Lotte Shopping Co., Ltd. (A023530) Earnings Call Transcript & Summary

[Interpreted] Good afternoon, ladies and gentlemen. This is Ji Hwan Seol, Head of Investor Relations of Lotte Shopping. Thank you for joining us in Lotte Shopping's Fiscal Year 2021 Third Quarter Earnings Conference Call. Today's announcement will proceed with a brief explanation of third quarter results followed by 2021 operational review and 2022 business strategy presentation by head of each business divisions. Questions will be taken after the presentation. For the third quarter 2021, Lotte Shopping's consolidated revenue was KRW 4 trillion, indicating 2.4% year-over-year decline. And its operating profit was KRW 29 billion, indicating 73.9% year-over-year decline. There was a one-off expense of KRW 60 billion regarding employees' early retirement compensation expense in the department store division. Without this one-off expense, our third quarter consolidated operating profit would have been KRW 89 billion. Third quarter net profit was KRW 306 billion, with corporate tax profit recognition of KRW 450 billion regarding the Hong Kong Holdings liquidation, et cetera. Domestic department stores have shown solid same-store sales growth through favorable sales growth in luxury fashion and men and sportswear category, but its operating profit has turned into operating loss, mainly due to employees' early retirement compensation expense recognition. Domestic Hypermarket indicated weak sales growth and decreased operating profit due to restrictions on usage of disaster relief fund provided by the government in September of this year. Supermarket division sales were also decreased for the same reason as the hypermarket, but its operating profit has increased as the result of restructuring effort. Hi-mart, our electronic specialty division, have shown weak sales growth due to the sluggish sales trend in the white electronics, and its operating profit has declined by increased SG&A. Cultureworks, our cinema division, recorded a favorable sales growth and its operating loss has improved through recovery of box office sales as well as the tentpole movie releases. For the e-commerce division, as of August 1 of this year, the online business functions of department store, Hypermarket and H&B division has been transferred and integrated into the e-commerce division to promote maximum synergy. As a result, e-commerce unit's operating loss has been stretched along with increased SG&A. As for the overseas business, both department store and Hypermarket indicated resales growth and their operating profit has turned into operating loss caused by the local government's forced store closures regarding the spreading of the COVID-19 situation in Southeast Asia countries. Last comment is the nonoperating financial summary. 2021 third quarter nonoperating profit includes the loss of KRW 48.3 billion on the disposal of Hong Kong Holdings Corporation and equity method gain of KRW 0.1 billion coming in from FRL Korea with Uniqlo and KRW 15.7 billion from the Lotte Card. I'll finish today's presentation here, and we'll move on to 2021 operational review and 2022 business strategy presentation by the head of the core business divisions.

[Interpreted] I appreciate the opportunity to speak. This is the Head of the Strategic Planning Division for Lotte Shopping. I would like to walk you through the overall operational review for 2021 for Lotte Shopping, mainly focusing on the 4 strategic activities that we had planned for the year 2021. So the 4 areas that we have focused on, the first one, being completion of the off-line restructuring process. So we have been pursuing the off-line restructuring process since last year. And as of the third quarter of this year, there has been restructuring of a total of 203 stores, including 1 department stores and 12 stores for the Hypermarkets. And also, there has been a restructuring for the H&B division, LOHB's, integrating them into the Hypermarket. And there has been continuous restructuring efforts to close up some of the stores for [indiscernible] stores for LOHB's that is currently still are ongoing. Until next year, there will also be additional restructuring efforts for the LOHB's division to be in LOHB's plus within the Hypermarkets as they would be operated in that way. And this year, there's also the off-line restructuring that we have to consider for the early retirement of the employees. There has been some -- that we have been receiving from the department stores, hypermarkets, and this will be an ongoing process to have more efficiency in our HR resources overall. The second strategic initiative that we had was the online business enhancement. There has been continuous upgrade and maintenance to the system being made. So in the early stages, the overall operation utilization rate sits at 97%. Currently, it's close to 100%, quite stabilized in terms of the overall system. And with the appointment of the new head, Mr. Young-ho Na, there has been an integration of internal governance to oversee the online business. So a lot of the different business divisions which had separate online business, this have now been integrated all into the same line of governance. And also the fulfillment center for online has been transferred to the e-commerce business unit so that there is more efficient customer-facing delivery services available as an integrated part of the overall customer experience. The third strategic initiative would be partnership and investment expansion to achieve competitive edge in the market through improving vertical competitiveness. So as you well know, it has been covered in the press quite a lot, there was the acquisition that Lotte participated in for Hanssem and also for the secondhand Joongongara market. So there has been a lot of such investment in the living and the secondhand market that we had tried to solidify our positions. Also, there was a Lotte venture start-up innovation fund that was set up at a scale of about KRW 30 billion. It has made a lot of equity investments into startups and also pursued a lot of partnerships in fostering a lot of new developments there. So in order to have more competitive edge, there are going to be ongoing efforts to solidify more vertical investments and that this will be an ongoing effort that we will pursue going into next year. And we will try to really focus on improving a lot of business opportunities, mainly in the fashion and grocery category. The fourth strategic initiative was the asset optimization for financial structure improvement. At Lotte Shopping, there was the asset disposal of the Lotte World Tower that Lotte held previously, which was at about KRW 830 billion. And there was also the efforts transferred to Lotte Re for some of the self-owned stores and the logistics center held by Lotte Shopping at the scale of about KRW 730 billion. So all such efforts have been in line with asset optimization strategy to improve the financial structure of Lotte Shopping. And we will continue to pursue such asset optimization to secure the necessary investment and worthy funds that we would need to pursue our strategic goals.

