Retailers leave China for Southeast Asia

Lotte Mart’s third store in Vietnam, which opened on Nov. 29.
/ Courtesy of Lotte Mart

By Lee Hyo-sik

Department stores, discount store chains and other retailers, which rushed to set up presence in China over the past few years, are increasingly turning their eyes to Vietnam and other rapidly growing Southeast Asian nations.

Some retailers have decided to downsize their operations in the world’s second largest economy, with others completely pulling out due to falling sales and rising costs. Korean and other foreign firms doing business in China have been hit by excessive competition, growing regulatory risks, and soaring labor and other expenses.

In contrast, Southeast Asia, which has been growing at a steady pace despite the ongoing global economic downturn, has emerged as the Eldorado for local retailers seeking to find new consumer markets. They have begun establishing operations in the region to target tens of millions of increasingly wealthy consumers there.

According to retail industry sources, Thursday, Shinsegae and Lotte _ Korea’s two largest retail giants _ have decided to scale down their operations in China, which have failed to make money.

E-Mart, the country’s largest discount store chain affiliated with Shinsegae Group, used to run 27 outlets in China. But over the past two years, it has shuttered 11 money-losing stores. The remaining 16 are still in operation but unlikely to post profits this year.

''We have completed the overhaul of our China business. So, things will be much better for our unit there this year and beyond,’’ an E-Mart spokesman said. ''We will focus more on rapidly growing urban centers in southeastern and northern parts of China.’’

E-Mart also plans to enter Vietnam for new business opportunities. In cooperation with Vietnamese investment group U&I, it will open the first E-Mart store in Hanoi in 2013.

''We will place top priority on expanding our presence in Vietnam and other Southeast Asian nations to capitalize on the growing consumer market and foreign business-friendly environment. We look forward to doing business there,’’ the spokesman said.

The situation is not much different for retail units of Lotte Group. Lotte Department Store plans to complete the sale of its Beijing outlet early next year. The store has been incurring losses since opening in 2008. In 2011, it lost 28.1 billion won ($26 million).

In contrast to its shrinking China operation, Korea’s largest department store operator plans to build new branches in Southeast Asia. Lotte will open a store in Jakarta next year and in Hanoi in 2014.

Lotte Mart, the group’s discount store unit that currently operates 100 outlets in China, 30 in Indonesia and three in Vietnam, has also begun putting greater emphasis on Southeast Asia.

''The region holds a huge potential for growth. We will focus more on Indonesia and Vietnam to take advantage of growing consumer markets,’’ a Lotte Mart spokesman said. ''We just opened our third store in Vietnam and plan to set up two more next year. We have seen faster sales growth in the two countries than China.’’

Bakeries in Southeast Asia

Korea’s bakery franchises have also established a strong presence in the region to seek new revenue sources with the local market having reached saturation point.

Paris Baguette of SPC Group, the country’s largest bakery operator, set up its first Southeast Asian store in Ho Chi Minh City in March. It opened its second store in Singapore in September.

It operates 102 stores in Beijing, Tianjin and other Chinese cities. In the U.S., 21 Paris Baguette bakeries are run by local units in Los Angeles and New York.

Another major local bakery CJ Foodville's Tous les Jours, which entered the region in 2007, aims to become the largest bakery franchise in the region by sales in 2013.

It has set up bakery shops in Vietnam and Indonesia and is expanding its business in the Philippines, Malaysia and Cambodia.

The company currently operates a total of 42 outlets in the region and will open more to cater to young consumers, many of whom are hallyu fans.

leehs@koreatimes.co.kr,