Retail rivals in S. Korea turn up pressure

October 31, 2010 at 12:00a.m.

Los Angeles Times

BUSAN, South Korea

It was a bold, in-your-face corporate strike underscoring the bad blood between South Korea’s two biggest retail titans.

In an Asian version of the old Macy’s versus Gimbels death match, Shinsegae Group last year opened its latest luxury department store on the home turf of archrival Lotte Group.

Not just any new branch, this was a monster retail space that eclipsed Macy’s New York City flagship store in the Guinness World Records as the world’s largest department store.

The $600-million, 5.5-million-square-foot colossus features an indoor ice rink, spa, concert hall, golf driving range and rooftop green space — a futuristic retail palace that dwarfs a Lotte store situated literally next door in urban Busan.

To hear Shinsegae officials tell it, Lotte founder Shin Kyuk-ho quickly organized an entourage to eyeball his competitor’s newest creation.

“He appeared angry and shocked,” recalled An Yong-joon, a general manager of customer strategy at Shinsegae Centum City. “For his whole life, he’s dreamed of building a piece of landmark international architecture here. And Shinsegae beat him to it.”

Not so fast, said Lotte, which is building its own new megaproject in Busan. Its Lotte World features a Bellagio-style water fountain that the store calls the world’s largest. Capping the venture is a skyscraper that when opened in 2016 will be among Asia’s tallest.

With a sniff, Lotte brushes off the competition posed by its adversary’s new superstore. “It may be big, but its sales are small,” said spokesman Lee Kyeong-kill.

Even in South Korea’s hard-nosed corporate landscape, this battle stands out — because with Shinsegae and Lotte it’s not just business, it’s personal. Their take-no-prisoners tactics have included price and turf wars, accusations of unethical business practices, even lawsuits.

Now, with the emergence of two second-generation company leaders, the sales war threatens to go global as both retail giants expand into China and the rest of Asia.

“It’s competition on a very personal level,” said Lee Suk, an investigative reporter who has covered the companies for the weekly South Korean news magazine Sisa Journal. “They play by emotions. It’s become a battle of wits in the boardroom.”

Industry insiders said the in-your-face maneuvers illustrated the sheer chutzpah required to remain competitive in this business-savvy nation of 50 million.

The companies have pursued different paths to the top. The foundation of Lotte’s empire is its high-end department stores, a segment where it claims three times the market share of Shinsegae.

Conversely, Shinsegae — whose name means “new world” in Korean — has targeted lower-end shoppers with its E-Mart stores, South Korea’s largest chain of Wal-Mart-style discount stores. That venture claims three times the lower-end retail market share that the Lotte Mart discount chain attracts.

The two companies are also preparing to do battle in a third category: outlet malls. Shinsegae already operates one and is planning several more in South Korea, while Lotte is building its first.

Long second fiddle to Lotte, Shinsegae last year overtook its rival in total revenue, posting $11.4 billion in sales, compared with Lotte’s $10.7 billion.

“In terms of prestige, Shinsegae is catching up. They’ve opened the new department store in Busan, but it’s the discount area where they’re really winning,” said Gene Park, a broker at Woori Investment & Securities in Seoul. “Koreans now tend to prefer discount stores and that’s Shinsegae’s strength.”

And while Shinsegae has fallen short of financial targets it set for its expansion into China, Park said that such investments usually take years to produce dividends. After that, he predicted, Lotte had better watch out.

The fight has moved into the second generation, as sons of the founding families have ascended to key leadership positions.

At Shinsegae, Chung Yong-jin, 41, was promoted last year to chief executive. Shin Dong-bin, 55, Lotte’s vice chairman, is accelerating his move to take over the company as he directs Busan’s Lotte World project, industry insiders say.

The domestic retail rivalry is spreading overseas. Shinsegae operates 26 discount stores in China and plans to open 100 outlets there by 2015. Lotte runs 79 discount stores in China and also has outlets in Indonesia and Vietnam.

This year, Lotte expanded its presence in Russia by opening a hotel adjacent to a high-end department store it founded in 2007.