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Wal-Mart exits South Korea

By Anita Awbi , 23-May-2006

American behemoth Wal-Mart has become the second foreign retailer to exit the difficult South Korean retail market this month, selling its chain to local rival Shinsegae.

The world's number one retailer sold 16 stores for $882m (€691.7m), following a fairly disappointing 10-year stint in the country where it failed to make the top five retail list.

Wal-Mart's vice chairman Mike Duke said the firm could not reach its desired scale in South Korea, and will instead "focus efforts where we can have the greatest impact from our growth strategy."

 

The country's top supermarket Shinsegae has successfully beat close competitor Lotte to acquire the chain, using money from its stock market floatation earlier this year to finance the sale. The new stores will be converted to the firm's E-Mart banner.

 

"It takes some adaptation to address the South Korean market correctly, and Wal-Mart has been nowhere near the top five. If it can't be in the running then it feels it should withdraw," said Planet Retail's analyst Bryan Roberts.

 

At the beginning of the month Carrefour, the world's second largest retailer, said it would sell its South Korean chain following poor annual returns from the region that contributes only two per cent to the firm's global income.

 

Eland Corp, a South Korean clothing manufacturer, beat Samsung Tesco Homeplus, E-Mart and Lotte to acquire Carrefour Korea for KRW1.75 trillion (€1.48bn).

 

It was originally suggested the stores might fetch as much as €2bn if competitors were keen to build their market share in the country's €97bn grocery sector and bid aggressively.

 

But the 32-strong chain, currently in a discount format, will cost around KRW150-250bn to convert to a more standard supermarket format, and bidding seems to have stopped around the forecast €1.5bn mark.

 

Rob Gregory, Planet Retail's Asia analyst, said: "The main reason for these exits is that none of them have done very well compared to local players, who have used their knowledge of the market well.

 

"When foreign competitors entered they went with the hypermarket model that they used all over the world. They look like warehouses. But South Korean shoppers were used to a quality shopping experience."

 

The country's generally wealthy consumers are used to exceptionally high customer service levels, and rate price below convenience, quality and choice.

 

The South Korean retail market was deregulated in the mi-1990s, allowing Carrefour to set up shop in 1997, followed by Wal-Mart in 1998.