'Prime Commercial Area'... The Tragic History of Large Marts in Guri Distribution Market [Why& Next]

Guri City Begins Attracting Large Supermarkets Operated by Major Corporations
Despite Good Location, "Rent Still High" Criticized
Large Supermarkets Undergoing Structural Reform, New Entries Expected to Be Difficult

Guri City has launched efforts to attract large-scale marts operated by major corporations within the Guri Distribution Complex Market. This move comes as the marts that replaced Lotte Mart have been delinquent in rent and management fees, leading to contract termination procedures. The mart facilities within the Guri Distribution Complex Market once ranked third in sales among Lotte Mart branches, indicating a strong location, but have experienced ups and downs to the extent that the operator has been recruited for the third time in five years. The distribution industry expects that the first bidding will not be easy due to the high rent and the consideration of coexistence agreement fees.

According to the online public asset disposal system Onbid on the 3rd, Guri City announced a bidding notice the day before to attract a large-scale mart with a major corporate brand to the existing mart facilities within the Guri Distribution Complex Market.

The rental area is 22,231㎡ (approximately 6,700 pyeong), with an annual rent set at 4.3 billion KRW. The lease period is basically five years but can be extended. However, the lease start date has not yet been decided due to ongoing eviction lawsuits related to long-term rent arrears by the existing mart. The contract period for the existing mart, Simin Mart, is until December 31, 2025.

Guri City is pushing to attract a large corporate mart because Simin Mart has become difficult to operate normally. To prevent rent arrears and operational failures, Guri City restricted the bidding eligibility to corporations that have operated large-scale stores (over 3,000㎡) for more than 10 years and have had an average annual sales of over 1 trillion KRW in the past five years. In effect, only large corporate marts can participate in the bidding.

After Lotte Mart's Withdrawal, New Operators Also Closed Due to Management Difficulties

The site was occupied by Lotte Mart from 1999 to 2021. According to SK Securities, as of 2018, the Guri branch ranked third in sales among Lotte Mart stores, following the World branch and Seoul Station branch. However, rent issues surfaced starting in 2021. Lotte Mart Guri branch closed after 22 years because it could not reach an agreement with Guri City on the rent for lease renewal. At that time, Lotte Mart paid 2.1 billion KRW annually until 2019, but Guri City proposed an annual rent of 4.7 billion KRW, more than double. After the failure to renew the contract with Lotte Mart, Guri City went to public bidding.

However, as the bidding continued to fail, the initially announced rent of 4.7 billion KRW dropped to 3.3 billion KRW. Subsequently, El Mart moved into the site, and later the name was changed to Simin Mart.

Large supermarket inside Guri Distribution Complex Market. Photo by Guri City

Simin Mart suffered from continuous management difficulties, with COVID-19 delivering a decisive blow. According to Guri City, Simin Mart paid rent and management fees normally from April 2021 to May last year, but large-scale arrears occurred afterward due to financial difficulties. The coexistence agreement fee, which promised to support the Guri Traditional Merchants Association with 100 million KRW annually at the time of store approval, was never fulfilled. Simin Mart's arrears amount to about 4.6 billion KRW, and Guri City notified contract termination in February this year.

Guri City revealed in a media briefing earlier this year that there is a large mart interested in entering, but the large mart industry remains lukewarm. For example, E-Mart has a Dasan branch just 1.5 km away in a straight line. Homeplus has not opened any new stores for eight years. Therefore, Lotte Mart, which had previous operating experience, is being mentioned as a candidate.

"Rent Burden Approaching 5 Billion KRW Annually"... First Bidding Expected to Fail

The large mart industry points out that although the site is attractive, the rent is too high. A large mart industry official said, "The bidding site is located in an area where Guri City's commercial district is concentrated, so it is a good location," but added, "However, even then, Lotte Mart found the rent burdensome, and the rent now is at a similar level."

In fact, the rent was 4.719 billion KRW annually in the first round in 2021, but due to the high price, it was finally awarded at 3.3 billion KRW after four failed bids. Therefore, there is a forecast that no company will participate in the first bidding this time as well. Additionally, since the area is located in a traditional market, there are additional costs for the regional coexistence development fund and consultations with local merchants, which are variables.

Furthermore, a deposit must be paid additionally. In March this year, Guri City passed the 'Partial Amendment to the Ordinance on Management and Operation of Guri Distribution Complex Market' at the city council. This ordinance was abolished in 2020 but revived this year after Simin Mart, which entered through the 2021 bidding, defaulted on rent and management fees. The ordinance requires a deposit of up to 10% of the property appraisal price reflecting the market value of the facility for the year to secure collection of overdue rent and restoration costs due to facility damage within the distribution complex market. Although the exact amount of the property appraisal price is unknown, according to Guri City Council's early-year report, this amount is expected to be about 7.6 billion KRW.

Large Marts Downsizing... Homeplus Seodaejeon Branch Closing

The recent deterioration of the large mart industry also makes it difficult to be optimistic about this bidding. Recently, large marts have been restructuring and improving their business structure to enhance profitability. Aggressive new store openings are difficult. For example, Homeplus World Cup branch, which was re-bid in 2022, was a prime store with annual sales of about 100 billion KRW, but Homeplus was the sole bidder and obtained a 20-year operating right.

Large marts have been continuously reducing the number of stores. E-Mart reduced its stores from 141 in 2020 to 133 last year. Lotte Mart decreased from 125 in 2019 to 111 last year, and Homeplus reduced from 140 in the first half of 2019 to 131 in the first half of last year. Additionally, Homeplus plans to close its Seodaejeon branch in Yuseong-gu, Daejeon, on August 1, and the Mokdong branch is scheduled to close in November.

Another large mart official said, "After paying the proposed rent, labor costs, and funds, it is practically difficult to make a profit," adding, "Given the industry's current difficulties compared to before, it will not be easy to find a company to participate in the first bidding."