"Traders Leading, Subsidiaries Pushing" Emart Has Revived

Emart Q3 Operating Profit Up 30% Year-on-Year
Achievement One Year After CEO Kang Hee-seok's Appointment... Effect of Selection and Concentration

[Asia Economy Reporter Lim Hye-seon] "Operating profit increased by 30%."

This is the achievement made within one year since CEO Kang Hee-seok took office. Emart, which had been lagging behind in online growth, is recovering. Due to the prolonged COVID-19 pandemic, demand for home-cooked meals surged, leading to significant growth of the warehouse discount store 'Traders.' Efficiency improvements enhanced the profits of specialty stores, and connected subsidiaries such as convenience stores and T-commerce showed steady growth. This is the result of strengthening competitiveness through 'selection and concentration.'

Emart announced on the 11th that its consolidated sales for the third quarter of this year reached 5.9077 trillion KRW, and operating profit was 151.2 billion KRW, up 16.7% and 30.1% respectively compared to the same period last year. Although it recorded an operating loss in the second quarter, seemingly returning to a deficit after one year, it turned profitable again in just one quarter. On a separate basis, total sales increased by 7.5% year-on-year to 4.2069 trillion KRW, and operating profit rose by 14 billion KRW to 140.1 billion KRW compared to the previous year.

"Move over Costco" Traders' explosive growth

Traders played a major role in this performance improvement. While Emart's traditional discount store operating profit was 114 billion KRW, down 11% year-on-year, Traders surged by 83.2% to 29.5 billion KRW. This was due to an increase in customers purchasing in bulk during the COVID-19 pandemic. Specialty stores recorded an operating loss of 4.3 billion KRW, with the deficit narrowing. Emart's (discount stores, Traders, specialty stores) separate operating profit turned positive for the first time since the fourth quarter of 2017.

Traders' growth rate is steeper than Costco's. Traders has continuously expanded its scale, achieving double-digit growth annually. Having surpassed 2 trillion KRW in sales last year, Traders recorded cumulative sales of 2.1336 trillion KRW in the first to third quarters of this year, with sales expected to exceed 3 trillion KRW. This achievement came just 10 years after opening. Traders' competitiveness lies in 'price.' By reducing distribution stages, it strengthened its fresh food competitiveness, which accounts for 40% of total sales. It also enhanced expertise through overseas sourcing products. Costco, which first entered the domestic market in 1994, surpassed 3 trillion KRW in sales 15 years after its launch. The number of stores for Traders (19) has already surpassed Costco (16). Although Costco's sales are still over 1 trillion KRW higher, Traders' growth rate over the past five years (212%) exceeds Costco's (45%). In the 2018 fiscal year (September 2018 to August 2019), Costco's domestic sales exceeded 4 trillion KRW, and its 2019 fiscal year sales amounted to 4.5229 trillion KRW, an increase of 418 billion KRW in one year. This is about half of Traders' third-quarter sales. Emart plans to open six additional Traders stores by 2023, seeing the growth trend.

Specialty stores reduced losses by closing inefficient stores. Emart has been restructuring low-income businesses such as Pierrot Shopping, Boots, Show & Tell, and Maison Tissier, while actively expanding No Brand Electromart. So far, a total of 97 specialty stores have been closed. The specialty store division recorded an operating loss of 4.3 billion KRW in the third quarter, improving by 16.1 billion KRW year-on-year. Notably, No Brand has continued a three-quarter consecutive profit streak with operating profits of 2.5 billion KRW in Q1, 5.5 billion KRW in Q2, and 6.7 billion KRW in Q3.

Convenience stores turn profitable for the first time, 'Thank you' subsidiaries

Emart's consolidated subsidiaries such as Emart24, SSG.com, and Shinsegae TV Shopping also achieved growth along with profitability improvements.

Emart24 achieved quarterly operating profit for the first time since starting business in 2014, recording an operating profit of 1.7 billion KRW. With over 5,000 stores, it expanded its scale and sales increased by 21.9%. Emart24 added 238 stores this year, bringing the total to 5,141 stores. Shinsegae TV Shopping also recorded an operating profit of 7.8 billion KRW, maintaining four consecutive quarters of profitability. SSG.com reduced its deficit, posting a loss of 3.1 billion KRW, cutting losses by more than 20.4 billion KRW year-on-year. Total sales also grew 36% year-on-year to 980.3 billion KRW, continuing its growth trend. Overseas businesses in the U.S. and Vietnam also reduced their losses.

However, Shinsegae Food and Everyday saw operating profits decrease by 27% and 25% to 4.5 billion KRW and 5.3 billion KRW, respectively. Property, which participated in the Good Landlord Movement, saw operating profit drop 40% to 2.2 billion KRW. Chosun Hotel, hit hard by COVID-19, expanded its deficit by 12.2 billion KRW.