Will Lotte Hi-Mart, which struggled in the cool weather, revive with a B2B business model?

Weakness in Large Home Appliances and Seasonal Appliances Sectors... High Potential for B2B Sales Expansion through Hanssem Acquisition
Hanwha Investment & Securities "Maintains Lotte Hi-Mart Target Price at 40,000 Won"

[Asia Economy Reporter Gong Byung-sun] Due to sluggish sales of large home appliances and seasonal appliances, Lotte Hi-Mart's third-quarter performance this year is expected to fall short of market consensus. However, there are also views that if the business-to-business (B2B) business model is strengthened, a long-term business strategy can be established.

On the 20th, Hanwha Investment & Securities estimated Lotte Hi-Mart's third-quarter sales at 1.0259 trillion KRW, down 2% year-on-year, and operating profit at 50.4 billion KRW, down 9.9% over the same period. This is 7.2% and 20.5% below the consensus of 1.1057 trillion KRW and 63.4 billion KRW, respectively.

The slowdown in sales of large home appliances and seasonal appliances led to the poor performance in the third quarter. As of the second quarter this year, more than 47% of Lotte Hi-Mart's sales come from large home appliances, but the home appliance market is showing a declining trend. The offline home appliance market, which is the main sales channel for large home appliances, has been stagnant since peaking in the third quarter of last year.

The cool weather this summer was also a negative factor for Lotte Hi-Mart. Initially, securities firms predicted that even if large home appliance sales declined in the third quarter, seasonal appliances would compensate. However, due to the cool weather, sales of seasonal appliances are expected to be weaker than anticipated.

Nevertheless, despite short-term sluggishness, the B2B business model is expected to be strengthened. Lotte Group decided to invest in shares for the acquisition of Hanssem, which is likely to lead to an expansion of B2B sales. In fact, Lotte Hi-Mart has purchasing power exceeding 2 trillion KRW annually for home appliances, giving it competitive strength in purchasing products for B2B. Furthermore, in the long term, supply to the business-to-consumer (B2C) sector is also expected.

Nam Sung-hyun, a researcher at Hanwha Investment & Securities, explained, “The trend of consumers preferring premium home appliances is expanding, and among them, preference for space interior appliances rather than simple home appliances is increasing. If a collaborative relationship with Hanssem is established, a differentiated model will be built in the built-in sector.”

Accordingly, Hanwha Investment & Securities maintained its 'Buy' rating and target price of 40,000 KRW for Lotte Hi-Mart. The closing price on the 17th was 31,050 KRW.