Shinsegae vies with Lotte in Busan premium market

Shinsegae challenges Lotte by opening a premium outlet in Busan, the latter’s own turf. Premium outlets in Korea have grown rapidly despite economic slowdown.

Shinsegae group announced that it will begin a full-fledged advancement into the Busan and South Gyeongsang Province with the opening of the Shinsegae Simon Busan Premium Outlet. This outlet is expected to compete with Lotte’s outlet in Gimhae which was launched in 2008. Shinsegae began its outlet business in cooperation with Simon Property Group, the largest real estate development company in the U.S., while Lotte Department has managed Lotte Group’s outlet business.

The 33,000 square-meter outlet of Shinsegae hosting 180 Korean and foreign brands targets to host five million annual visitors. About 10,000 visitors attended the Wednesday’s pre-opening ceremony for VIP customers. Do Hyeon-cheol, the chief manager of the outlet, said, “For an event like this, attending rate of 10 percent is considered a great success. Today, however, more than 25 percent of invited customers came.”

The outlet built in Italy’s Tuscany architectural style, makes visitors feel as if they are in a vacation resort. Lee Jeong-eun from Ulsan said, “I had to travel far away to Yeoju in Gyeonggi Province or even to Gotenba in Japan to purchase products of my favorite brands. But it takes only 30 to 40-minute drive to get here, so I’ll probably come here quite often.”

With the opening of the outlet, Shinsegae made a powerful pick-off throw to Lotte in Busan, the latter’s home ground. Shinsegae has focused on the Busan market in recent years and established a center of distribution and tourism businesses, which is completed with the opening of the outlet.

A source at Shinsegae said, “The outlet will create a powerful synergy effect in association with Shinsegae Centum City, the world’s largest department store, Shinsegae duty free shop in Haeundae, which was purchased from Paradise Group last year, and Westin Chosun Hotel, the group’s hotel chain, in Busan.”

Shinsegae successfully secured its presence in Busan with the opening of Shinsegae Centum City in 2009, which has grown to be a Mecca of shopping for foreign tourists. The number of foreign tourists visiting Busan grew by 30 percent between 2009 and 2012 from 1.02 million to 2.61 million.

Lotte is expected to fight back soon. In June this year, Lotte extended the 27,000 square-meter outlet in Gimhae opened in 2008 to 46,000 square meters. The outlet in Gimhae raised a monthly sale of 27 billion won (24 million U.S. dollars) in June, up 72 percent from the previous month. Lotte is hoping to reverse the Shinsegae-leading situation in 2015 when another outlet, which will be bigger than the one in Gimhae by 13,000 square meters, will open in east Busan.

Outlet business is important for Lotte. Out of eight outlets run by Lotte, two of them, one in Gimhae and the other in Paju, are premium. Lotte will open two more premium outlets, one in Icheon, Gyeonggi Province, in December this year and one more in east Busan in 2015. Last year, Lotte’s eight outlets raised 1.02 trillion won (910 million dollars) of annual sales, a notable record for outlet stores. This year, Lotte’s outlet business grew by 79 percent year-on-year as it reported a sales record of 75 billion won (67 million dollars) over the first seven months, up 45 percent year-on-year.