[Interpreted] If you turn to Page 15 of the English version of the presentation, Mr. [indiscernible], who is the Head of the Department Store operation will give you the brief explanation on the next year's strategy.

[Interpreted] I will first like to present this strategic direction for the Department Store. There were some weak points that we have suffered in the past, so we're focusing on the long-term competitiveness enhancement strategy to overcome such weak points on luxury MD and large-scale store openings. In 2021, there was a new department store opening in Dongtan and also a new outlet and Time Villas which have been quite some time since we opened new stores. So this was a very big move. There was also the opening of the living specialized stores Maison and also renewal of some of the stores that are for the hypermarkets that are for nonfood categories. And we have been pursuing such new attempts and moves to secure the new growth engine for the future. The first strategic goal that we have for 2022 would be focusing on aggressive store renewals to enhance off-line competitiveness. Mainly for our main flagship store, we will focus on expanding luxury MD and renovation of the F&B floor. And for the stores that we have in Gimpo and Suwon, there will be efforts to pursue integration of the Department Store and shopping mall MD. And for the 10 stores or so that we have in the region of Guri and Cheongnyangri, there will be renovation efforts for the F&B floor to transform into premium F&B types. Secondly, we have the strategic -- strategy to diversify our exit strategy on underperforming stores, such as the disposal of stores subleased to external third-party and change of use of building. So previously, there were a lot of efforts that we put for our exit strategy to either have a disposal or a sublease of the stores themselves. And on top of that, we are also going to pursue the new approach of changing the usage of the building to maybe turn that into an office or residential space for a potential more efficient usage. Thirdly, we will continue to pursue a continuous development of new model type of large-scale stores that could be the trend moving forward. There will be new store openings in the year 2025 and 2026 in the areas of Sogong and Songdo and also the expansion of some stores in the regions of Incheon, Gwangbok and Gimhae. That will be an effort also in collaboration with very renowned and famous global construction artists. And there will be a lot of innovative efforts pursued on that front. There will also be a lot of efforts pursued for investment -- efficient investment, such as complexed development types to include also presales type of facilities in the development. Next, we will also focus on development and further advancement of the Lotte-only contents that are quite differentiated so that we can create stores that customers want to visit. In addition to the efforts that we already have for exclusive shops such as tops and online, we will also focus on further collaboration opportunities that we have to open cafes like [indiscernible] and also IWC, which were the first type of such cafes to open in the world. And we will continue to work on such content developments that are unique and with differentiated positioning moving forward. Next, we will also focus on new live commerce by actively leveraging Lotte Shopping's core assets. We will try to gain the first-mover position in the Art Biz market, utilizing our VIP customers and our nationwide assets that are available and also move into expanding the Live Commerce by utilizing the 50,000 sales staff that Lotte has available.

