"7 Trillion Won Investment for 6.6 Trillion Won Sales"... Lotte's Ambitious Time Villas Project Suddenly Halts Construction [Why&Next]

Construction Began in May, but Time Villas Gunsan Renovation Faces Delays
Joonho Jung's Ambitious 'Time Villas' Project... 7 Trillion Won Investment Shaken from the Start
Core Businesses in Chemicals, Retail, and Food & Beverage Shaken... Lotte Hold

Exterior view of TIMEVILLAS in Suwon. Provided by Lotte Department Store.

Junho Jung, CEO of Lotte Department Store, is ambitiously pushing forward the mixed-use shopping mall project 'Time Villas,' but the project has hit a snag. The Gunsan branch, which is the second Time Villas location, has encountered difficulties with its renovation, causing disruptions to the plan to open within the year. Additionally, construction of the Songdo branch, which was scheduled for completion in the second half of next year, has also come to a halt. Concerns are being raised that the momentum behind the project may be waning as Lotte Group has become more conservative in its investment decisions due to liquidity concerns.

According to Asia Economy's coverage on September 3, the renovation work for Time Villas Gunsan has effectively been suspended. Lotte Department Store, under Lotte Shopping, selected Lotte Mall Gunsan, which opened in 2018, as the second Time Villas location and began renovations earlier this year with the goal of reopening in the second half of the year.

Renovation of Time Villas Gunsan Delayed Despite Construction Approval in May

Lotte Department Store received approval from Gunsan City in May to begin construction, aiming to convert part of the second-floor parking lot and the third-floor educational and cultural facilities at Lotte Mall Gunsan into retail spaces and restaurants. However, three months later, the second floor of Lotte Mall remains covered by barricades, and renovation work has not begun.

The renovation process involves administrative steps such as 'building notification → design and approval application → permit → submission of construction commencement notice → construction → request for completion inspection.' According to Gunsan City, Lotte Department Store has completed the submission of the construction commencement notice. The renovation schedule will depend on the pace of Lotte Department Store's construction progress. A representative from a tenant at Lotte Mall Gunsan said, "We thought the work would be done in a month or two, but the construction keeps getting delayed."

Originally, Lotte Department Store notified tenants that renovations would be completed last month and that the mall would reopen as Time Villas in October. In fact, Youngpoong Bookstore, located on the first floor of Lotte Mall, informed customers that it would move to the third floor and resume operations in October. However, as the department store pushed the renovation schedule to year-end, it has remained silent on specific dates. A tenant representative said, "We were supposed to finish the renovations during the summer and resume business, but the schedule has been delayed. We were told it would be completed by the end of the year, but even that is uncertain."

However, a representative from Lotte Department Store explained, "Renovation is not something that can be completed in one go; there are changes as we make detailed adjustments. Although the schedule has been pushed to year-end, the planned opening date will not change."

Bird's-eye view of Time Villas Songdo. Provided by Lotte Department Store.

The Songdo branch of Time Villas, which was scheduled to open next year, has also reportedly seen its construction come to a halt recently. Previously, the Songdo branch received all necessary building permits for construction in June and began work. However, rising material and labor costs due to inflation have led to prolonged negotiations between the main contractor Lotte Construction, its partners, and subcontractors, resulting in the suspension of construction just two months after it began. Currently, the Songdo branch is still at the foundational construction stage, and it is uncertain whether the entire project can be completed as planned next year.

Junho Jung's Ambitious Time Villas Project... 7 Trillion Won Investment Shaken from the Start

Time Villas is a core growth strategy spearheaded by Junho Jung, CEO of Lotte Department Store. The vision is to expand mixed-use shopping malls as a new growth engine, instead of relying on stagnant department store growth. The company has announced plans to invest 7 trillion won by 2030 to expand Time Villas to 13 locations and achieve 6.6 trillion won in sales.

