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Leaving the past behind: Lotte's chief all in for digital retail

With family feud settled, Shin looks overseas for growth

Shin Dong-bin has shaken Lotte Group's digital operations, seeking a new path to growth.

SEOUL/TOKYO -- The Lotte Group chairman, having weathered a bribery conviction and a family feud, seeks to rejuvenate the South Korean business empire that spans everything from retail and hotels to chemicals by putting the past behind him.

Revenue at the conglomerate has fallen by around $9 billion over the past five years or so. Shin Dong-bin says he will wholly transform operations by fully integrating online sales.

"I will completely throw away the successful experience we had with physical stores," Shin told Nikkei in his first exclusive interview since South Korea's Supreme Court upheld in October a lower court's decision to release him from prison after serving seven months.

Lotte will shut down 200 unprofitable superstores, drugstores and department stores in South Korea before the end of the year. The number represents about 20% of all comparable outlets, equating to the largest such downsizing in the group's history.

Lotte's mainstay retail and distribution operation in South Korea earns roughly 40% of all sales. However consumer spending there has wallowed for a protracted period, and the conglomerate has encountered stiff competition from online retailers.

Lotte Shopping, the group's core retail subsidiary, has struggled to generate revenue, and operating profit has plunged by two-thirds over five years.

That prompted Shin to consolidate the group's digital operations, which had been scattered among multiple subsidiaries.

"Through integrated internet operations, we'll form a structure in which various products can be picked up at the nearest [Lotte] store," Shin said.

In January, Lotte replaced top executives at 40% of group companies with younger managers. The aim was to infuse new blood better attuned to the digital pivot.

"Even if the word 'digitization' is uttered, there were many people whose thoughts revolved around operating physical stores," Shin said.

The new integrated digital retail arm, Lotte On, went online in a limited scope last month. When services are fully implemented, customers will be able to order Lotte products online and pick them up at nearby locations.

Lotte, however, faces its toughest rival in Coupang, called South Korea's answer to Amazon -- and which burns cash like the American counterpart used to. Coupang counts Japanese tech conglomerate SoftBank Group as a backer.

"I don't intend to compete with a company that generates huge losses each year yet is covered by shareholders," Shin said.

Moving forward, a domestically focused Lotte has no prospect for growth since South Korea is home to the most-rapidly aging population among all advanced countries. Developing offshore markets has emerged as a pressing issue for the group.

"Due to the unstable global economy, we will keep shifting to developed nations," he said.

Lotte's hotel business, which makes roughly about $10 billion a year in sales, will be central to that strategy. The group opened a luxury hotel in the U.S. city of Seattle in June, and plans other openings in the U.K. and Tokyo within the next few years.

"Including mergers and acquisitions, we'll double to 30,000 rooms globally within the next five years," Shin said.

Also front and center on the international stage is the petrochemical segment, which takes in some $15 billion yen in sales, second only to the retail business. Lotte will invest an additional $1 billion in a U.S. ethylene plant in Louisiana state to increase output 40%.

Shin eyes acquisitions in Japan's chemical industry as well. "There are many Japanese companies that possess promising technology but have been unable to expand globally," he said.

Shin, who goes by Akio Shigemitsu in Japan, was sentenced in 2018 to 30 months in jail for bribing an associate of former President Park Geun-hye, both of whom are currently serving time. An appellate court later suspended the sentence for four years pending good behavior, essentially granting him parole.

In January, Shin Kyuk-ho, who built Lotte from a chewing gum maker in Japan to one of South Korea's largest chaebol conglomerates, died at 98. When the patriarch, who is also known as Takeo Shigemitsu, started to decline in health, he left his two sons in charge of his sprawling, cross-border enterprise.

Elder son Shin Dong-joo helmed Lotte Holdings, which oversees the confectionery-focused business in Tokyo. He also goes by the Japanese name of Hiroyuki Shigemitsu. Shin Dong-joo was ousted from the company in 2015 after losing a boardroom battle with his younger brother, who rose from managing the South Korea side to ruling the entire group.

Shin Dong-joo has attempted to remove Shin Dong-bin from the top through legal challenges and shareholder motions over the years without success. The younger Shin now declares the sibling rivalry all but settled.

"I was once worried, but [the feud] is no longer a problem," said Shin Dong-bin.

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