[Interpreted] Next is [indiscernible], who is the Head of the Hypermarket division, who will give you the brief strategy explanation for the next year.

[Interpreted] Yes, from the hypermarket division, we would like to also introduce you briefly to the overall strategic direction that we have for the year 2022. So in the year 2020 and also the year 2021 until this year at this point in stage, the Hypermarket has struggled with some fundamental issues that were -- that we were faced with. And there were such restructuring efforts that have been progressing to be able to address those issues and ERP of the resources. A lot of the difficult challenges or issues that we had have been resolved to a large extent. So therefore, we believe that moving into next year, we have now prepared the strong foundation for us to kick start our business next year. So first, we would like to focus on what will the Hypermarket can do best. So mainly in that area, we are looking at 2 strategic directions. Firstly, for our Hypermarket division, we would like to focus a lot of our efforts into what we do best, which is in the space of grocery, so that we have a lot of investments and efforts put in there to further enhance our competitiveness. And in the nonfood category, we are going to have the position of really selection and focus. Previously, the scope that we had offered in the nonfood was quite large. We're going to narrow that down to be more specialized so that we are able to attract and get chosen by the consumers. So for example, we would like to elaborate a bit more on what may need specifically in the space of grocery and nonfood. So for the growth stories, we would not really focus on only the selling after sourcing products from external vendors. We would actively have M&As in certain cases that we see that the manufacturing company is quite competitive, also consider different forms of investment like equity investment, so that we are able to secure pipelines for differentiated products in the market. And in the nonfood category, we would focus on more specialized categories, such as the pet shop, [indiscernible], and also the new differentiated type of drug store to be operated within the hypermarkets like LOHB's Plus and also different living specialized stores such as room by home. Overall, all targeted to provide an upgraded experience to the customers. Secondly, we will also focus on improving the overall store environment through a lot of the renewal efforts that are planned. Until now, we must admit that in terms of the overall investment to improve the store environment, we have lagged behind. In order to catch up with the very sophisticated consumer trend that we see nowadays, there will be a lot of efforts to try to improve the overall store environment and also have improvements in the MD. So it's not going to be as simple or straightforward as only changing and renovating the interior design, but we're going to pursue parallel efforts to also have on the product side differentiated MD and also such parallel efforts will be pursued. And what we will also leverage what we have as an advantage for what Lotte Hypermarket specifically, which is the collaboration available with the department stores, so we will continuously expand different type of hyperstore formats that will increase the choice for our customers. Nextly, we will also try to add additional competitiveness to the existing hyperstores by diversifying new different types of store formats. So previously, in terms of the warehouse-type stores, Lotte Hypermarket has not seen much success. This was because mainly that we were not catching up or meeting the market trend. We are time once again this time around, so we are going to pursue, not really just trying to follow and imitate other store formats like that's already existing, like competitors of Costco and such, but there will be existing hypermarket stores that are transformed into warehouse-type stores in locations or regions specifically that there is no competition so that we could offer the services that are needed there that without the time competition exists. And on top of that, because we have the know-how of operating the H&B business and LOHB's, we are going to benchmark and different cases that we can have for setting up new pharmacy hybrid type of stores. And such kind of drug stores that are currently very successful in Japan, we'll be taking reference of so that we are also providing that new experience to customers so in order for us to be able to secure continuous advantage and growth for the future. And nextly, for the e-commerce division, which is obviously very important for securing the future growth engine in our online business, we will continue to maximize the synergy and collaboration so that we are fast and swift in our response in gaining competitiveness and meeting the needs of customers in the online space. Yes. Probably the details of -- on the strategy for e-commerce, there will be a detailed presentation by Lotte on in the latter part of the session. And lastly, we have to acknowledge that there was not really much love and support shown to the Lotte Hypermarket brand in the past by our consumers. This was mainly because there were a lot of promotions that we're focused on, onetime events and also a price only. So there was very low, I guess, loyalty in terms of brand value. So in order to try to overcome our weak points there, we are going to move away from our previous approach of just focusing on simple events. We are trying to move in the direction of improving our brand value for Lotte Hypermarket. And we will be making such efforts in the line to also be the leader in ESG management. So we have also launched a new concept and brand, not only for Lotte Shopping, but for the entire multigroup, which is called RE:EARTH. And we are trying to solidify our position to be the fast mover as a company that is trying to keep up with such environmental and great trends.