CEO Jung, who was the first external hire for Lotte Department Store and previously worked at its rival Shinsegae Department Store, envisioned expanding mixed-use shopping malls as a new growth engine instead of relying on stagnant department store growth. In May last year, Lotte Department Store renovated its Suwon branch to launch the first Time Villas, and plans to transform existing locations, including Gunsan, Gwangju Suwan, Dongbusan, Gimhae, Eunpyeong, and Suji, into mixed-use shopping malls. Additionally, new stores will open in Incheon Songdo, Daegu Suseong, Seoul Sangam, and Jeonju.

Joonho Jung, CEO of Lotte Department Store, explaining the shopping mall business strategy of Lotte Department Store at a press conference held at Lotte Hotel in Jung-gu, Seoul. Provided by Lotte Department Store.

However, with renovation work for the second Time Villas branch already delayed, it is uncertain whether further expansion will proceed as planned. Industry insiders point to the underwhelming performance of the first Time Villas in Suwon as a reason for the investment delays. In comparison, Starfield Suwon, which Shinsegae Group opened nearby, has attracted more weekend visitors by targeting families.

Starfield Suwon, which opened last year, recorded sales of 52.7 billion won and operating profit of 17.1 billion won in the first half of this year. Despite sluggish domestic demand and weakened consumer spending this year, both figures increased compared to the first half of last year (sales of 51.4 billion won and operating profit of 15 billion won).

Lotte does not disclose the performance of individual stores. However, since June, Lotte Holdings has been conducting a comprehensive audit of Lotte Department Store, including management status, financial control, and business structure, and it is believed that Time Villas Suwon is part of this audit. Given that over 100 billion won was invested in last year's renovation, the company is reviewing profitability. The audit results are expected in October.

Core Businesses in Chemicals, Retail, and Food & Beverage Shaken... Lotte Holdings Moves to Manage Liquidity

Some analysts suggest that the delays in Time Villas construction are due to liquidity issues at Lotte Group. A source familiar with the internal affairs of Lotte Group stated, "Lotte Holdings has put the brakes on the Time Villas renovation. They do not see enough business potential and have pushed it to a long-term plan, but in reality, construction has effectively been suspended."

This means Lotte Group is taking a cautious approach to investments by its affiliates due to a lack of liquidity. In recent years, Lotte Group has faced rumors of a 'liquidity crisis' at the end of last year due to mergers and acquisitions (M&A) and sluggish performance in its core businesses. At the time, the group sought to quell these rumors by selling and revaluing assets.

Lotte Holdings, the group's holding company, has also seen a significant increase in borrowings this year. According to its semiannual report, Lotte Holdings' total borrowings on a separate financial statement basis reached 3.845 trillion won, an increase of about 300 billion won from last year (3.5733 trillion won). In particular, short-term borrowings have surged, with a net increase of about 580 billion won. This was due to the repayment of corporate bonds maturing within a year (340 billion won) and participation in a paid-in capital increase (worth 210 billion won) at the beginning of the year to fund investment in Lotte Biologics, resulting in an increase in short-term borrowings.

Lotte Holdings' current liabilities due within one year stand at 2.0267 trillion won, up 19% from the previous year's 1.9083 trillion won. The current ratio is 13%. A current ratio below 100% indicates poor short-term financial health.

The problem is that continued poor performance by affiliates is reducing Lotte Holdings' cash flow. As a pure holding company, Lotte Holdings' main sources of income are dividends, brand royalties, management consulting fees, and interest from its affiliates. In the first half of this year, Lotte Holdings' standalone sales were 219.5 billion won, down about 12 billion won (8%) from 231.7 billion won in the same period last year, due to declining performance at key subsidiaries.

Lotte Group's retail division posted solid results in the first half of the year, with sales of 6.8065 trillion won and operating profit of 188.8 billion won, but both sales and profitability declined in the second quarter alone. Lotte Chemical, a key subsidiary in the chemical sector, recorded first-half sales of 8.987 trillion won and an operating loss of 377.1 billion won. Sales decreased and losses deepened. In the food and beverage sector, Lotte Wellfood's operating profit was halved to 50.7 billion won in the first half.

However, a representative from Lotte Holdings stated, "The partial delay in Time Villas construction is unrelated to funding issues. Investment decisions are made independently by each affiliate, taking various factors into account."