Concerns Grow Over Performance Decline Due to Closure of Prime Stores
"More Store Closures, Uncertain Path to Recovery"
Homeplus, the second-largest operator of large discount stores, has entered corporate rehabilitation proceedings, and its Bucheon Sangdong branch in Gyeonggi Province will close by July. The Sangdong branch is considered one of Homeplus's "prime stores," known as the top sales store nationwide. This rehabilitation process is a preemptive measure taken as Homeplus's credit rating dropped due to worsening performance amid mounting debt, but concerns are rising about financial structure improvement as prime stores are being closed one after another.
According to the distribution industry on the 4th, Homeplus Bucheon Sangdong branch, located at 540-1 Sangdong, Bucheon-si, will operate only until the end of July before closing. Ahead of the closure, major tenants of the Sangdong branch have begun clearing inventory and organizing their stores. The fashion brand Topten has already cleared out its store, and currently, major sports and outdoor brands are selling off inventory through discount events.
Homeplus Bucheon Sangdong branch has been used as a leased store by Homeplus since 2013. In 2013, Homeplus sold the store to SRA Asset Management and signed a long-term lease contract for 15 years (until 2028). In 2020, SRA Asset Management sold the store to a consortium of Lotte Construction and Hana Alternative Asset Management, changing ownership.
Although operations continued after the ownership change, news of constructing a residential-commercial complex on the site made the closure of the Sangdong branch more apparent. In fact, in May last year, Homeplus signed an agreement to end operations before the lease period expired. The site where the Sangdong branch was located is planned to be transformed into a residential-commercial complex (Lotte Castle) with 1,853 units (936 apartments and 917 officetels), consisting of 7 underground floors and 47 above-ground floors. The project is known to cost about 3 trillion KRW and is scheduled for completion in 2029.
Homeplus Sangdong branch is recognized as one of the stores with excellent sales among all Homeplus locations. Until the opening of the renewed store "Mega Food Market" by Homeplus in 2022, it held the top sales position nationwide for a long time. Although offline competition among large discount stores has intensified recently, the Sangdong branch ranked within the top 5 stores in Homeplus overall. It is reported that the steady flow of visitors is due to the many officetel complexes and newly built apartments nearby. Although Emart Jungdong branch is within a 10-minute walking distance, the Sangdong branch significantly outperformed it in sales by having a large parking space, overwhelming store area, and leased cultural centers and play spaces for children.
Homeplus must submit a rehabilitation plan by June 3 following the commencement of rehabilitation proceedings. The plan is expected to include improvement measures such as turning a profit and debt repayment methods. If the court approves the plan, Homeplus will implement it, and if the results align with the plan, the court will decide to conclude the proceedings. Currently, Homeplus states there is no significant issue regarding debt repayment methods. Considering that financial debt is about 2 trillion KRW, real estate assets amount to 4.7 trillion KRW, and that approximately 100 billion KRW in cash flows in monthly due to the nature of the distribution business, it is believed that creditors can be negotiated with without much difficulty.
However, whether profitability will improve quickly is uncertain. Following the closure of top sales stores Ansan branch (2021) and Gaya branch (2021), the closure of the Sangdong branch is expected to further shrink Homeplus's performance immediately. Looking at Homeplus's financial results, which close their fiscal year in February, sales have shown a downward trend: 7.3002 trillion KRW in 2019, 6.9662 trillion KRW in 2020, 6.4807 trillion KRW in 2021, 6.6006 trillion KRW in 2022, and 6.9314 trillion KRW in 2023. Operating losses have continued since 2021. Next year, the Dongdaemun branch is scheduled to close, and about seven stores are currently negotiating closure timings.
A Homeplus union official said, "The top 5 stores have a very significant impact on sales, so there are great concerns as the Sangdong branch disappears following the closure of the Ansan branch (2021). After already reducing assets as much as possible, if operations cannot continue, it is questionable how Homeplus can survive."
Meanwhile, the union held an emergency meeting on the morning of the same day and sent a labor union request regarding the corporate rehabilitation process. On the 18th, they plan to hold a delegates' meeting to gather members' opinions and, depending on the company's response, proceed with joint actions such as rallies and strikes.
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