SEOUL—Troubled South Korean retail giant Lotte, already struggling with a prolonged founder-family feud, has seen its business woes deepen with the loss of the state license for one of its biggest duty-free shops ahead of a key IPO.
The country’s fifth-largest business group suffered its latest body-blow at the weekend when South Korea’s customs agency awarded its concession to a rival bidder—the heavy industries giant Doosan Co.
The license covered a 10,990-square-meter store in South Korea’s tallest skyscraper –the Lotte World Tower and Mall complex in downtown Seoul.
Lotte, which had held the license for five years, had already invested 300 billion won ($255 million) in the store and the customs agency decision shattered its ambitions to grow it into the world’s largest duty-free outlet over the next decade.
The setback was particularly badly timed given the preparations for an initial public offering of shares in Lotte’s hotel unit, which runs the group’s duty-free business.
The duty-free chain is the largest franchise of its kind in South Korea and the third-largest in the world, racking up sales of 4.2 trillion won last year.
Hotel Lotte vowed Saturday to push ahead with the listing, but analysts said the loss of the license for the Lotte World store would be felt.
“Investors are concerned it will hurt Hotel Lotte’s overall profits,” said Park Jong-Dae, analyst at Hana Financial Securities.
“As a result, the company’s valuation may fall when it goes public,” he said, noting that duty-free shops accounted for more than 80 percent of Hotel Lotte’s overall sales.
Founded in Tokyo in 1948 by Shin Kyuk-Ho, Lotte has a vast network of businesses including department stores, hotels and amusement parks in South Korea and Japan, with combined assets valued at more than $90 billion.
A very public feud
Many of South Korea’s family-run conglomerates, or “chaebol,” are known for their byzantine structure of shareholdings, but Lotte Group’s cross-holdings dwarf the others in their number and complexity.
The confusion surrounding who controls what, and how, has become the backdrop to a monumental family feud pitting Shin and his first son Shin Dong-Joo in one corner against his second son—the current group chairman Shin Dong-Bin—in the other.
The feud began in July after father and first son sought to dismiss a group of senior Lotte executive board members, including Shin Dong-Bin, questioning their management ability.
But Shin Dong-Bin fought back, getting the board to not only nullify the dismissals but also remove his father as co-CEO.
There followed a bout of highly public mudslinging between the two Shin siblings, with accusations of mismanagement and manipulating their frail, 92-year-old father whose mental faculties had been called into question.
A temporary halt to hostilities came after Shin Dong-Bin won the overwhelming support of board members, labor union members and shareholders in August.