[Why&Next] New Headquarters Six Times Larger... E-Land Tightens Its Belt as It Embarks on the 'Magok Era'

E-Land Group Completes Move-In to "Magok R&D" Center
Relocation Finalized After 10 Years
"Aiming for a Global Comeback"
Fashion and Food Sectors Perform Well
Distribution Business Continues to Lag

E-Land Group, celebrating its 45th anniversary, has ushered in the 'Magok Era.' After a decade of anticipation, the group has consolidated all its previously scattered subsidiaries into one location. The company plans to leverage world-class fashion and advanced food and beverage (F&B) research centers to transform into a global enterprise. However, due to large-scale investments such as the construction of the new headquarters, borrowings have increased significantly. With financial soundness deteriorating and funding becoming more difficult, E-Land's Magok Era has started with the company tightening its belt from the outset.

According to the retail industry on September 18, more than 10 E-Land Group subsidiaries-including E-Land World (fashion), E-Land Retail (distribution), and E-Land Eats (dining)-completed their move last week to the 'Magok Global R&D Center' in Gangseo-gu, Seoul. The Magok R&D Center, which broke ground in October 2015 and was completed at the end of last year, serves as E-Land Group's R&D facility. Although named an R&D center, it effectively brings together all of E-Land Group's functions and capabilities under one roof. Previously, subsidiaries were scattered across locations such as the Gasan headquarters and Yeouido, but this is the first time the entire group has been housed in a single building.

E-Land Group’s Long-Awaited Magok R&D Center

The construction of the Magok R&D Center has been a long-cherished project for E-Land Group. Initially, the center was slated to be completed in 2018 and occupied in 2020 after construction began in 2015, but the timeline was postponed due to the COVID-19 pandemic and the group’s financial crisis. At the end of 2015, E-Land Group’s holding company, E-Land World, experienced a liquidity crisis following a credit rating downgrade, leading to the sale of key brands over the next three years. In 2017, the group vacated its Sinchon headquarters, dispersing major subsidiaries to locations such as the Gasan building. Recently, however, E-Land World’s performance improved, enabling the group to complete the move after ten years.

The Magok R&D Center is six times the size of the previous Gasan headquarters. The former headquarters spanned 39,600 square meters (about 12,000 pyeong), while the new building has a total floor area of 250,000 square meters (about 75,625 pyeong). Unlike the previous building, which was used solely as office space, the new headquarters has significantly expanded R&D facilities. With five basement levels and ten above-ground floors, it can accommodate up to 3,000 employees. Key facilities include a fashion research lab and an F&B menu development lab, with the fashion research lab scheduled for completion by the end of this year.

E-Land Group plans to use its new R&D-focused headquarters as a springboard for future growth. A company representative explained, "This facility was established for research and development in strategic business areas such as future fashion, distribution, and food," adding, "We will concentrate R&D efforts in these strategic sectors to drive future growth."

Large-Scale Investments Like the New Headquarters Become a Double-Edged Sword... Financial Stability Worsens

E-Land Group began in 1980 when founder Park Sungsoo opened a small clothing store called 'England' near Ewha Womans University. Four years later, Park established the corporation under the name 'E-Land' and entered the fashion market in earnest. In 1994, the group launched '2001 Outlet' and entered the distribution business, expanding by acquiring distressed retailers such as Carrefour (the predecessor of Homeplus) and Haitai Distribution (Kim’s Club). E-Land further expanded into the Chinese fashion market, resorts and hotels (Kensington), and the dining sector (Ashley), growing into a major conglomerate with total assets of 11.626 trillion won and ranking 46th among Korean conglomerates as of the end of last year.

However, the group experienced liquidity crises as it raised funds through bonds or commercial paper (CP) during a series of mergers and acquisitions. E-Land World, the holding company, lowered its debt ratio and improved its dependence on borrowings in 2021 through land asset revaluations, but borrowings increased again due to declining profitability and large-scale investments in the Magok R&D Center and a logistics center in China. As of the first half of this year, net borrowings stand at approximately 4.4 trillion won.

The main issue is the significant interest expenses resulting from these large borrowings. E-Land World’s consolidated operating profit for the first half of this year was 156 billion won, while interest expenses for the same period were 153.2 billion won. The interest coverage ratio is 1, meaning all profits earned were used to pay interest.

As a result, E-Land World attempted to raise 30 billion won through a corporate bond offering last month to repay existing borrowings. Despite offering a high interest rate in the upper 6% range, the company failed to meet its target in the demand forecast. Earlier this year, the company’s entire bond offering went unsold, forcing it to utilize the government’s corporate bond and commercial paper (CP) purchase program for funding.

Fashion and Food Businesses Show Improvement... Retail and China Markets Remain Uncertain

Recently, E-Land Group has performed well in the fashion and dining sectors, but the retail division continues to struggle. E-Land World’s sales for the first half of this year reached 2.7431 trillion won, with operating profit of 156 billion won-up about 5% and 9%, respectively, from the previous year. Of this, the fashion division’s sales totaled 1.7347 trillion won, a 3.5% increase year-on-year. E-Land Eats also saw sales rise 29% year-on-year to 276.4 billion won during the same period.

In contrast, E-Land Retail, which oversees the distribution business, recorded sales of 1.5649 trillion won and operating profit of 30 billion won last year, down 0.4% and 41.9%, respectively, from the previous year. At the end of last year, the company’s corporate credit rating was downgraded from 'BBB+ Negative' to 'BBB Stable.' Korea Investors Service explained, "High financial burden persists due to weak profit generation, investment pressures, and support for affiliates."

Moreover, there are risks even in the fashion division, which accounts for more than half of the group’s sales. E-Land Group is highly dependent on the sportswear brand New Balance, which generates annual sales of around 1 trillion won. Although the group extended its license agreement with New Balance for another five years after it was set to expire at the end of this year, the rapidly changing nature of the fashion market remains a challenge.

The Chinese market, which had been a breakthrough for sluggish domestic demand in recent years, is also showing signs of instability. E-Land entered China in 1996 and has since operated numerous stores through three sales subsidiaries. However, E-Land World’s Chinese subsidiary recorded sales of 479.7 billion won in the first half of this year, down about 2% from the same period last year. This is due to the slow recovery of domestic consumption following the COVID-19 pandemic.

An E-Land official stated, "Although the growth of the Chinese domestic market is recovering along with the government’s consumption stimulus policies, if the recovery of consumer spending is slower than expected, it could negatively affect our overseas performance." The official added, "As the Chinese market is expected to see high growth, competition will intensify not only among Korean companies but also with many global fashion apparel firms, which could have a somewhat negative impact on our operating profit."

E-Land Group is focusing on a 'selection and concentration' strategy through restructuring its governance. On September 1, E-Land Retail merged E-Land Kim’s Club and E-Land Global back into itself. This reverses the 2022 move to separate the hypermarket (Kim’s Club) and fashion brand (E-Land Global) divisions into subsidiaries after three years. Since 2020, the group has closed eight stores, including NC Department Store and NewCore Outlet, as well as four Kim’s Club locations.

In the dining sector, E-Land Eats last month appointed Samjong KPMG as lead advisor to sell six dining brands-Bangung, Steak Us, Teru, Teppanyaki Daguo, Asia Moon, Huwon-and three cafe brands-The Cafe, Cafe Lugo, and Perkeno. The goal is to focus on core F&B brands 'Ashley' and 'Nature Byul Gok.' An E-Land Eats representative explained, "This is not just for immediate funding, but to focus on our thriving buffet brands."