy one item in a week. For instance E-Mart stores which are generally located in easily-accessible downtown shopping districts in urban areas. This strategy for locating a store also enables it to attract more consumers despite to open store with big parking facilities.
In respond to the increasing westernized consumption styles and price conscious, Korean consumers are buying retailer’s private labels (hereinafter called “PB”?) or ‘store brand’ and foreign goods (Kim 2008 and Cho 2008). Nowadays, the purchase of PB products has surpassed due to economic consideration of Koreans apart from the antecedent of the manufacture brands. As Cho (2008) and Nord?s et al. (2008) point out that with the rise of PB business, the retailers expand product variety, thus the opportunity for consumers to select products in cheaper price has broadened. Private Brand (PB) products have been increasingly popular in recent years. The retailers such as E-Mart and Homeplus generally launch PB as their low-price strategy for the consumers who wish to presume qualities similar to popular brand and cost much less.
Korean retailers are going through the phase of transformation both in domestic and international operations since the liberalization policy of 1996. They undergo increasingly the foreign operation due to the domestic market has reached saturation or limited possibilities for expansion. The international operations have contributed a growing share of their total sales. With the internationalization of retail operation, the sourcing practices have progressively increased as its cost of production is lower which has become primary consideration of the retailers. Sourcing locally is being more structured for a better logistics coordination with compromise to the quality and local taste as well as driving for the consolidation of closer relationship with local suppliers, mainly for food products.
E-Mart has determined business approach to focus only in one overseas market, China. For E-Mart, China can be regarded as an attractive market and bear the resemblance of consumer sentiments to Korean. This does not apply only for E-Mart, but also for other retailers which invested in China. Foremost, the costs of running retail operation to open seven or eight stores in China is only 50 billion won is needed, while 70-80 billion won is sufficient to open only one store in Seoul metropolitan area (Koo 2007).
Since 2003 E-Mart’s extending approach to secure sourcing partners is taking direct purchasing with local manufacturer aiming to enhance the value of the product. In 2008, direct purchasing totaled 110 billion won and featured 305 product categories from every day products, sporting goods and clothing items to agriculture and marine products and processed food. To support overseas marketing, E-Mart has stationed several employees as buyers in China to learn all aspects of possibilities of product development, design, invention marketing and launching new products.
Through aggressive strategic overseas sourcing operation, the retailers will have significant saving opportunities by skipping middlemen (like retailers and distributors) and by improving the supply chain performance notably to secure the PB products. According to Cho (2008) the trend in Korean retailing is the store provision of a wide range imported products under their own PB. The demand of import PB product is strong and growing for Korean consumers due to the reliability of foreign supplier combined with the brand reputation.
China besides India has played prominent role as the top sourcing hubs in retail and consumer sector worldwide. China has remained as number one destination for global sourcing activities. In 2005, there were four out of the five largest retailers in the world had retail outlets in China, and 26 out of the largest 250 retailers (Nord?s et al. 2008). Moreover, Korean consumers’ perception on Chinese-origin food products has been down due to their concerns over the safety issue of Chinese made-in products. In fact, for most Korean retailers such as E-Mart and Lotte-Mart, doing sourcing in China is more preferable in terms of culture and business norms despite its challenge of different suppliers’ capabilities and the quality which is not always fine.
Since cost saving has become a key driver in sourcing, retailers pinpoints China to yield greater control over cost and improve efficiencies of scale in competitive market, better quality products and collaborative supplier relationships. Particularly E-Mart which has foreign market concentration focused in China during a decade, has improved the sourcing program by sending their buyers to overseas market mostly to China as their overseas procurement team so that they can find and compare the suppliers to match with their product requirements. E-Mart implements direct sourcing also from other 18 countries such as Chile and will continue to broaden product categories through manufacturing partners helping to improve its PB quality products and designs or to find new promising items. To date, there are limited numbers of imported products in the Korean retail stores sold under Korean PB, nevertheless with the exception of Homeplus, the retailer sells some imported products from the U.K. under the brand of Tesco.
In addition, Y. Kim (2009) reports that despite its growth, store brands in Korea has been considered relatively weak, compared to those in more advanced markets economies. Korean PB has not yet fully developed due to market had just initiated, thus the retailers can take overseas model as examples. The PB expansion is regarded as an advanced format in retail, thus for Korea markets it is still long way to go comparing the overseas figures.
