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Seoul-Beijing feud cues Lotte to end China misery
March 3, 2017 / 8:36 AM / 7 months ago

Seoul-Beijing feud cues Lotte to end China misery

A barbed-wire fence is set up around a golf course owned by Lotte, where the U.S. Terminal High Altitude Area Defense (THAAD) system will be deployed, in Seongju, South Korea, March 1, 2017. Kim Joon-beom/Yonhap

SEOUL (Reuters Breakingviews) - Beijing just handed Lotte a great excuse to abandon its troubled venture in China. The South Korean retail giant is under attack by Chinese state media after letting Seoul use its land to deploy a U.S. missile defence system. Beijing is vowing to make life hard for the group – but it’s pretty hard already. Lotte’s loss-making venture in the People’s Republic has already sparked a founder-family spat. The fallout from the political rift provides a great excuse to leave.

On Monday, Lotte approved a land swap deal with the South Korean government, which will install the U.S. Terminal High Altitude Area Defense System, or THAAD, on what is currently a Lotte-owned golf course. China claims the missile shield’s powerful radar is a security threat, and state media have leapt to bash the conglomerate, calling for boycotts. Chinese inspectors have launched investigations into Lotte stores; on Thursday the duty-free shop unit said a cyber attack from Chinese internet addresses crashed its website.

This is sour icing on an already bitter cake. The conglomerate’s fortunes in China had been waning long before THAAD came to town. In 2015, in a publicized dispute between the two sons of the Lotte founder, elder brother Shin Dong-joo claimed that Lotte lost more than $870 million in China in four years ending in 2014, and that his brother - the group chairman, Shin Dong-bin - had concealed it from their father.

While Lotte doesn’t break down earnings by country in its disclosures, data from independent research firm CEO Score show that the annual net loss in China for Lotte Shopping, the flagship unit, ballooned more than sevenfold in 2014 from four years earlier. Shares are down around 60 percent from a 2011 peak. Shin Dong-joo last month sold more than $300 million of Lotte Shopping shares, nearly half of his stake.

Graphic: Lotte Shopping share price: reut.rs/2myJ9rG

Lotte’s China headache is common to many brick-and-mortar retailers: vigorous competition from online shopping platforms. The company sold its first department store in China and has closed individual shops to cut costs, but turning things around looked like a long shot even before the current geopolitical fracas. Selling everything sellable and pulling the plug on the rest would probably benefit shareholders; sticking around looks painful and pointless.

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