Emergency Management Again After 5 Years... What's Happening at E-Land? [Why&Next]

Shift in Consumer Spending to Online Platforms... Continued Deterioration in Performance
Credit Rating Downgraded from BBB+ to BBB
Management States, "Different from Homeplus... Financial Structure Remains Stable"

Labor-management conflict has reignited at E-Land Retail, the distribution affiliate of E-Land Group, as the company entered an emergency management system this year. The company claims that this decision was inevitable due to the shift in consumer focus to online platforms and the resulting underperformance of offline stores. However, the labor union is protesting, calling it "mass layoffs under the guise of corporate restructuring" and has launched collective action.

According to the distribution industry on June 8, the E-Land Labor Union (E-Land Union) under the Federation of Korean Trade Unions Service Federation plans to hold a rally in front of the Seoul Regional Employment and Labor Office in Jung-gu, Seoul, on June 9, urging the Ministry of Employment and Labor to conduct a special labor inspection of E-Land Retail. The E-Land Union plans to continue this campaign every Tuesday and Thursday at 5:30 p.m. for about an hour starting June 9. On June 23, a large-scale rally is scheduled.

Jung Juwon, Secretary General of the E-Land Union, stated, "In December 2023, the Seoul Regional Employment and Labor Office conducted a special labor inspection regarding E-Land's forced dance practice and unpaid holiday wage controversy, but only imposed a fine of 5 million won and ruled that there was no wage arrears, which amounted to a 'lenient investigation.' He further argued, "Since the company entered the emergency management system, the personnel reallocation at E-Land Retail constitutes workplace harassment and must be strictly investigated by the Ministry of Employment and Labor."

E-Land Retail Enters Emergency Management Again After 5 Years... Losses Continue to Snowball

Previously, E-Land Retail declared an emergency management system at the end of April. After operating under emergency management for a year during the COVID-19 pandemic in August 2020 and then normalizing, the company has resumed the system after five years. An E-Land Retail representative explained, "Sales and profitability of offline retailers are declining, so it is inevitable for E-Land Retail to seek alternatives to overcome this. The emergency management system is intended to help the company overcome the crisis and protect all employees' jobs."

E-Land Retail is the distribution affiliate of E-Land Group, established in 1978. After launching the 2001 Outlet Dangsan branch in 1994 and introducing Korea's first fashion outlet model, the company now operates over 40 department stores and outlets nationwide, including NewCore, NC Department Store, 2001 Outlet, and Donga. Notably, the 'NewCore Factory Outlet,' a warehouse-style outlet opened last year, has been praised for attracting value-conscious consumers during the economic downturn with discounts of up to 90%.

Until 2019, E-Land Retail achieved annual sales exceeding 2 trillion won, establishing itself as a core affiliate leading E-Land Group. However, since the COVID-19 pandemic, the distribution market has shifted to an online focus, causing the company's performance to plummet each year. Sales fell from 2.1067 trillion won in 2019 to 1.7562 trillion won in 2020, declining for five consecutive years. Last year's sales amounted to only 1.5649 trillion won. During this period, operating profit dropped sharply from over 200 billion won to 30 billion won, and net loss ballooned to 160 billion won last year.

E-Land Retail Faces Series of Credit Rating Downgrades

As a result, E-Land Retail's credit rating has recently been downgraded multiple times. NICE Investors Service downgraded E-Land Retail's corporate credit rating from BBB+ (Negative) to BBB (Stable) on May 26. NICE Investors Service cited several factors, including sluggish private consumption, declining business performance due to the growth of e-commerce, continued net losses resulting from decreased operating profit and increased financial costs. Previously, at the end of last year, Korea Investors Service also downgraded the credit rating from BBB+ (Negative) to BBB (Stable).

According to E-Land Retail's consolidated audit report, as of the end of last year, liquid assets that could be converted to cash within one year stood at 450 billion won, nearly halved from 800 billion won the previous year. During this period, cash and cash equivalents fell sharply from about 170 billion won to 76 billion won, while short-term financial products shrank from 21.9 billion won to 6.6 billion won.

As of the end of 2023, current liabilities (debts due within one year) amounted to nearly 2 trillion won, but by the end of last year, they had dropped to the 1 trillion won range. However, non-current liabilities, or long-term debt, increased from about 1.3 trillion won to over 2 trillion won, so total liabilities only decreased by about 100 billion won. Meanwhile, financial debt increased by more than 140 billion won, from 111.8 billion won. With worsening profitability due to sluggish sales, rising interest expenses, and investment losses from affiliates, net loss has expanded, and with future performance improvement uncertain, the credit rating has been downgraded.