[Foreign Language] If you turn to Page 17, Mr. [indiscernible], who is the Head of the Supermarket division, will give you the brief explanation of next year's operational strategy.

[Interpreted] We will also like to introduce the business strategy for the Supermarket division. So for the past 2 years, the Supermarket division has gone through very strong restructuring efforts, and we have closed up to approximately 130 stores that were underperforming. And it was not only that we pursued the position of closing down underperforming stores, but when we deem that the store still had growth potential, there were also a lot of renewal investments that were made to approximately 130 stores as well. So with such efforts, our expectation is that we will be reaching the breakeven point at the end of this year. For the Supermarket division, we have also the important priority of trying to keep up with customer trends. And an important part of that would be the introduction of new products -- fresh products as soon as possible. And we do believe that until now, there were some areas that were lacking behind in terms of inventory management. And if we do not have such an inventory management system in place that is quite stable and operating at full extent, it's not possible to actually supply and introduce that very important part of fresh food in the Supermarket business. So to that end, we have -- we've put in a lot of efforts to try to improve our capacity in managing inventory. So this year, what we have started is the PLC, the product life cycle, and there are grades that are assigned to products that are being sold in the market to have a fast turnover. And there's also something that we have been preparing this year and as planned to launch next year, which is called a [ stock aging ] system. So we're trying to utilize this system to be able to identify which stocks are selling well and which stocks are not so that they should be removed, so that we have a timely response to such stocks that are being accumulated. So we will try to solidify a lot of the soft management or the inventory management-related capacity within the company. And next year, with such efforts, we do believe that we will be the frontrunner in terms of inventory management in the industry. Like the Hypermarket, the Supermarket also has a lot of logistics centers. The problem that we had, while there were a lot of logistics center available was that it was not properly managed in terms of the system and also not integrated into the right efficient network operations. So there was low efficiency in the overall operations. So mainly in the space of HMR and fresh food, we're going to reestablish the network per function so that more efficient operation of the network would be available. And also previously, the data was quite scattered and disintegrated, operated separately, but we are going to integrate the data management as well to enable sufficient monitoring of the overall efficiency in the logistics process. Through such efforts, we believe that we will be able to control a lot of the opportunity losses that have been suffered. And also to differentiate the capability that we have on the supermarket side, we are going to focus really on a lot of the improvements that can be made on the product side focusing on fresh food and Delica. So for fresh food, we will be focusing on expanding and differentiating ourselves with premium positioning. And for delica, which is not really an area of focus for other companies, we're going to really focus on this to make it our strong point of differentiation. So for an in the case of delica, previously, it was that in terms of the overall operations this year, it was operated, set up in 88 stores, it's going to be further expanded to 130 stores next year. So overall, in order to strengthen our competitiveness, we are going to focus on fresh food and delica. And the target goal is to increase the proportion that fresh food and Delica accounts for up to 50% by next year. Lastly, during the restructuring efforts that were pursued, Lotte Supermarket has always maintained the #1 position. And moving forward, we have no intention of losing that position as well. So at the end of this year, as we said, we are expecting that we will be reaching the breakeven point. So we will have a very stable operational structure moving forward. Next year, building on top of that, we will be quite active and aggressive in pursuing new store opening opportunities. But you shouldn't think of it as only just increasing the number of new store openings, because we will not be just focusing on that specific number, but we are trying to really take the position of improving the overall loyalty and position of the Lotte Supermarket brand in Korea, so that we could have more positions and gain a lot of attraction from consumers moving forward.

[Interpreted] If you turn to Page 18, the Head of E-Commerce Division, Mr. [indiscernible], will provide you an update on the next year's e-commerce main strategy.

