[Exclusive] GS Retail's 20 Billion Won Loss, 2 Billion Won 'Bargain Sale' of TenbyTen

GS Retail Acquires Design Shopping Mall
Tenbyten Shares Sold Entirely to Backpacker for 2 Billion Won
Estimated Sale Loss of 14 Billion Won... Over 10 Billion Won Debt Also Waived

GS Retail reportedly incurred a loss of over 20 billion KRW after selling the design-focused online shopping mall Tenbyten at the end of last year. Attention is focused on GS Retail's future performance as it restructures its profit model through successive business withdrawals and affiliate sales.

According to the electronic disclosure system on the 22nd, GS Retail sold its entire 80% stake in Tenbyten in December last year to Backpacker for 2 billion KRW. With this share sale, Backpacker became the largest shareholder of Tenbyten. Backpacker operates the handmade marketplace 'Idus' and the crowdfunding platform 'Tumblbug.'

Ten by Ten. [Image=Ten by Ten homepage capture]

Previously, GS Home Shopping acquired Tenbyten in August 2013 for 16 billion KRW. Established in 2001, Tenbyten gained popularity mainly among women in their 20s and 30s by positioning itself as a design-specialized shopping mall. GS Home Shopping acquired Tenbyten to develop it as a design-focused online shopping mall. After GS Home Shopping merged into GS Retail in 2021, Tenbyten remained an affiliate of GS Retail until the end of last year.

The funds exceeding 10 billion KRW lent to Tenbyten are also expected to be recorded as losses. GS Retail waived the debt of 10.348 billion KRW lent to Tenbyten upon the sale. This debt waiver was a condition of the contract to sell Tenbyten to Backpacker. Earlier, in March 2022, GS Retail lent 10 billion KRW to Tenbyten for operating funds. Over about a year, interest accrued, increasing the loan amount to approximately 10.3 billion KRW.

GS Retail's decision to sell Tenbyten appears to be due to continued poor performance influenced by COVID-19. Tenbyten, which posted an operating profit of about 1.15 billion KRW in 2019, has recorded losses for three consecutive years since 2020 when the impact of COVID-19 intensified. In 2022, the deficit expanded to 4.4 billion KRW, leading to capital erosion. As of the end of 2022, Tenbyten's total equity stood at negative 3.535 billion KRW. Facing ongoing management difficulties, Tenbyten began closing stores located in major commercial areas such as Konkuk University and Ewha Womans University. The number of stores, which once reached 10, has now been reduced to two, including the first store in Daehakro.

GS Retail is expected to have incurred a significant loss from the sale of Tenbyten. Simply calculating the difference between the acquisition price (16 billion KRW) and the sale price (2 billion KRW) suggests a loss of 14 billion KRW. Adding the 10 billion KRW loan to Tenbyten that was waived, the total loss from this sale contract amounts to approximately 24 billion KRW. Considering that the acquisition occurred 11 years ago and factoring in inflation, the actual loss is expected to be even greater.

A GS Retail official explained, "We decided to sell Tenbyten, classified as a non-core business, to restructure our business focusing on profitability," adding, "We will concentrate more on businesses that can improve overall profitability."

Lalavla and GS Fresh Mall... Successive Business Restructuring

GS Fresh Mall. [Photo by GS Retail]

This is not the first time GS Retail has withdrawn from a business. The health and beauty (H&B) store 'Lalavla,' which was launched ambitiously, also experienced the bitter taste of business withdrawal. Lalavla is the successor to the Hong Kong H&B store 'Watsons,' which entered Korea in 2005. At that time, GS Retail and Hong Kong Watsons Holdings each invested 50% to operate the joint venture Watsons Korea. After Watsons Holdings withdrew from operating Watsons in Korea, GS Retail absorbed and merged Watsons Korea in 2017 and rebranded it as Lalavla. Despite aggressive store expansion and marketing from the start, Lalavla failed to break the dominant position of Olive Young in the industry. Subsequently, compounded by COVID-19, operating losses accumulated, and the company ultimately announced business withdrawal in 2022, closing all stores.

Investment to strengthen quick commerce also ended in failure. To bolster quick commerce, GS Retail acquired a 19.53% stake in Mesh Korea in 2021, becoming the second-largest shareholder. Mesh Korea operates the delivery service 'VROONG.' However, Mesh Korea faced financial difficulties due to continued losses, and management control shifted to hy. GS Retail has currently written off the entire value of this stake.

GS Fresh Mall also ended its business after falling behind in the online delivery competition. GS Fresh Mall, GS Retail's online grocery shopping platform, closed at the end of November last year to focus on short-distance delivery based on offline stores. The increasingly fierce competition in the online food delivery market, involving Coupang (Rocket Fresh), Market Kurly, and SSG.com, led to reduced profitability. Competitors had their own logistics networks, gaining an edge in online delivery competition, while GS Fresh Mall lacked significant strengths.

GS Retail's strategy after closing GS Fresh Mall is to focus on short-distance delivery, or 'quick commerce,' based on offline stores. Quick commerce utilizes nationwide GS The Fresh stores and GS25 convenience stores. When customers order through GS Retail's mobile application 'Our Neighborhood GS,' products are delivered directly from nearby GS The Fresh and GS25 stores. GS Retail also offers a similar service through 'Yogiyo's 'Yomart,' a delivery app it acquired in 2021.

However, the effects of such business restructuring are not expected to appear immediately. Nam Sung-hyun, a researcher at IBK Investment & Securities, stated, "GS Retail's fourth-quarter results last year are expected to fall short of market and internal estimates," adding, "We anticipated a greater profitability improvement effect from the closure of GS Fresh Mall (e-commerce) business, but temporary costs last year and stagnation in non-convenience store growth make it difficult to expect profit increases."