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Two of South Korea's leading retailers have announced their business plans for 2004, with both continuing their commitment to the hypermarket sector. The country's largest retail force, Lotte, has unveiled a new investment of nearly $420 million in its hypermarket store network, compared to $335 million in its department store division. According to a Lotte spokesperson, "Our investment in discount stores this year will be twice as large as that of last year." The money will be spent on opening eight new outlets and renovating existing stores. The group currently operates 30 Lotte Mart discount hypermarkets.

Meanwhile, Shinsegae, which operates the largest hypermarket chain in South Korea, has announced plans to invest a total of $669.7 million to open between 12 and 15 new outlets this year. The company already operates 54 E-mart stores in South Korea. In addition, Shinsegae has been operating a satellite E-mart store in Shanghai since 1997, although there are longer-term plans to expand the network to 40 outlets by the end of the decade (including two new stores this year).

Over the past 10 years, hypermarkets (almost always referred to as discount superstores in the country) have emerged as the major growth channel in South Korea. Shinsegae is widely regarded as having set the ball rolling when it launched the E-mart format in 1993 and since then it has been spreading fast, with little sign of slowing down. According to official data, there were more than 300 hypermarkets in 2003, up from 240 by the end of 2002.

Almost all of the major players have ambitious expansion plans, with many local players turning their attention from their traditionally strong department store operations to concentrate on opening hypermarkets. In fact, the Korea Chamber of Commerce and Industry (KCCI) believes that the hypermarket sector still has growth potential for the next five years, by which time the number of stores will rise to 500. Revising earlier forecasts, the KCCI now believes the market will become saturated in 2008, and not 2005 as previously thought.

The local giants, such as Lotte, Shinsegae, Hanwha Mart and LG Mart, are also having to face increasing competition from a rash of major foreign operators that entered the sector during the late 1990s. US giant Wal-Mart entered the market in 1998, while other players include Carrefour, which entered in 1997, and Tesco, which acquired a majority stake in Samsung's distribution operations, in 1999.

However, South Korea's domestic hypermarket chains are bullish and are generally considered to be performing well against their more experienced foreign competitors. Whereas businesses like Wal-Mart may have the advantage in terms of systems, global buying power and price, local companies have been leveraging their knowledge of the Korean market and consumers to develop their brands to the best effect. Many of the domestic hypermarket chains have invested in renovating their stores to high modern standards fitted with facilities such as cafés and children's play areas. This has proved popular with Korean shoppers, especially when contrasted to the warehouse-style stores belonging to the foreign giants.

With the potential for around 200 more hypermarkets in the country over the next few years, there is still much potential for further growth in the sector. However, life for both the local and foreign operators will become increasingly tough and it is likely that the next few years will see some degree of restructuring in the market with a number of smaller chains being forced out of the sector or being swallowed up by the larger players. By continuing their strategy of investing heavily now, it will be the likes of Lotte and Shinsegae that will fare best in the future.
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