Keeping Business in China
South Korea's retail giant Lotte Group, which has been struggling with China’s escalating economic retaliation against Korean firms over the deployment of the U.S. Terminal High Altitude Area Defense (THAAD) missile system, will inject another US$300 million (340 billion won) into its Lotte Mart stores in China. The new funding comes after Lotte injected 360 billion won (US$319.43 million) in March.
According to Lotte Mart on August 31, Lotte Shopping Business Management Hong Kong Limited issued US$300 million (266,193) worth of bonds guaranteed by the Export-Import Bank of Korea. Of the total, US$210 million (240 billion won) will be used to repay loans with the remaining US$90 million (100 billion won) to be spent on operating its Chinese retail unit to cover the costs of buying products and giving wages to its employees until the end of this year.
Currently, 74 of the total 112 Lotte Mart outlets in China have been forced to shut down by Chinese authorities over alleged fire-safety violations. However, market experts believe that it was largely due to China's retaliation against deployment of the THAAD missile defense system on the Korean peninsula. Therefore, it is still unclear when the stores can start operation again.
Considering the fact that Lotte Mart posted 1.2 trillion won (US$1.06 billion) in sales in China last year, it is estimated to have suffered some 500 billion won (US$443.66 million) in losses from March to August.
Under the current local labor laws, Lotte Mart is required to pay 70 percent of regular salaries to employees and pay their rental costs every month despite the suspension of business. Industry watchers say its losses could reach 1 trillion won (US$887.31 million) by the end of this year if the current situation continues. Lotte Mart needs 90 billion won (US$79.86 million) a month on average to pay salaries to employees and rental costs.
Lotte Group is injecting additional funds to keep its business in China because it has made a massive investment in China and cannot withdraw from the country. The group thinks that numerous projects being carried out by its 20 subsidiaries, Lotte Department store, Lotte World and Lotte Cinema, in China would be hit sequentially when Lotte Mart shut down its business in China.