[비즈한국] Although a traditional powerhouse in retail, Lotte Group is taking action after falling behind in the e-commerce race due to a delayed response. The group recruited Na Young-ho, a former eBay Korea executive, to overhaul its online shopping mall, Lotte ON. The industry interprets this internal structural reform as a primary goal, with the ultimate intention of setting the stage for the acquisition of eBay Korea, which is currently up for sale.
However, there are significant concerns that eBay Korea may not be an attractive prospect for Lotte Group. In particular, some point out that with a price tag reaching 5 trillion won, the acquisition could backfire and become a "winner's curse" for Lotte.
eBay Korea Acquisition Race Draws Significant Interest
The acquisition price for eBay Korea, which holds a 12% domestic market share, is estimated at around 5 trillion won. The schedule proceeds to the final bidding stage after eight weeks of due diligence. So far, the acquisition battle appears to be a success in terms of interest. Beyond large corporate groups like Lotte (Lotte Shopping 023530), E-mart 139480, and SK Telecom 017670, private equity firm (PEF) MBK Partners is also interested in the acquisition.
The appeal of eBay Korea is clear. Unlike companies like Coupang, which have yet to break out of the red, eBay Korea has remained stable enough to record 16 consecutive years of profit. It is the only profitable company among major domestic e-commerce firms. Last year, thanks in part to the COVID-19 pandemic, it reportedly posted an operating profit exceeding 80 billion won, a figure said to be more than 30% higher than the previous year.
In particular, its logistics centers in Dongtan, Baegam, and Incheon, along with the "Smile Delivery" system it operates, are highly valued as they provide the know-how eBay Korea has secured through over 20 years of operations in a fiercely competitive logistics market.
As a result, companies have declared their participation despite the high acquisition price. In the preliminary bid for eBay Korea that closed in the middle of last month, Lotte, Shinsegae, MBK Partners (which owns Homeplus), and SK Telecom (which has the e-commerce firm 11st as a subsidiary) were named to the shortlist of qualified candidates.
Can Lotte Recover Its Status as a Retail Powerhouse with eBay?
The most attention is on Lotte. The group recently recruited former eBay Korea Vice President Na Young-ho. While Lotte stated that this was for a major rebound in the online market, such as revamping the group's integrated online shopping mall Lotte ON, the industry interprets it as a sign of Lotte Group's determination regarding the eBay Korea acquisition.
A securities analyst remarked, "Even while at eBay Korea, Vice President Na Young-ho was a person who communicated directly with the U.S. side," adding, "An acquisition is not decided solely by quantitative factors like the price; qualitative factors are also important." They evaluated it as "an appointment aiming for both before and after the acquisition, as a chemical combination is necessary to create synergy with the existing Lotte Group after the takeover."
For Lotte Group, which has failed to demonstrate a significant presence in the e-commerce market, structural reform was inevitable. During a meeting of CEOs early this January, Chairman Shin Dong-bin strongly criticized the group, stating, "Reset the management direction and push for high-intensity structural reform." Chairman Shin ordered, "Prepare thoroughly to respond to the COVID-19 situation that will continue this year. Establish a solid medium-to-long-term vision and, above all, create an organizational culture that can innovate," a remark reportedly aimed at the poor performance in areas such as retail last year.
A retail industry official explained, "Last year, Lotte Group's sales declined as it was not aggressive in online transactions due to COVID-19. As e-commerce firms like Coupang and Baedal Minjok grew rapidly, Lotte Group's status is not what it used to be, and it seems Chairman Shin Dong-bin was pointing this out."
In fact, Lotte ON's transaction volume last year was around 7.6 trillion won, which is one-third the size of Naver and Coupang, which each handle roughly 20 trillion won annually. Although this is a 7% increase compared to the previous year since Lotte ON's launch in April last year, it is a low growth rate compared to the 19% increase in total online shopping transaction volume due to COVID-19.
Ultimately, in February, Lotte Group dismissed Cho Young-je, who led Lotte ON, and recruited former eBay Korea headquarters head Na Young-ho as the new CEO (head of the E-commerce Business Division) to embark on structural reform. Among Lotte Shopping’s four business divisions (Department Store, Mart, Super, and E-commerce), all but the Department Store division head were at the executive director level, but by elevating CEO Na to the position of Vice President, the group signaled a "restructuring toward an online-market-centered system."
The aforementioned retail industry official predicted, "For Lotte, which has a high interest in e-commerce, the acquisition of eBay Korea would be the most certain option for 'expanding influence in the online market.' Some of the firms currently on the list might drop out after due diligence, but Lotte will likely remain."
However, there are also significant concerns. Some point out that for Lotte, which already has its own retail network, eBay Korea might only result in a simple increase in transaction volume. Another analyst pointed out, "For Lotte or E-mart, the acquisition of eBay Korea could be a waste of money because it only increases the transaction volume," adding, "For Lotte Group to grow its footprint in the e-commerce market, priority should be given to vitalizing online transactions by actively utilizing its own established retail network; this is something that can be tried through marketing or promotion rather than acquisition."