KB News Desk
Analysts say hypermarket falls short on brand loyalty, supply capacity
Embattled hypermarket chain Homeplus is pinning its revival on a new type of store modeled on US grocery chain Trader Joe’s, a leap of faith that has stirred both hope for a business remade and skepticism that a company on the edge of bankruptcy has the footing to pull it off.
Homeplus laid out the plan last week, after the Seoul Bankruptcy Court extended its rehabilitation deadline to Sept. 4. Once 200 billion won ($136.8 million) in debtor-in-possession financing arrives, the retailer intends to reopen all 67 temporarily shuttered stores, converting them into single-floor locations of roughly 3,305 square meters centered on food, private-label goods and everyday essentials.
Taking cues from the US grocery chain’s smaller-format stores, which stock roughly 4,000 items compared with the 30,000 to 50,000 typical of a conventional hypermarket, Homeplus hopes a leaner assortment weighted toward its private label, Simplus, will cut procurement and inventory costs.
“Trader Joe’s is a private-label-focused supermarket selling primarily food and daily necessities in optimally sized stores, where more than 80 percent of the products sold are its own brands,” the company said in a statement.
As appealing as it sounds, Homeplus’s shot at replicating the Trader Joe’s model depends on more than store format, analysts say, with the US chain’s success owing to a combination of strong product curation, brand loyalty and consumption patterns unique to the American market.
“Trader Joe’s core strength is its distinctive private-label lineup, but Simplus had limited pull even when Homeplus was operating normally,” one industry official said.
Simplus launched under its unified branding last year, and its penetration has hovered around 15 percent, far below Trader Joe’s. Some even question whether the shift can succeed at all, particularly with supplies of other companies’ brands still disrupted.
“Private-label products demand heavy up-front investment from manufacturers, from custom packaging to dedicated production lines,” another official said, noting that a private-label supply chain is a tall order without strong financial backing.
Store economics present another obstacle since Trader Joe’s operates stand-alone locations of roughly 991 square meters, far smaller yet far more profitable than Homeplus’s typical stores. Even after downsizing, Homeplus will still be stuck with the fixed costs of vacant space unless it can find tenants to fill it.
Consumption patterns diverge too. Trader Joe’s thrives on small stores near city centers selling convenience foods and snacks. In Korea, that demand has already been served by convenience stores and smaller-format supermarkets, including Homeplus’s own former unit, Homeplus Express, sold to Harim Group in June.
Separate from the merits of the Trader Joe’s model itself, more urgent is preparing a concrete normalization plan that can secure creditor approval by the September deadline.
Homeplus has pledged to permanently close 37 underperforming stores, resume delayed wages and vendor payments, and gradually restart online operations at 16 delivery-capable locations in the Seoul metropolitan area.
According to the company, the shuttered stores are expected to reopen in the first week of August, with nonfood categories scaled back and staffing kept to a minimum, as it continues talks with fresh food and processed food suppliers.
