Lotte Shopping's e-commerce business under question Lotte ON posts disappointing earnings after integration of online shopping sites last year
Translated by Kim So-in 공개 2022-02-18 08:11:09
이 기사는 2022년 02월 18일 08:09 thebell 에 표출된 기사입니다.
Lotte Shopping delivered a gloomy earnings report last year as its e-commerce business Lotte ON reported disastrous earnings after Lotte Shopping’s launch of an integrated online shopping website.Lotte Shopping, the operator of South Korea's biggest department store and hypermart chains, said it recorded operating profit of 216 billion won ($180 million) on revenue of 15.58 trillion won in 2021 on a consolidated basis, down 3.7% and 37.7% year-over-year.
Its discount store chain, e-commerce and supermarket businesses all saw decline in revenue, excluding the department store business. Lotte Shopping’s e-commerce business recorded operating loss of 156 billion won, the largest among its divisions, with its revenue down 21.5% on-year to 108 billion won.
The e-commerce division’s financial performance was especially disappointing compared to other divisions. The decline in both revenue and operating profit was mostly due to Lotte Shopping’s integration of websites of its affiliates in August 2021. The company’s systems and facilities like commerce system and logistics centers were transferred to the e-commerce division. The move was made to have more efficient decision-making system by integrating functions that were scattered across business units.
Apart from the transfer of assets, the bases for recognition of profit and loss have also been changed. When department stores and hypermart divisions sell products through Lotte ON, the sale prices are recognized as the divisions’ revenue. The divisions don’t have to pay commission fees for using Lotte ON's platform while the e-commerce division has to bear costs that incurred from transactions through the website.
This means that the e-commerce division only accumulates losses without recognition of revenue whenever Lotte Shopping’s products are sold through Lotte ON. Internal transactions among affiliates have a negative impact on the e-commerce division’s performance.
The division’s net revenue declined from 30.4 billion won in the fourth quarter of 2020 before the integration to 27.9 billion won in the fourth quarter of 2021 after the integration. Its operating loss increased from 22.8 billion won to 48.8 billion won in the same period.
Lotte Shopping unveiled the e-commerce division’s gross merchandise value (GMV) for the first time. The total value of goods that Lotte Shopping’s business divisions sold via Lotte ON in 2021 amounted to 2.4 trillion won, up 48.2% from the previous year. Its GMV was 764.6 billion won in October-December period of 2021, up 53.45% year-over-year.
GMV as top priority
The integration came as Lotte Shopping aimed to boost its hypermart and departments store divisions’ online revenue by making the e-commerce division bear all the losses incurred from the other divisions.
Market insiders are expecting Lotte Shopping to see a turnaround this year. The improvement of the hypermart division has emerged as the most important task given the e-commerce division’s profit structure which generates more losses as its GMV increases. The hypermart division recorded operating loss of 32 billion won on revenue of 5.72 trillion won in 2021. Its revenue declined by 7.2% and operating loss widened from a year ago.
“The e-commerce division’s profitability declined in 2021 due to an increase in costs after the integration and we are focusing on increasing Lotte ON’s GMV instead of improving earnings results,” an official at Lotte Shopping said. (Reporting by Hyo-beom Lee)
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