Retail giant Lotte Group, caught in a mud-slinging battle between the founder’s two sons, is caught with a buyers’ boycott on one hand and a nose-diving market value on the other. Worse still, the group faces a tax probe on its affiliates.
The Financial Consumer Agency on Tuesday declared a boycott of all Lotte affiliates, whose businesses include the sectors of financial, food and beverage, retail, tourism, construction and service.
“The Lotte Group feud clearly shows that the conglomerate has no interest whatsoever in social responsibility,” the FICA said in a press release. “(The boycott) will be a fundamental step for conglomerate reform.”
Thirty-seven chiefs of Lotte Group’s subsidiaries, including Lotte Corp. CEO Noh Byung-yong (center, front row), show their support for Lotte chairman Shin Dong-bin in the founding family feud. The emergency meeting was held at Lotte World Tower in Jamsil, southern Seoul, Tuesday. (Yonhap)
The agency also called for an in-depth government investigation into allegations of bribery and tax evasion.
The reform pressure upon the family-ruled conglomerate escalated further as it was revealed that the National Tax Service was led an investigation into Daehong Communications, an affiliated advertisement agency.
Lotte Group claimed the probe had kicked off last month on a separate issue, unrelated to the recent disputes. There is so far little possibility that it may spread to the entire group, it added.
But the fact that Lotte Hotel Co., the de facto holding company for the group’s Korean businesses, has a 12.8 percent stake in the advertisement agency led to speculations the NTS’ move may not be isolated.
Surrounded by crises, the group saw shares of listed affiliates nose-dive. On Monday, seven affiliates listed on the main KOSPI market sank an average of 6.8 percent to wipe out 1.74 trillion won ($1.49 billion) in market value.
Nonretail affiliates also suffered: Lotte Chemical plunged 13.6 percent on the same trading day, while Lotte Insurance slid 2.53 percent.
Lotte’s family feud has raised concerns of a leadership vacuum, according to market observers.
“Lotte Group shares lost allure because uncertainties over the shady corporate structure and management overwhelmed the expectations for the potential stake competition between (the founder’s) two sons,” said Yang Ji-hye, a researcher at KB Investment & Securities.
In addition, the group also faces risks of missing out on key business opportunities, such as renewing its deal on operating a duty-free shop in Seoul.
The Korea Customs Service is to launch the bids for in-city duty-free shops in September and select new operators for the next five-year term in November.
Conventional operators have been permitted to continue business unless there are critical flaws. But Lotte now faces the risk of losing its cream-of-the-crop stores as it must pass the evaluation of a committee consisting of government officials and civic groups ― both of which are displaying unease over the leadership feud.
The Lotte Duty Free shop in downtown Seoul recorded almost 2 trillion won ($1.7 billion) in sales last year, accounting for 45.4 percent of total sales of all six in-city duty-free shops, industry sources said.
By Bae Hyun-jung (email@example.com