The PB has enabled the smaller ventures as suppliers to build the partnership with the retailers as well. The retailers determine the types of products they would consider to make the distinction from the existing products. On the supplier’s side, this collaboration presents an opportunity to simplify the distribution channel, while on the retailer’s side; the PB products will drive more profit margins by selling them under their own brand names at a lower price. The retailers will allow the SMEs firms a chance to take advantage in improving the products and stepping into industry. The SMEs need this support because their product will lead the consumers into more product assortments and wider consumer’s segment because they themselves do not yet release public brand recognition. As the PB products are expected to increase in the future, these smaller ventures are going to yield more profit and work harder to meet demand of the market.
In addition, the government has revealed a plan focused on supporting SME retailers by spending 600 billion won ($511 million) for over the next three years, providing a joint buying system and establishing a central storage center located within each region to enable business owners to obtain their ordered goods at cheaper price (Han 2009). This program reveals government’s action to make major improvement in assisting the SMEs and developing major improvements to stimulate domestic market. The financial aid is a method of business financing for the merchants which they can benefit for expanding the business. The joint buying system for independent stores also will allow the small businesses to save 10 percent of purchase price and central storage center will accommodate them to simplify the distribution channel to be more integrated.
With the saturation of Korean retail market, big retailers are finding themselves in fierce competition to make rapid expansion. In the home country, they open smaller stores in the neighbourhood areas which have created controversies over smaller merchants. The competition among retailers (large retailers and small-medium retailers) is more intense because there are many players which have similar strategies striving in the same neighbourhood areas. There is not much differentiation between players and their products; hence, there is much price competition.
To reduce the competition, the small and medium retailers have urged that SSMs should not select key products sold at mom and pop stores (including cigarettes and groceries like tofu and bean sprouts (see Table 3.1). In this case, the expansion of discount stores has negative effects for SMEs retailers while the large retailers assume that SSM business could be a good source of revenue due to the market has been into saturation point. To build one discount store, the large discounters require over 9,000 meter square in size which means that it would not be enough for more expansion in discount store format due to the shortage of available land.
For the aforementioned reasons, there is no doubt that the government support is needed to establish policies that could enhance the competitiveness of small and medium retailers in domestic market. The regulation of SSMs could not only hinder the WTO’s accords which Korean government has signed, but it could also raise other conflicts such as economic slowdown, unemployment and also low consumer benefit (Shin 2009). Thus, the policies not direct towards how to protect the small retailers through the regulation on SSMs but how to preserve the small merchants to attract consumers to their place of business.
Liberalization has been evaluated generally positive in terms of economies of scale, intensified competitiveness level, technology innovation, and management efficiency, which determining an enhancement in the total factor productivity of retail industry in Korea. With the increasing presence of foreign retailers, domestically, the retail industry has undergone major structural changes in the service infrastructures, competition of business environment in domestic market, human resources capability and led to the emergence of varied retail formats.
Furthermore, the withdrawal of the most leading global retailers in Korean market has become challenge for other new entrants. E-Mart, Homeplus, Lotte Mart and other existing chains has put up considerable barriers to entry for the foreign retailers. However, this could not underlie reasons to fail in Korea market. In countries with different cultures and tastes, international retailers need to adapt to local situation and respond to local need (Hofstede 1980; Prahalad and Doz 1987). Considering that Koreans are tied to their culture, again, it is essential for global retailers to understand the local context.
Internet continues to gain the popularity worldwide and it has meet Korean consumers need to pursue alternative shopping mode despite the crowd of discount stores. The consumers can benefit online shopping through its reasonable price, much lower 15 percent than other retailers (Chang 2006). This has been advantage for the consumers due to they can save time and transportation cost with no time limit and human interaction. The retailers can provide price lower than other competitors due to no running cost needed to open the store. This is also an efficient way for the goods can easily and directly distributed by the wholesaler or the manufacturers to customers. The online products price tends to less price sensitive for the consumers because they buy the products regardless the price. Whereas those advantages in online shopping malls could be the threat to other conventional/non-website retailers, especially to the retailers who are not engaged in this retail channel. Since large discounters in Korea have diversified their business in varied retail format, the competition among online retailers is also high.
The strong purchasing power has put Korean consumer in the top of range in Asia. The country’s generally wealthy educated base consumers are used to exceptionally high customer service levels, and rate price below convenience, quality and choice. Meanwhile, as purchasing power increases, there have been lifestyle changes of interest in western style, well-being products and shopping environment for Korean consumers. Furthermore, Korean would rather to purchase goods in a more convenient, spacious and pleasant environment which provide fine quality products. Because of the very reasons, retail business preserved itself as great potential market in Korea despite of domestic and global economic recession.
