+ A

Lotte finds it is between a rock and hard place, again

July 23,2019
Lotte can’t catch a break.

Whenever Korea faces a diplomatic crisis, it seems the company finds itself caught in the crossfire.

Most recently, the boycott of Japanese products by Korean consumers, following the announcement of trade restrictions by Japan, has hit Lotte. This comes not long after its operations were boycotted by consumers in China who were angry that the U.S. terminal high altitude area defense (Thaad) antimissile system was placed on a golf course owned by Lotte.

It was a one-two punch.

“The [recent] boycott is worrying even when the impact of Thaad remains [even today],” said a Lotte employee.

Lotte has connections to many of the brands that are being shunned since Japanese Prime Minister Shinzo Abe announced at the beginning of this month that Japan would be restricting the export of three key materials essential to the manufacturing of semiconductors and display products.

The exposure runs the gamut and includes Uniqlo, Asahi beer, Muji, Canon and Fuji Film. Lotte has some sort of partnership or alliance with all of them.

Since the boycott started, these brands have seen their revenue fall about 30 percent.

In the case of Uniqlo, Lotte has a 49 percent stake in its Korean operations, FRL, and the Japanese parent, Fast Retailing, owns the rest.

The situation was made worse when a Uniqlo executive remarked in Tokyo during a company earnings meeting that the Korean boycott would not last long and its impact would be minimal.

The company apologized twice but to no avail apparently. Comments on the internet call for driving Uniqlo out of Korea, much as the Chinese consumers did to Lotte during the Thaad conflict.

Lotte has a 40 percent stake in Muji Korea and also owns a 50 percent stake in Lotte Asahi.

The recent hardships are not unlike what Lotte suffered when Seoul’s relationship with Beijing soured over the deployment of Thaad.

Lotte Mart had to pull out of China, while a 3 trillion won ($2.5 billion) project Lotte was building in Shenyang, west of Beijing, and above North Korea, has been put on hold for two and a half years.

The Chinese government also reportedly told Chinese travel agencies not to book tours that include any Lotte-related venues.

“The current situation that Lotte is in shows the complicated geopolitical relationship and the difficulty Korea faces being stuck between China and Japan,” said Lee Jung-hee, an economics professor at Chung Ang University.

“It is proof that not only are the government relationships complicated but also those of individual companies.”

The business ties that Lotte has with these Japanese brands have been lucrative for the Korean retailer.

According to Financial Supervisory Service’s data, analysis retrieval and transfer (DART) system, Lotte received 46.4 billion won of dividends from FRL in the fiscal year ending August 2018.

FRL also paid 30.7 billion won to retailers leasing space, including Lotte Department Store.

Lotte took 1.6 billion won from Lotte Asahi Liquor as a dividend while Lotte also received roughly 700 million won from Muji Korea.

One of the biggest concerns Lotte is facing is that the recent boycott campaign is not driven by consumer advocates but rather by the consumers themselves.

It is a different, potentially more challenging, boycott.

Lotte Group Chairman Shin Dong-bin on Sunday held a meeting of company affiliates where he emphasized the need to take action that will win the hearts of consumers by engaging in good deeds to improve the corporate image.

BY KIM YOUNG-JOO [lee.hojeong@joongang.co.kr]