By Kim Hyun-bin
The country's top four conglomerates Samsung, Hyundai, SK, and LG have succeeded in finding new sources of revenue amid the COVID-19 pandemic, but No. 5 Lotte Group has suffered a continued decline in profitability in key businesses.
|Lotte Group Chairman Shin Dong-bin|
Lotte Group has been plagued by a series of problems, including a bitter feud between the two scions of the conglomerate over management control, and a leadership vacuum after Chairman Shin Dong-bin was jailed in early 2018 on bribery charges. He was released later that year after a court suspended his sentence.
Other factors cast a dark cloud over Lotte Group, such as the deployment of a U.S. Terminal High Altitude Area Defense (THAAD) missile system, which impacted Lotte Mart's profitability in China. Beijing opposed the deployment of the THAAD system, claiming its powerful radar could be used to spy on China's military maneuvers and blamed Lotte for providing a golf course to house the military hardware. The conglomerate, whose chairman was born and raised in Japan, was hit by a boycott on Japanese products sold in Korea, while the COVID-19 pandemic has also taken a major toll on the company's profitability.
In addition to such factors, many industry insiders point to Lotte Group's insular corporate culture which prevented the firm from quickly embracing innovative measures.
Many industry watchers say that Lotte's conservative and safe style of corporate management typically found in Japan prevented the conglomerate from responding quickly to the crisis it faces and ended up in it failing to overhaul the way it does business.
"Since 2014, Shin Dong-bin has been emphasizing the importance of online shopping but there were no drastic changes made to adapt to trending markets, which has led to Lotte's current situation" an industry official said.
And the conglomerate has paid for that mistake.
According to investment firms, Lotte Group's market capitalization has dropped 8 percent since late 2019. In contrast, the market caps of Korea's top four business conglomerates rose between 35 percent and 85 percent, while the KOSPI surged 40 percent over that period.
Lotte Group's total sales have also been declining. The group achieved 84 trillion won in sales in 2018, but this dropped to 74.5 trillion in 2019.
The top four Korean conglomerates have been speeding up efforts to launch new growth businesses focusing on zero-carbon emissions in the semiconductor, electric vehicle, robotics, artificial intelligence and bio sectors. They were also successful in conducting large scale M&As and enhancing cooperation with global firms to bolster their competitiveness.
Lotte Group's previous strengths in the distribution and food and beverage sectors have drastically weakened over the past few years as the online market in Korea evolved and the conglomerate was late to adapt to the changes. To save costs, Lotte Group closed more than 200 unprofitable stores and implemented mass restructuring measures.
Lotte used to be the leader in the domestic retail industry and utilized its vast network and financial resources to hold a dominant lead, even though smokestack industries often tend to be late comers in embracing new market trends. However, Lotte's old-school strategy and management style has not kept up with the ever-changing trends of the market and it found itself falling behind the competition.
To deal with this, Lotte Group Chairman Shin Dong-bin has been focusing on revamping the conglomerate's corporate structure over the past several years. "We should not obsess over past successes, but need to make bold investments to be the first in the market," Shin said during an executive meeting. "There still remains an authoritative culture here. We need to establish a flexible and a horizontal corporate culture."
It remains to be seen whether the declining earnings will jolt the conglomerate into action this time.