Homeplus Crisis: 'Emart' Can't Be Assured Either... "Stock Price Rose but Contraction Is Inevitable" [Business & Issues]

Emart Stock Recovers to 80,000 Won Range
Spillover Benefits Before and After Homeplus Rehabilitation
Rising Online Market Share a Long-Term Risk

Yonhap News

As Homeplus enters court receivership amid management crisis controversies, the stock price of its competitor, Emart, has recently surged. Analysts say that expectations of a spillover benefit from Homeplus's weakened operational strength are stimulating investor sentiment. In the short term, Emart's sales are expected to increase due to customer migration between key competing stores of Emart and Homeplus. However, there are also concerns that in the mid to long term, the expansion of online retailers will intensify, potentially narrowing the market position of large discount stores.

Emart Stock Recovers to 80,000 Won Range... Hits 52-Week High

Emart's stock price rose about 34% from 62,100 won at the beginning of the year to 83,200 won on the 13th. Until early last month, Emart's stock price remained in the 60,000 won range but began to surge around the 4th, when Homeplus filed for court receivership, reaching an intraday high of 87,900 won on the 7th, marking a 52-week high. This is the first time in just over a year since February last year that Emart's stock price has risen above 80,000 won.

In the securities industry, Emart's target price has been significantly revised upward. Since last month, six securities firms including Hanwha Investment & Securities, NH Investment & Securities, Daishin Securities, Hana Securities, IBK Investment & Securities, and Kiwoom Securities have raised their target prices for Emart. This reflects expectations that Emart's market share will significantly increase as Homeplus, once considered Emart's biggest rival in the large discount store industry, has entered corporate rehabilitation proceedings.

The firm that raised the target price the most was Kiwoom Securities, which nearly doubled it from 68,000 won to 130,000 won. This suggests that Emart's stock price has the potential to rise by nearly 50,000 won from its current level. In fact, Emart's stock price had remained below 100,000 won since April 2023.

Spillover Benefits Expected from Homeplus Rehabilitation... "Sales at Competing Stores to Increase"

On the 12th, investors who suffered losses after investing in Homeplus securitized bonds (ABSTB·asset-backed electronic short-term bonds) held a protest in front of the Financial Supervisory Service in Yeouido, Seoul. Photo by Yonhap News

The main reason securities analysts expect significant spillover benefits for Emart from the Homeplus situation is that the Korean large discount store market is an oligopoly with three major players: Emart, Homeplus, and Lotte Mart. In particular, Emart and Homeplus have operated stores simultaneously in key competing regions, so Emart is expected to benefit greatly.

The number of large discount stores is 132 for Emart, 126 for Homeplus, and 111 for Lotte Mart. Among Emart stores, 70 overlap with Homeplus locations, accounting for 53% of all stores. If Homeplus stores find it difficult to continue normal operations in the future, existing customers are likely to shift to Emart stores. Hanwha Investment & Securities stated in a report, "Emart is expected to see at least a 5% increase in sales," adding, "Emart may also gain a negotiating advantage with manufacturers who face suspension of deliveries to Homeplus, which is positive for profitability."

Although Homeplus is still operating normally, concerns about payment delays and liquidity deterioration have increased since the corporate rehabilitation filing. Individual investors who invested in short-term financial bonds worth 600 billion won, such as commercial paper (CP) and asset-backed short-term bonds (ABSTB) issued by Homeplus, are protesting over fears of principal losses. Additionally, eight major credit card companies including Shinhan, Samsung, Hyundai, Hana, KB Kookmin, BC, Lotte, and Woori Card have suspended payment approvals for Homeplus gift certificate purchases and recharges.

While Homeplus is faltering, Emart is expected to expand its scale through new store openings this year. Emart opened the Traders Magok store last month and plans to open new stores such as Food Market Godeok and Traders Guwol in the first and second halves of this year, respectively.

Contraction in Large Discount Store Industry Inevitable... Online Market Share Continues to Expand

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Some voices express concern that the spillover benefits Emart receives from the Homeplus situation are only short-term, and that in the mid to long term, the market share of online retailers will grow even larger.

According to the '2024 Major Retailers Sales Trends' statistics released by the Ministry of Trade, Industry and Energy in January, last year's retail market sales share was in the order of online (50.6%), department stores (17.4%), convenience stores (17.3%), large discount stores (11.9%), and corporate supermarkets (SSM, 2.8%). Among these, online sales share increased by 3.3 percentage points year-on-year, department stores by 1.4 points, convenience stores by 4.3 points, and SSM by 4.6 points. The only sector to decline was large discount stores, which fell by 1.6 percentage points.

Even if the spillover benefits from the Homeplus situation appear in the short term, if the trend of contraction in large discount stores in the retail market does not change, other companies could also face risky situations. Especially since the retail market's center of gravity shifted to online after the COVID-19 pandemic, with online sales accounting for more than half of the market share, unless there is a significant change, the sales share of online retailers like Coupang is likely to grow further.

Researcher Jo Sang-hoon of Shinhan Investment Corp. pointed out, "The growth of online e-commerce companies, leveraging price competitiveness, continues, and the fundamental appeal of the large discount store sector is declining, which is the biggest mid- to long-term burden," adding, "It is now necessary to pursue differentiation strategies through not only new store openings but also renovations."