Lotte Hi-Mart Smiles Amid Strong Sales of Large Home Appliances

[Asia Economy Reporter Song Hwajeong] Lotte Hi-Mart is expected to have a more positive operating environment in the third quarter than anticipated, thanks to strong sales of large home appliances.

According to Hanwha Investment & Securities on the 5th, the most significant recent change in the home appliance market is the increase in sales volume of large home appliances. Nam Seonghyun, a researcher at Hanwha Investment & Securities, said, "Large home appliances are showing growth regardless of offline or online channels, which is considered unusual," adding, "This is because the consumer economy remains negative, the penetration rate per household exceeds 1.0, and there was sluggishness in dryers in the first half of the year."

Nevertheless, the growth of large home appliances is analyzed as a change in consumer trends. Researcher Nam explained, "We believe that sales of home interior products, which had not appeared despite the increase in the number of households due to the expansion of single-person households, are gradually emerging," and added, "Although further data verification is needed, furniture sales have also been showing a recent upward trend, so this is not considered a temporary phenomenon in home appliances."

Despite Lotte Hi-Mart's surprise earnings in the second quarter, expectations for third-quarter operating performance were relatively low. Researcher Nam said, "The effect of VAT refunds on first-grade appliances was likely to be limited, and unlike the second quarter, it was difficult to expect income increases from disaster relief funds. Additionally, due to the ongoing rainy season, sales of seasonal home appliances were expected to sharply decline," adding, "It was also anticipated that it would be difficult to fill the sales gap caused by store closures." In July, air conditioner sales declined more than expected, and sluggishness in the mobile product category appeared simultaneously, resulting in poor performance. However, in August, sales volume centered on large home appliances recovered, showing a more positive trend than expected.

Efficient cost control by Lotte Hi-Mart is also expected to continue in the second half of the year. Lotte Hi-Mart improved profitability in the second quarter through reductions in fixed costs and advertising expenses. Researcher Nam said, "Fixed costs have been alleviated due to the closure of inefficient stores, and advertising expenses are being managed efficiently through reductions in media and print advertisements," adding, "In the second half, effects from the closure of inefficient stores are also expected, so operating leverage is anticipated to expand further."