SEOUL/BANGKOK -- South Korean retail giant E-Mart is in talks with Charoen Pokphand Group of Thailand to sell its five stores in China, which have been hit hard by falling sales and mounting losses, a source familiar with the matter said on Friday.
"E-Mart is negotiating with CP to sell its stores in China," according to the source, asking not to be named. "The talks are still ongoing, so we do not know yet how the deal is [going to] unfold."
The South Korean retailer said on Friday that it plans to pull out of the Chinese market by the end of this year, but it declined to comment on the deal. E-Mart, a discount chain affiliate of Shinsegae Group, said earlier this year that it planned to exit the Chinese market.
Its falling sales in China comes as relations between Seoul and Beijing have soured over the deployment in South Korea of a U.S. antimissile system, which China opposes.
E-Mart's sales in China tumbled 38.6% to 27.7 billion won ($24.5 million) in the second quarter. It posted 5.4 billion won in operating losses during the April-to-June period, compared with a 5.6 billion won operating loss a year earlier.
Analysts say that E-Mart has suffered in China, where big discount chains have seen sluggish growth. "It is difficult to run big supermarkets in China," said Oh Lina, an analyst at eBest Securities. "Leading local players are also struggling to increase sales."
Cha Jae-hyun, an analyst at Dongbu Securities, said a deal would help the company reduce losses in the market and boost its corporate value in the mid-term. "We expect withdrawal from the Chinese business to cut its loss by 20 billion won a year."
Investors reacted positively on news of an impending sale. Shares of E-Mart jumped 2.4% to 215,000 won on Friday. The benchmark KOSPI was down 0.11% at 2,343.72.
E-Mart on Friday said its August sales rose 3.5% to 1.2 trillion won from a year ago on the back of its wholesale brand Traders and online business, which jumped 30.8% and 27.6%, respectively, during the same period.
Lotte Shopping, the retail arm of Lotte Group and E-Mart's local rival, has also struggled in the Chinese market. Most of its store operations in China have been suspended by the authorities over political issues. Lotte has faced anger from Chinese consumers after the company offered its golf course in Seongju to the military base camp of the missile-defense system.
CP Group is one of the largest conglomerates in Thailand and runs discount chain CP Lotus in China.