LG Enters Building Material Business

The LG Group has confirmed that it will establish a construction and interior material distribution corporation as early as March.

LG Group has been trying to find new growth sources after its LS Group and GS Group were separated from the LG Group in 2003 and 2005, respectively, and after the performance of its leading affiliates, including LG Electronics, LG Chemical and LG.Philips LCD, began to slump.

After searching for new businesses that did not overlap with businesses from its affiliated groups, LG decided to go into construction and interior material distribution business.

An LG Group official announced on January 30, “We plan to establish a construction and interior material distribution affiliate in March. After selecting representative directors, we will announce a business plan in February.”

LG plans to establish the corporation as soon as the selection of representative directors ends. Corporation details such as capital are not known yet.

Regarding this, LG Group has set up a project team focusing on the construction material distribution business made up of employees of its affiliates with LG Corp., a holding company taking the lead, since last May. The team has discussed the new business’s future course and ideal size.

Although LG Chemical, an LG affiliate, is producing and selling construction and interior materials, the LG Group plans to set up a company that sells construction and interior products from various manufacturers apart from its distribution network.

The construction and interior material distribution business that LG Group is attempting to start is the first one ever attempted by a domestic company. Its goal is to create a discount store-style one-stop construction and interior material distribution business similar to Home Depot and Lowe`s (American companies), and B&Q, a British firm.

In Korea, B&Q, which entered Korean market in 2005, opened up a construction and interior material distribution store in Guro, Seoul, but no domestic companies have gone into the business yet.

These stores are large ones where customers and wholesale traders can pick and buy products in person, in contrast to current construction and interior products distribution businesses that are operated in the form of distribution networks or direct management stores. These stores sell homecare products as well as interior design products.

Some analysts say that LG’s entry into the construction and interior products distribution business is targeting the Chinese materials market, which is growing fast, as well as the Korean market.

According to industry sources, the size of the Chinese building materials market is estimated at 200 billion yuan (about 24 trillion won) and its yearly growth rate is 20 percent on average.

LG Chemical has seen the growth potential of the construction and interior materials market by targeting customers directly by creating “Z:IN,” Korea’s first interior brand name, last year; the brand has since settled in the market.

Meanwhile, it is being said that some foreign homecare products distribution businesses are trying to enter the Korean market in the form of joint agreements with domestic companies, and that other construction materials production businesses are considering their entry into the distribution business.

Accordingly, it is likely that Korea’s business-to-business (B2B) construction and interior materials distribution market could be reorganized into a business-to-consumer (B2C) model.

With regard to this, an LG Group official said, “The B2C market, which is currently small, has the potential to occupy 20 percent of the total market.”

swon@donga.com