The worst crisis is facing the Lotte Group’s Chinese business in 23 years as the Lotte Group with a large-scale business presence in China is at the center of controversy over the Terminal High Altitude Area Defense (THAAD) System between South Korea and China. The Lotte Group, which had aggressively opened its stores in China since 2009, has seen a spike in the number of its closed stores since 2011 and recently added three stores to its list of stores to be closed down. As if to add oil to the fire, real estate contracts has been delayed, making it inevitable for the Lotte Group to restructure its Chinese business. Moreover, the Lotte Group’s large projects were stopped by Chinese bureaucrats, making its other projects more likely to stop one after another.
According to industry sources on February 26, the Lotte Group is concerned about an expanded possibility that a brake will be put on the construction of Lotte World Chengdu, a commercial complex with a total floor area of 570,000㎥, scheduled to be completed in 2019 and another large project. The Lotte World Shenyang project in which Lotte World has invested 3 trillion won, has been suspended since last December. Lotte is concerned that Lotte World Chengdu may follow suit. As Chinese authorities checked firefighting facilities, they pointed their fingers at the altitude of the skyscraper’s top, making Lotte decide to temporarily halt construction work after halving the height of the 100-story edifice. Lotte World Shenyang, an indoor theme park on land of 160,000 ㎥ and with a building area of 1.5 million ㎥, is part of the Shenyang Lotte Town Project, which has been implemented by the Lotte Group with an investment of 3 trillion won since 2008.
In its public disclosure at the end of 2015, Lotte Shopping predicted that it will operate 122 stores by the end of 2016, but the figure actually hit 112. Lotte Mart decided to close three Lotte Supermarkets, two in Beijing and one in Tangshan, Hebei Province, by the end of March at the latest. These three are the worst performers among all 16 Lotte Supermarkets in China. The distribution industry analyzed that the direct and indirect effects of retaliatory regulations imposed by the Chinese government adversely affected their sales as well.
At the beginning of this year, Lotte stopped sales activities of all overseas flagship shops in Lotte.Com's in Tianmao, an Alibaba shopping mall in China. Since Tianmao is one of the top shopping malls in China and a flag shop is a place where each company guarantees the reliability of products, it means that abandoning the online sales in Tianmao is virtually giving up its online sales in China.
The Lotte Group's Chinese operations account for a significant portion of the group's business as 23 subsidiaries made a foray into the Chinese market. Lotte Group, which made inroads into China in 1994, has invested over 10 trillion won in China. Lotte Shopping, Lotte Chilsung Beverage, Lotte Confectionery, Lotte Chemical, Lotte Cinema and Lotte Asset Development are doing business in China and the number of employees in China hits about 26,000.