Lotte Shopping Support Fire 'Lotte GFR' Struggles to Develop Business Strategy

Lotte GFR Receives 50 Billion Won Funding from Lotte Shopping
Continued Deficits Since Launch... Attention on Whether CEO Change and Strategic Moves Will Work
Industry: "With Fashion Market Downturn, Need Killing Items Over Brand Expansion"

Lotte GFR (GFR), the fashion subsidiary of Lotte Shopping, is showing proactive moves in preparing for next year's business. Although Lotte Group's 2024 regular personnel appointments have not yet been announced, Lotte GFR has already replaced its head and is formulating business strategies. It is predicted that they are quickly drawing a blueprint to reverse performance with the support of their parent company, Lotte Group.

A view of the Canada Goose store for which Lotte GFR has secured the distribution rights.

According to the distribution industry on the 21st, Lotte Shopping will provide 50 billion KRW in funding to Lotte GFR in two rounds this year and next year. This is through Lotte Shopping acquiring 5,819,366 common shares of Lotte GFR worth 50 billion KRW. This is not the first time Lotte Shopping has financially supported Lotte GFR; last year, they also provided funding worth 30 billion KRW. With this, the total investment amount reaches 152.4 billion KRW.

With Lotte Shopping providing a financially solid backing, Shin Min-wook, a CEO with rich experience in the overseas fashion sector, has stepped in as a 'relief pitcher.' Newly appointed last month, CEO Shin is an overseas fashion expert who previously led overseas fashion businesses at Cheil Industries and Handsome, and most recently served as Retail Director at Prada Korea. Since its launch in June 2018, Lotte GFR has not escaped from a deficit state, and it appears they are seeking a turnaround in this atmosphere.

The competitiveness of a fashion company lies in whether it has popular brands. While brands can be created directly or by securing distribution rights for prestigious overseas brands, the important factor is how many good brands that can stimulate consumer purchasing psychology are held. In this regard, Lotte GFR's competitiveness is evaluated to be lower than that of distribution competitors such as Shinsegae Group (Shinsegae International) or Hyundai Department Store Group (Handsome). Both companies own numerous brands across beauty, clothing, and accessories, but Lotte only holds distribution rights for a total of seven brands. Centered on Canada Goose, they have six fashion companies including KAPPA, Nice Claup, Kawe, Kenzo, Beam by Lola, and only one beauty brand, Charlotte Tilbury.

An industry insider said, "To generate sales, volume (number of brands) must first be large, but that is not the case," and diagnosed, "In the case of Lotte GFR, even focusing on the domestic market, it seems they have not secured overseas fashion lineups that domestic consumers seek."

In fact, due to the revenge consumption effect after COVID-19, Shinsegae International's operating profit increased from 33.8 billion KRW in 2020 to 115 billion KRW in 2022. Handsome also improved its performance from 102.1 billion KRW to 168 billion KRW. However, Lotte GFR was excluded from this trend. In 2020, it recorded a deficit of 6 billion KRW, and last year, the deficit widened to 19.4 billion KRW.

Although Lotte GFR's specific business direction has not yet been announced, it is expected to actively pursue the discovery of killing brands targeting specific age groups. Due to the economic downturn and poor fashion market conditions, rather than acquiring many brands, the strategy seems to be to find effective brands that can attract consumers. Even in a situation where fashion companies' sales are poor, the good sales of certain brands support this outlook. The domestic designer fashion brand 'Matin Kim' is receiving great attention from the MZ generation (Millennials + Generation Z), and some department store outlets record monthly sales of 500 to 600 million KRW, rivaling luxury brands in sales.

Some speculate that considering CEO Shin's expertise in overseas fashion, the focus will be on securing distribution rights for overseas brands. Another fashion industry insider said, "Unlike other major fashion companies, Lotte GFR lacks a system or human resources to incubate multiple brands in their own select shops and test marketability," and predicted, "Looking at the sales of major fashion companies, overseas brand sales are solid, so they are likely to seek answers overseas."

A Lotte GFR official said, "Securing overseas brand usage rights and expanding the fashion business was the original plan, but business expansion did not proceed smoothly as expected," and added, "We are in the process of redefining the overall portfolio and establishing brand-specific strategies, so a clear direction has not yet been set."

This content was produced with the assistance of AI translation services.