However, unlike Homeplus, which entered corporate rehabilitation procedures due to liquidity crises from management difficulties, E-Land Retail's debt ratio remains stable, according to the company. E-Land Retail's debt ratio was 111.7% last year, below the financial soundness threshold of 200%. However, its dependence on borrowings was 38.3%, higher than the 30% level considered risky. An E-Land Retail representative explained, "This emergency management system was implemented due to deteriorating performance from the overall slump in offline retail, and is unrelated to our financial structure."

Recently, E-Land Retail has been selling or closing some stores and is gradually withdrawing from its convenience store business, previously considered a new growth area. The lease for NewCore Incheon Nonhyeon Branch will end this month, leading to its closure. Donga Department Store Daegu Suseong Branch, Donga Department Store Gangbuk Branch, and NC Outlet Gyeongsan Branch are also considering a sale and leaseback strategy, where stores are sold and then leased back. The convenience store business, promoted through its subsidiary E-Land Kim's Club since June 2023, is also being discontinued. The first Kim's Convenience Store, Bongcheon Branch, will close due to the end of its lease, and the remaining four stores are also expected to close after their leases expire.

E-Land Retail's Personnel Reallocation... Union Calls It "Step Toward Mass Layoffs... Requests Special Labor Inspection"

Following the declaration of emergency management, E-Land Retail has begun reallocating personnel. Some management staff have been reassigned to on-site operations such as product labeling and logistics management, and since last year, voluntary retirement or unpaid leave has been offered as options. In addition, the company dismissed a large number of irregular workers from parking and security contractors, then assigned these duties to Kim's Club employees to manage E-Land Retail's parking operations.

The unions are strongly protesting these actions. E-Land Retail's workforce is divided between the NewCore Union and the E-Land Union, and both unions oppose the personnel reallocation. The NewCore Union recently issued a statement saying, "Kim's Club employees are performing non-original tasks such as parking management for E-Land Retail without proper compensation, which could constitute a breach of trust. We demand an immediate halt to unjust personnel dispatches, and if unavoidable, prior consultation with the parties involved."

The E-Land Labor Union under the Federation of Korean Trade Unions Service Federation held a press conference in front of the Seoul Regional Employment and Labor Office on the 28th of last month.
[Photo by E-Land Labor Union]

The E-Land Union under the Federation of Korean Trade Unions Service Federation also held a press conference on the 28th of last month, stating, "The management is carrying out natural layoffs through corporate-style restructuring," and called for a special labor inspection by the Ministry of Employment and Labor.

In response, E-Land Retail stated, "In the case of logistics centers, we selected employees with maximum consideration for individual circumstances such as health, commuting time, and family care. For parking and daytime security support, the safety management team conducted on-site risk assessments and excluded risky areas, assigning only tasks that employees could easily handle. We provided manuals in advance and conducted safety training." The company added, "We have provided sufficient guidance through employee briefings and individual consultations, held special temporary labor-management council meetings to consult with the union, and continue to communicate at least once a week."

Union Vows "Strong Response Including Legal Action"... Fears of a Repeat of the E-Land Incident

NewCore Bucheon Branch

As the labor-management conflict intensifies, some fear a repeat of the 'E-Land Incident.' The E-Land labor and management have frequently clashed over wage negotiations. In 2000, non-regular workers went on strike for over 160 days demanding wage increases and the abolition of subcontracting. In 2007, ahead of the implementation of the Non-Regular Workers Protection Act, a large-scale strike was held demanding a halt to layoffs of non-regular workers, leading to the suspension of operations at some stores. At that time, the NewCore Union and E-Land Union staged a sit-in for over 500 days, raising public awareness of the problems with the Non-Regular Workers Protection Act and causing a significant social impact.

Additionally, E-Land Retail faced controversy in 2020 for failing to pay holiday premium wages to employees who worked on public holidays, resulting in wage arrears issues. In 2023, the company also sparked controversy over workplace harassment by mobilizing hundreds of employees for dance practice for a year-end event, prompting the Ministry of Employment and Labor to conduct a special labor inspection.

Jung Juwon, Secretary General of the E-Land Union, said, "We have met with the Ministry of Employment and Labor regarding the personnel reallocation and received a response that they will consider a special labor inspection. If there is no improvement, we will stage protests in front of the Ministry of Employment and Labor and escalate our actions following internal discussions." The NewCore Union stated, "Recently, we have received numerous reports from members that they are being forced to transfer from E-Land Retail to Kim's Club. The union has opened a reporting center and will report all received cases as workplace harassment, while holding the company legally accountable for any unfair practices."