Past researches concluded that the motivation of international retailing is mainly due to the appeal of market opportunities in the foreign market, particularly in fast growing economies where the retail sector is not well developed and has strong private consumption growth (ATKerney 2006; Deloitte 2006). In this finding, Korean retailers are attracted to expand other country’s market expansion which has potential comparative advantage in the consumer goods sector with a good supply capacity for the supply chain. It is apparent that foreign investment in retail sector would take advantage in hosting in the liberalizing country. However, they consider market difficult if consumer products taste very differently as sold in Korean market.
Furthermore, choosing Chinese emerging market as overseas market target is not only due to its gigantic market but also as China is a low-cost country for sourcing. At the same time, if retailers do retail business in China, they will have more access with the suppliers and they will have more concerns for maintaining the sustainability due to their less reliance on the agents or the middlemen.
In addition, due to the lack of information about retail internationalization operated by other Korean retailers, E-Mart discount store can be a good example for this analysis. E-Mart has done several approaches to widen its product sourcing in order to offer the customer the best price. Therefore, since the product safety is critical, a unified control among suppliers and retailers needs to be perceived to take every cooperative effort throughout the supply chain. For the consumer protection, government needs to play role in ensuring the safety of all products approved.
Despite criticism of the retailers over the battle between nation brand and store brand (PB), the PB market will be more attractive for the consumers and for the suppliers; it will encourage them to make better products. As the PB sales are forecast to increase, unlike other brands, PB products which tended to be lower-priced products reveal no cost for the distribution process, advertisement and marketing. Overall, the PB product is favorable for saving customers’ budgets, for obtaining retailer’s higher profit margin, and especially for the suppliers who are mostly small and medium firms; it will intensify a stable distribution channel.
The partnership between retailers and suppliers is critical source for the growth plan helping the retailers to evaluate the potential product and its efficiency with purpose to find any possibilities to deal with expansion joint suppliers and product differentiation. Both retailers and suppliers are in entire management of demand-supply chain and this working tie is streamlined by using the lean retailing strategy as well as upgraded technologies. Besides store brand are generally viewed as a low cost alternative, it is necessary for retailers to diversify product lines and offer consumer more opportunities to enjoy premium brands.
The conclusion of this research will be concluded as follows. Due to the fact that after market liberalization, Korean retail industry has become more consolidated industry. Learning from other successful multinational retailers which have survived in Korea, it is worthy to note that local partnership is the most important factor. By building a good collaboration with local partner, the international retailers can recognize the local market condition. Furthermore, having business in distribution channels needs to challenge the supply chain system, and the relationship with distribution is also necessary.
Korean retail industry has advanced in terms of productivity and quality of services and now they intensify the competition by developing the PB products. Their Research and Development (R&D) team together with manufacturers strive to their best to develop PB product. Concerning to the product safety, it remains a key concern for retailers and suppliers to build a stronger partnership. With retailers’ product requirements, suppliers procure products which are imposed by retailers while retailers provide support in complying with the international standards and government regulations. That is why it is prerequisite to select very carefully the suppliers with whom the retailers will start their business. In accordance with the regulation, it is an essential tool for Korean government to formulate regulation which promotes the health and safety of the people such as Food Sanitation Act and to maintain its effectiveness.
Furthermore, consumers have more convenience and enjoy the varieties of the good and services from the market with the lowest prices. Regarding the substitute of retail format, the online retailers should develop and ensure guarantee after sales service. The findings then indicate that trade response to liberalization depends on the market attractiveness, local suppliers’ capacities and the PB products. The assistance to the manufactures would be worthy due to they can improve the standard. Thus the government intervention is also needed because it supports to the investment and it will reinforce the competitiveness of the countries. The internationalization in retail is important due to it will stimulate international trade and develop the economic growth of the developing countries.
In brief, Korean retail industry possesses a competitive structure in both domestic and global market based on based on the counter active action by each retailer, good partnership on the supply side, effects of diversified retail formats and other attributes related to the people and culture. A competitive market generating from market liberalization has further stimulated the revitalized economic growth.The above conditions all apply to Korean retail industry where many players are trying to gain more competitive advantage over their competitors.
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Considering that retail industry in Korea is dominated by large discount stores which have diversified business in some retail formats, this section represents most leading discount stores (E-Mart, Samsung-Tesco and Lotte-Mart) to get an overview over this dynamic sector. The data contained in this case of study section has been compiled through information included in company website, annual report, the Year Book of Retail Industry 2008 and Retail Magazine.
