Charting a new course

Seoul, May 22 (Reuters): Wal-Mart Stores Inc is selling its loss-making South Korean stores to Shinsegae Co Ltd for $882 million, making it the second global retailer to exit the country after Carrefour.

The sale by Wal-Mart, the world’s top retailer and No.5 in South Korea’s $22-billion discount store industry, highlights intense competition in the region among global retail players and a shift into fast-growing markets such as China and India.

The news sent Shinsegae shares up 6.6 per cent, as analysts expect the country’s top discount store chain to cement its lead and win more negotiating power with vendors to cut prices. The South Korean retailer had agreed to buy a 100 per cent stake in the US firm’s 16 domestic outlets for 825 billion won, the two firms told a news conference on Monday.

In late April, the world’s second-largest retailer Carrefour sold its South Korean operations for $1.85 billion to move resources to China’s $240-billion retail industry, where investment costs are smaller but the potential spoils are bigger.

“China, obviously, is potentially a much bigger market than South Korea,” said Paul McKenzie, head of consumer research at CLSA. “Unlike South Korea, you don’t have one dominant player. Shinsegae’s E-Mart dominates the field, whereas China’s market is much more fragmented so there’s more opportunity.”

McKenzie said China’s deregulation in 2005, which made it easier for foreign players to open new hypermarkets, made them more aggressive in expanding in China, Asia’s second-biggest retail market after Japan.

After eight years in South Korea, Wal-Mart won just 4 per cent market share, trailing Shinsegae, Samsung Tesco, 89 per cent-owned by Britain’s Tesco Plc, Lotte Shopping Co and Carrefour.

South Korea’s discount store sector has been growing at about 17 per cent a year over the past five years at the expense of traditional mom-and-pop stores, but the expansion has helped the top three players out-muscle smaller players.

“As we continue to focus our efforts where we can have the greatest impact on our growth strategy, it became clear that in South Korea’s current environment it would be difficult for us to reach the scale we desired,” said Mike Duke, Wal-Mart vice-chairman.