In the Distribution Sector, Aekyung Up, Samsung Down

Aekyung Takes a Leap-

Aekyung entered the distribution sector by launching a department store in Guro, Seoul in September 1993. It was not until 2003 before Aekyung opened another store in Suwon, Gyeonggi Province, which clearly shows how passive it has been in investment. Aekyung’s revenue including sales of duty free shops amounted to a mere 600 billion won. According to the assessment of the distribution sector, the company’s competitive edge was far weaker compared to the top three firms – Lotte, Hyundai, and Shinsegae – in this segment.

However, the company started construction of a new store in Pyeongtaek, Gyeonggi Province in this past May (scheduled to open in 2009) and also decided to acquire a branch of Samsung Plaza in Bundang, laying the foundation for another leap in growth. The Aekyung Group revealed its ambition to operate seven department stores including its existing ones within the next five years and become fourth largest firm in the department store segment. The company added, “Buying a Samsung Plaza branch will help us exceed one trillion won in sales in the distribution segment and also gives us a sustained growth engine and a competitive edge in the department store sector.”

However, the takeover puts a strain on Aekyung because the company has promised to retain all employees of the acquired company and maintain the income and benefits level of Samsung Plaza employees as they exist now. It is known that employees of Samsung Plaza are paid 10 percent higher than employees of Aekyung’s distribution sector.

It seems that either Aekyung workers or Samsung Plaza workers will defy whatever adjustments are made for salary and benefits.

Another challenge is to overcome competition with existing industry powers-Lotte, Hyundai, and Shinsegae.

Part of the Restructuring Process-

As Samsung Corporation has agreed to sell Samsung Plaza to Aekyung, the Samsung Group will be leaving the distribution segment 12 years after its debut in 1994. Samsung also agreed to sell five percent of its 11 percent ownership of Samsung Tesco Homeplus, which is the remaining share Samsung possesses in the distribution segment, by the next year and will sell the rest after negotiations to Tesco, a British distribution chain.

Im Young-kyun, a marketing professor at Sogang University, said, “Samsung Corporation was not competitive enough in the distribution business compared to its other Samsung affiliates and had no clear driving force. The sale of Samsung’s department store chain was part of its restructuring process.”

Woori Investment and Securities researcher Park Jin said, “For a distribution company, having more branches in a good location determines success and failure. Samsung has not been aggressive in investment since the Asian financial crisis of 1997 and has even reduced the number of branches, which has made a dent to its competitiveness.”

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