South Korea’s major retailers and e-commerce companies such as E-mart, Lotte Mart and Coupang are likely to see their sales and performance having deteriorated in the second quarter, according to market analysts on Tuesday.

Stock analysts said Tuesday that the industry’s top discount store chain operator E-mart is highly likely to run into the red in the second quarter, recording about 4.7 billion won ($3.9 million), or up to 10.5 billion won, in losses from operations. 

“E-mart saw weak growth rate of stores nationwide and expanded their discount promotions excessively to attract more customers, which have led to decreased gross profit on sales,” said Yang Ji-hye, a researcher at Meritz Securities, adding that the government’s tax system reform has also added E-mart’s burden to make increased real estate tax payment of its 142 stores nationwide. 

E-mart has been South Korea’s 11th-largest conglomerate, Shinsegae Group’s big cash cow and had hardly recorded deficits in recent decades. 

Lotte Mart, which runs 123 retail stores nationwide, is also likely to record 25 billion to 30 billion won in deficits in the second quarter, mainly due to its price wars with e-commerce companies and market saturation, market analysts said. 

Homeplus, which has a different accounting year than E-mart and Lotte Mart, is also expected to have recorded losses in sales from April to June, industry experts viewed. 

“It is not an exaggeration that when even E-mart is suffering from loss, there is no doubt that the rest of the retailers will have recorded even worse sales figures,” an industry insider commented. 

E-commerce companies like Coupang are no exception. 

Coupang, which has recorded a deficit over 1 trillion won in the last year, is expected to accumulate more losses following its aggressive operation of the “dawn delivery” service in fierce competition with rival e-commerce companies including Market Kurly. 

Dawn delivery, which allows customers to receive their parcels of everything from daily necessities to fresh food products by 7 a.m. the next day when orders are placed as late as midnight the previous day, has become the new norm for e-commerce companies in recent years to attract more customers seeking convenience. 

Although the service is currently only available in Seoul and some parts of Gyeonggi Province and Incheon due the current logistics infrastructure, the market value is estimated to have already reached 400 billion won as of last year. 

Market Kurly, an online grocery startup that first introduced the concept of dawn delivery in 2015, recorded a loss of 33.6 billion won from operations in the last year due to high personnel expenses and packing costs. The company has been recording deficits for four years in a row. 

Industry experts pointed to the companies’ push to operate dawn delivery service as a main culprit increasing retailers’ and e-commerce companies’ operational losses. 

“Based on the structure of dawn delivery operation, the more you sell, the more loss you get, because the operation of such service prioritizes service quality rather than the economic efficiency,” said professor Song Sang-hwa from Incheon National University’s Graduate School of Logistics in Northeast Asia.

She added that brick-and-mortar supermarket-based retailers including E-mart and Lotte Mart joining the delivery war have taken a toll on themselves. 

By Kim Da-sol (ddd@heraldcorp.com)