Key Data 2007
Home Country Korea
Total (Gross) Sales 7,564 million USD
Number of Stores 110 (103 in Korea + 7 in China)
Number of Employees 12,523
E-Mart which is owned by Shinsegae Group has become the number one discount retailer in Korea since its first establishment in 1993. Due to E-Mart’s acquisition to Wal-Mart Korea in 2006 and its advancement into China’s market, in 2007 E-Mart firmly in the lead with 103 outlets nationwide and 7 outlets in China, and had 34% of domestic share. Shinsegae has aimed to boost the total number of its outlets in Korea to 160 and in China to 70 by 2012. E-Mart stores are typically located in easily-accessible downtown shopping districts in urban areas. This strategy of E-Mart for locating a store enables it to open up a large store with big parking facilities. The E-Mart’s pricing strategy was basically “always lower price”?. Unlike other successful retail competitors, E-Mart has decided to accelerate its business plan by its globalization strategy focusing in only one country, Chinese market which most of them are located in Shanghai area where E-Mart operated its first discount store in 1997. E-Mart believes that Chinese market would benefit the synergy effect to the expansion opportunities to China in product purchase, logistics and store managing. E-Mart boosts a distinguished strategy in China by providing pleasant bus for customers and by selling unique products such as turtles and mutton which allow consumers to touch. Thus E-Mart has adopted approaches of localization in China to build long term partnership with the consumers.
In 2003, Shinsegae launched a department that specializes in global sourcing. Since then, E-Mart has been into direct purchasing approach in an effort to reduce costs. By extending sourcing markets for its business, E-Mart have been directly involved in the buying process – from product selection, customs clearance to product launch – would allow it to offer consumers better-quality goods at a lower cost. E-Mart has emphasized that eliminating distribution intermediaries between the retailer and manufacturers would assure better quality control due its direct approach. In 2008, direct purchasing totaled 110 billion won and featured 305 product categories from every day products, sporting goods and clothing items to agriculture and marine products and processed food. Shinsegae carefully selects and supplies the quality products by carrying out global sourcing in 19 countries: China, the United States, Japan, France, Germany, New Zealand, Thailand, Australia, New Zealand, Mexico, Taiwan, Indonesia, the United Kingdom, Italy, South Africa, Canada, Spain, Malaysia and Chile. Specifically Shinsegae has used China as an advance base for sourcing foreign products. The retailer noted that they had sent several buyers to China to develop and design products with manufacturers there. To strengthen its sourcing capacity as one of E-Mart`s challenges, the retailer has stationed more manpower for its overseas product procurement team. Their immediate challenge is securing more manpower and increasing outlets to build the economy of scale because overseas buyers need to be more than price negotiators. They need to go around to various markets, be on-site, and understand the different markets to find new, promising items, to establish good business ties, and be able to develop and plan out new product-development plans. E-Mart has had 30 securing employees with global buying know-how with half of them are based in China. Direct sourcing – which involves finding promising items and brands, or developing one`s own products and designs through manufacturing partners, was the way discounters needed to go to strengthen operational competitiveness in the long run.
E-Mart first applied the private brand marketing strategy in 1997. E-Mart started its PB with the E-Plus milk, produced by the nation`s third-largest dairy company Maeil Dairy Industries Co. E-Mart began to launch private brands within about 3,000 categories ranging from vegetables to electronics include “Fresh,” “BESTSELECT,” “Happy Choice,” “Smart”? and “E-Mart.”? E-Mart launched various PB lines such as E-basic, E-plus, Naturalism, and Myclo. The sales of PBs by E-Mart recorded 890 billion KRW, a 12% share of its sales. E-Mart also has announced plans to focus on marketing its own brands for everyday items, as opposed to depending on national brands, or major manufacturing companies which specialize in food, household goods, and other necessities, and which have big-name recognition. Shinsegae guarantees that its own products are 20 to 40 percent cheaper than national brands. As of 2006, E-Mart`s private labels accounted for 9.7 percent, or 920 billion won (about $1 billion), of the discounter`s total sales. The proportion of E-Mart-labeled products rose to 19 percent in 2008 from 6.4 percent in 2006 in terms of revenue. Shinsegae aims to stretch the total by 23 percent to total 2.4 trillion won by 2010, by 25 percent by 2017, and by 30 percent by 2017. To keep in with the pace of PB development, E-Mart has also focused on the intensification of Research and Development (R&D). The team consists of researchers from a wide range of institutions, including the Korea Electric Testing Institute, Korea Environment & Merchandise Testing Institute and the Korea Apparel Testing Research Institute, as PB products range from toothpaste, light bulbs to fashion wear. E-Mart has intensified the development of its own brands, signaling a shift in marketing strategy in the fiercely competitive hypermarket industry. Given the number of PB products are introduced every year and its market share is growing, not all PB products enjoy success in the market.
