Company Trend Analysis - Political & Operational Challenges Push Lotte Mart China Exit - DEC 2017

BMI View: Continuing political tensions between South Korea and China are weighing in on Korean consumer brands, a risk we highlighted at the beginning of 2017. South Korean conglomerate, Lotte Group, plans to sells its Lotte Mart business in China, while seeking new markets to expand into .

South Korean conglomerate, Lotte Group has announced it will sell its Lotte Mart business in China, amidst continuing Sino-Korean tensions. The company has stated that there are numerous prospects eyeing the Lotte Mart deal and hopes to close the sale by the end of 2017.

The move by Lotte comes against the backdrop of increased political tension between China and South Korea. China is viewed as retaliating against South Korea's decision to host a US missile defence system, meant as a deterrent against the assertive North Korea, by applying economic pressure on Korean-based companies (See: ' Sino-Korea Tensions Pose Short-Term Risks For Consumer Sectors ', March 30 2017). The most targeted are companies in the consumer sector, with the Chinese public boycotting South Korean brands. Among the companies to bear the brunt is the Lotte Group, with Lotte Mart's sales in China falling by 95% y-o-y, from KRW284bn in Q216 to KRW21bn in Q217. Furthermore, numerous stores have been shut down owing to the political situation, with just 12 out of 112 Lotte Mart stores in China still operating.

Poor Performance of Lotte Mart in China
Sales and YoY Change (KRWbn and % Change)
Source: Lotte Group Company Filings, BMI

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