This year will be pivotal for several chaebol, including Shinsegae Group, Korea’s 13th-largest conglomerate by assets, and its de facto leader Chung Yong-jin.
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| Chung Yong-jin |
Having experienced bitter failure in China, the son of Shinsegae chairwoman Lee Myeong-hee and nephew of Samsung Group chairman Lee Kun-hee is set to enter what may be the next gold mine ― Southeast Asia.
“After having actually done business there, I have to admit that the Chinese market wasn’t easy,” Chung told reporters on Dec. 11 in Busan before the Korea-ASEAN CEO Summit.
He announced that he was now eyeing Southeast Asia, starting with Vietnam.
“If the Vietnam project goes well, we will move to Laos, Myanmar, Cambodia and Indonesia,” Chung said.
New darling, Vietnam
The Shinsegae vice chairman has reportedly visited Vietnam several times since 2010 and secured a 30,000-square-meter plot in Ho Chi Minh for the company’s flagship discount supermarket E-mart, which will open later this year. The second store is due to open early next year near Tan Son Nhat International Airport. Shinsegae has recently gained the Vietnamese authorities’ approval to invest $60 million into the project.
This has been a meaningful project for Chung, who is known for having transformed E-mart from a mid-range discount store to a flashy, trendy outlet after Shinsegae Group officially separated from Samsung Group in 1997.
Vietnam with a robust 5.24 percent economic growth in 2013 is regarded as a potential next-generation gold rush for Korean companies.
In a survey of 537 member companies of the Korea International Trade Association in January, Vietnam was deemed to have the most business potential in 2015. “Vietnam’s retail market has had an average annual growth rate of 21.2 percent over the past five years and the size is assumed to be around $124 billion. It is growing faster than the markets of Shanghai and Beijing,” said Kim Seok-woon, an official at the Korea & Vietnam Cultural Exchange Association.
Analysts had mixed views about whether E-mart could survive in the emerging market.
“E-mart has lost much from its failed Chinese business. It requires some time to analyze the problem and seek overseas strategies, but jumping into the Vietnamese market is probably a rash decision,” an analyst from Daewoo Securities said, declining to be named.
A senior associate from Samsung Securities said the retailer would go through its toughest times this year, saying its “business environment couldn’t be worse.” But he added that it would recover the costs of shutting down its Chinese units by the end of the year, indicating an optimistic outlook in the long term.
Some analysts were positive about its Vietnamese business, citing Lotte Mart’s success in Vietnam.
“E-mart can achieve tangible results there as the Vietnamese market environment is quite different from China’s,” Korea Investment and Securities analyst Yeo Yeong-sang said.
“If it is able to firmly secure its position as a large-scale supply chain manager, then E-mart could follow Lotte Mart’s footsteps and recover from its failure in China,” Yeo added.
Tumble in China
The biggest obstacle for now is E-mart’s failure in China.
The company said in December that it was shutting down four stores in Tianjin, which leaves it with only 10 in China, including eight in Shanghai. This is a sharp fall from 27 at its peak after advancing into the Chinese market in 1997.
Vice chairman Chung Yong-jin dispatched his brother-in-law Moon Seong-wook ― husband of his sister, Shinsegae vice president Chung Yoo-kyung ― to deal with the situation, but he has reportedly failed to make progress.
Added to the woes of Korea’s retail market, E-mart’s operating profit in 2014 was 51.9 billion won ($47.2 million), a 20.6 percent fall from the year before. Shinsegae’s operating profit also fell by 6.5 percent in the same period.
“Losing the Chinese market will forever be a painful experience for Chung, who really thought the project would give him a global boost and a chance to show off his new leadership,” a Shinsegae insider said.
“Whether the experience in China can be applied to the Vietnam project is also a concern. The two are very different markets. For instance, Shinsegae initially sought a joint venture with a Vietnamese firm but it has turned successful and is now going solo,” he added.
Going beyond dandy image
Famous for his elite, global image (Chung graduated from Brown University), he is credited with having revamped Shinsegae into a sophisticated, trendsetting company.
He is known to have successfully led the introduction of Starbucks and espresso-based beverage culture in Korea, vigorously imported luxury fashion brands through Shinsegae International, launched the high-end grocery store SSG, transformed Shinsegae Department Store’s basement level into a luxury food market, and opened the gastro pub Devil’s Door and Korean buffet restaurant Olban.
“Chung has a trend-leading image. He was one of the first business leaders in Korea to communicate with ordinary people via Twitter; is known to own supercars including the yet-to-be-imported Tesla at his posh residence in Pangyo, Gyeonggi Province; and loves good food and wine,” a business pundit said.
But going into a more difficult area, things are less rosy.
The ambitious duty-free store business has been stuck in a rut since Shinsegae Chosun Hotel acquired Paradise duty-free store in 2012. While the duty-free sector has been flying higher than ever ― it is worth 8.4 trillion won, according to Korea Customs Service ― Chosun Hotel had an 11.9 billion won operating deficit in the third quarter of 2014, mainly due to high duty-free store maintenance costs.
“Shinsegae is expected to go all-in in the upcoming Incheon International Airport and urban duty-free store bidding. But with market powerhouses Shilla and Lotte keeping their feet firmly on the ground and strong newcomers including Hanwha rushing in, you cannot guarantee the outcome,” a duty-free market insider said.
Chung’s big dream of creating suburban shopping mall complexes is also slowing down. Apart from the Hanam Union Square Mall in the outskirts of Seoul, none of the projects seem to be moving forward. The opening of the 1 trillion won Hanam mall has been pushed back from late 2016 to early 2017.
By Bae Ji-sook and Suk Gee-hyun
(baejisook@heraldcorp.com) (monicaksuk@heraldcorp.com)