Key Data, 2008
Home Country Korea and United Kingdom
Total Sales 6,058 Million USD
Number of Stores 110
Number of Employees Around 12,000
Samsung-Tesco ranks as the runner up player in Korean retail. British Tesco has been successful to adopt a local adaptation with Samsung as its partner for settling down in Korean market since 1999. To lessen Korean consumer’s antipathy toward foreign retail firms, Tesco retaining the Korean brand name “Homeplus”? from Samsung instead of using its own brand and employing the expertise of the Samsung Trading Company. With its revenue exceeding 12 trillion won in four years, an 89:11 percent joint venture Samsung-Tesco has aimed to become the nation`s No.1 discount retail chain by 2010 and to expand our total number of outlets to 132 by 2011 and generate 14 trillion won in sales. The Samsung-Tesco strategy for locating a new store is to open a store in a promising area without competitors, and especially E-Mart. Its supermarket and convenience store retail formats have successfully expanded in Korea and now count with over 110 (2008). As of April 2008, Homeplus has 66 large off-price chain stores and 73 express supermarkets, with total sales estimated at 4.05 billion USD
Since Samsung-Tesco do not have time to establish a long relationship with suppliers, products are bought and supplied through agents. Even the store that carries the most PB items in Korea, only 20 percent of their sales come from PB products. The PB of Samsung Tesco is as follows: “Spring-Cooler”? and “Easy-Classics”?, and its sales recorded 300 billion KRW in 2005 with an 8.4% share of its total sales. There was a rise of PB share in 2009 about 26% and its plans to increase up to 30 to 40 percent by 2012. The Samsung-Tesco’s pricing strategy is “valuable store for costumers”?, which offers more value at lower prices. As its stores, a price adjustment policy of anti-trustworthy decreasing the price for the main items is implemented based on the criteria of seasonality, frequency of buying and price elasticity.
To win the competition in Korean market, Homeplus has conducted an innovative ‘Value Store’ concept, by introducing a third-generation concept for the Jamsil branch in 2007, and would renew all existing outlets as represented by the new branch. By adapting this concept, Homeplus has aim to become Korean discount stores at the first rank by 2011. The concept has been describing as having aesthetically appeal along with services related to services. Whereas the third generation concept is continuation of previous concepts: first-generation discounters look more like a warehouse, second-generation stores are equipped with a cultural center, a food court, and a children`s play area. In addition, having earned reputation for its developing strategies, Samsung Tesco’s Homeplus has become Tesco’s global benchmark (Park 2006). This argues that Homeplus’ operation system, its Mokcheon distribution service center; a unique store layout and culture center management has become integral parts for its success. Homeplus business’ success receives recognition among headquarter of Tesco UK-based and other foreign counterparts.
Key Data, 2007
Home Country Korea
Total Sales 4,500 million USD
Number of Stores 63 (as of Jan 2008)
Number of Employees n.a.
Lotte Mart owned by Lotte Group is the third largest discount store in Korean market which began operating its first branch in April 1998 in Gangbyeon, Seoul. It recorded 4,500 million USD in revenue in 2007. It is estimated that in 2013 Lotte Mart will operate 110 outlets in Korea with total sale of 10 trillion KRW. Lotte Mart has named “Wiselect”?, “Owolmokga”?, “Fournier”? and “Tender Korean beef cattle of Jiri Mt. PB”? as their PB products with its proportion of sales accounted for 12 percent of total sales in 2006. In the course of its vigorous market expansion, Lotte Mart has been actively engaged in the advancing foreign markets. About 27 Makro companies have been acquired in China and Indonesia by the company during the year 2007-2008. Thus, the opportunities of M&A at home and abroad have been always opened however the strategy is not restricted to mergers and takeovers. As of 2009, Lotte Mart has been engaged in global distribution operating 29 branches in three countries, China, Indonesia, and Vietnam.
Lotte Mart has established two distribution centers in Osan, Gyeonggi-do and in Gimhae, Gyeongnam in 2007 with a total area of 85,600 mA² and 55,000 mA² respectively. On top of such achievement, Lotte Mart has achieved the Presidential Award in 2009 Korea Distribution Award ceremony jointly hosted by Maeil Business Newspaper and KORCHAM (Jin 2009). The award, sponsored by the Ministry of Knowledge Economy, is a testament how the distribution firms or individuals can successfully maximize customer satisfaction with innovative management.
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