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Retail giant seeks new business model by removing franchise feesBy Korea Herald
Published : July 17, 2014 - 20:46
Shinsegae, which owns Emart and Shinsegae Department Store, acquired With Me, a mid-size convenience store operator, in December.
The industry’s top three players ― BGF Retail’s CU, GS Retail’s GS25 and Lotte Shopping’s 7-Eleven ― currently dominate more than 90 percent of the market, which consists of some 25,000 stores nationwide.
Despite being a latecomer, With Me believes it can open up to 1,000 stories this year, up from the current 137.
“We expect to break even in the next three to four years when the number of outlets exceeds the 2,500 mark,” said Cho Doo-il, the chief executive of With Me at a press conference Thursday.
With Me plans to secure a competitive edge by maximizing the benefits for the franchisees to offer them a motivation to ramp up sales, Cho said.
The company has decided against charging owners of its With Me stores franchise fees ― an unprecedented decision when other operators collect fees accounting for up to 35 percent of sales.
Instead, With Me operators pay a fixed membership fee each month, meaning they make 20-50 percent more profit compared to those operating rival chain stores, according to Shinsegae’s calculations.
In addition to the no-royalty fee policy, the company also will allow store owners to adjust business hours depending on their store traffic, while charging no penalties when they cancel contracts before expiry.
“This is a business model that has never been seen before in the nation’s 25-year-old convenience store industry,” Choi said.
It also signals a break from the traditionally degrading position of small partners of conglomerates.
“Because the With Me stores will not be placed under our immediate management, they will not be a threat to smaller mom-and-pop shops,” the CEO said.
He added that the firm was ready to start slow, as it would take time for the new model to catch on, but expected business to pick up when With Me reaches its break-even target with 2,500 outlets.
Taking advantage of Shinsegae affiliates’ diverse distribution channels, the company plans to also secure price competitiveness and seek synergy among its retail brands.
By Lee Ji-yoon (firstname.lastname@example.org)
Articles by Korea Herald
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