Lotte Mart Mired in Losses in Vietnam after Decade-long Presence, Transfer Pricing Questioned

Tuan Minh

17:00 19/05/2017

BizLIVE - Retailer Lotte Mart has been posting losses worth millions of U.S. dollars annually recently despite rising revenues.

Lotte Mart Mired in Losses in Vietnam after Decade-long Presence, Transfer Pricing Questioned

A Lotte Mart shopping center in Ba Ria-Vung Tau. Photo: Internet

Lotte Mart (Vietnam), which now runs 13 trade centers across the Southeast Asian country, has been posting losses over the past decade although sales have been on the rise, the Tri Thuc Tre news site reported.
The hypermarket chain said it had a record loss of 508 billion dong ($22.4 million) in 2015 and another shortfall of 260 billion dong last year, bringing the accumulated value to around $91 million over the last ten years.
Its revenues have jumped by 30-50% annually since 2010, the source cited data as saying.
At the end of 2016, Lotte Mart Vietnam had total assets of 9.4 trillion dong ($414 million), comprising of 500 billion dong in owner’s equity and 8.9 trillion dong in liabilities.
The prolonged loss situation is seen at a number of foreign-invested companies operating in Vietnam such as Coca-Cola, Pepsi-Co, Keangnam Vina and TV pay service K+. Despite losses, these companies continue to ramp up investment in Vietnam to dominate the local market.
As a common formula, foreign-invested firms partner with Vietnamese companies to form joint ventures. Unable to bear losses further, Vietnamese partners run away, selling their stakes to the foreign ones. For example, national broadcaster Vietnam Television last year mulled over withdrawing from K+ after the joint venture had an accumulated loss of nearly $100 million.
Similarly, Lotte Mart entered Vietnam in 2006 via a joint venture named Lotte Shopping Center Vietnam with a Vietnamese company with an 80% interest. The Korean firm then lifted its holding in Lotte Mart Vietnam to 94.55% in 2011 and 100% in 2012.

The firm is looking at more mergers and acquisitions so it can achieve its target of 60 stores by 2020, CEO Hong Won Sik was quoted by Retail Asia as saying, adding Lotte Mart Vietnam also plans to expand to convenience stores and e-Commerce.

With more than 20 subsidiaries in Vietnam, Lotte has invested more than $2 billion, and is set to double the total investment with plans to build an urban area in the east of Ho Chi Minh City.