"E-commerce Competition Eases... Focus on Lotte Shopping and Emart"

Yuanta Securities Report

[Asia Economy Reporter Minji Lee] Yuanta Securities forecasted on the 17th that profitability improvement is expected for Emart and Lotte Shopping due to the easing of e-commerce competition.

During the reopening period, the growth of the e-commerce business slows down. This is because the period of liquidity contraction caused by high inflation is making it difficult for e-commerce operators with poor profitability to raise additional funds. Jinhyup Lee, a researcher at Yuanta Securities, said, "The first task for e-commerce operators is to secure profitability," adding, "They inevitably have to shift from growth-centered to profitability improvement."

For example, Coupang began profitability improvement efforts from the fourth quarter of last year. In the first quarter, it achieved an early turnaround to EBITDA profitability in its core business units. The GPM increased by 3.3 percentage points compared to the previous year, which is analyzed to be influenced by reduced price promotions and increased logistics efficiency. The price increase of the Wow Membership is also a strategic move for profitability improvement.

Previously, Lotte Shopping and Emart engaged in direct price competition with e-commerce operators, which led to damage to the operators' GPM. Researcher Jinhyup Lee explained, "This disappointed the market, which expected good performance due to solid sales growth," and added, "As the market competition environment eases, the turnaround of the discount stores' GPM, which had been continuously declining, will begin in earnest."

Lotte Shopping stopped dawn delivery and reduced delivery vehicles to improve the profitability of its e-commerce business. The researcher analyzed, "With the strengthening of competitiveness in major business units and performance improvements in Culture Works and equity-method subsidiaries, if the e-commerce deficit of around 40 to 50 billion KRW is also reduced, the profit potential will increase."

Emart launched Smile Club, a paid membership, through SSSG.Com, reorganizing the membership grading system and changing discounts on grocery shopping products. The researcher stated, "Given the large proportion of performance from hypermarkets and e-commerce and the solid position in grocery shopping, the benefit from competition easing will be strong."