[Interpreted] It's great to meet you all. My name is Young-ho Na. I have joined as Head of the E-Commerce Division of Lotte since March or April. And it has been about only 7 months, but I do believe that with the onboarding, there are a lot of efforts that I could still show and go moving forward and a lot of futuristic hopes and initiatives will be available. As our large IT projects go, there are a lot of unstable functions that we have to endure during the initial stages of the system opening, but there has also been a lot of improvement since then. And a lot of the areas that we were struggling with at the beginning of the system open have now been overcome. And the Lotte ON that you see now and what you have seen a year before are completely different. Firstly, if we point to the system performance, it is indeed tough here. I could speak personally about for that as a person who has worked in the e-commerce business for over 20 years. The system, again, is in the top tier in the sense that it has the system availability that is up to par with the first level of financial institutions and also in terms of the app loading speed, which we referred to as system performance, is also at the #1 bubble compared to other systems in Korea. Since our efforts for the initial stabilization phase has passed, we have achieved remarkable growth, in the 2 digits, overcoming a lot of the growth momentum that we had and achieving strong growth rate overall in the market. So if we take a look at the on sale event that we had recently from October 18, there was an increase of 73% compared to the previous year similar sale events. And this has shown that a lot of the current momentum and performance that we're seeing in terms of growth is catching up quite quickly, showing us very promising results. I think we can look at the sustainability for the growth momentum moving forward. If we take a look at what is key to Lotte ON, leveraging what we have available as outpoint membership, you can see that in terms of the core benefits that we have there in terms of the secured members, we had seen that with the 10 million Lotte point memberships that we had, with the purchase volume that we see for the purchasers that have cumulated point membership for the month of October also increased by 31% compared to the previous year. And if we take a look at the off-line marketplaces that are currently available, with the exception of [indiscernible], where the e-commerce division is currently operating from, if we look at a lot of the local department stores, the hypermarkets and shopping malls available, it's very difficult to do a shopping and one-stop leveraging all different types of retail shops at once. But at Lotte ON, you do not have such restrictions in terms of space. It's possible to go about using and leveraging all different types of marketplaces as the user demand. And we could take a look at that by a lot of the numbers that we have available. So if we look at the cross-selling ratio available on Lotte ON, over 22% of the consumers who made purchases through Lotte ON were using 2 different types of -- at least 2 different types of retails in making their sales purchases. So this shows clearly that Lotte ON growth could also benefit the growth of different types of affiliates of Lotte Shopping, so that different sales opportunities could be better leveraged together. So that was a recap of the current situation. And let me now walk you through the overall strategic direction that we have for the year of 2022. So first, we have to consider that we were now moving into the phase of with corona, and the divergence and difference between online and off-line will get blurrier and there will be further integration that we could expect down the road. So in terms of a lot of the heads' messages before for the different divisions of having an upgrade of the overall store environment and also making additional improvements for growth in the new space, we do believe that there is a lot to leverage from the off-line advantages and capacity that Lotte has available. So personally, I have had my career focusing only on online space and for e-commerce, but Lotte Shopping clearly has a lot of tangible and intangible assets that it has not utilized to the fullest extent until now. We believe that moving forward, it would be necessary to really try to provide integrated and holistic services that could utilize all of such available capacities. And the first type of such efforts is the integrated organizational governance that we have established from the month of August, putting them all into one team under e-commerce. And it's only been 3 months, but I believe that it has laid the foundation to achieve great synergy in the future. Secondly, I'd like to point to Lotte ON. Obviously, it was a very large-scale IT project that was a complete reinvention, rehaul of the existing platform that was available. And of course, because of the complicated architecture and technology during the initial open and the go-live of the system, there were a lot of issues that were -- we suffered. But after we past that phase of initial stabilization, we do believe that it has now secured, a very stable position as an advanced platform that never existed before. And if we compare it to the previous existing systems that had in the past for a lot of such IT projects, there's a lot of the aspects of the existing legacy that has to be considered. And because of such a legacy, there are -- they act as obstacles to pursue innovation and new initiatives. But in the case of Lotte ON, it is the most advanced type of a distributed system architecture and it is a cloud-based platform. So compared to what we had in the past in the form of Lotte.com, in terms of its overall rendering speed and performance is nearly 2.5x to 3x faster and providing outstanding performance experience. So we will continue to leverage this platform of Lotte ON to fulfill the needs of the distributed and very various different types of needs that the customers are currently showing and work our best to be in line with the ever fast-changing trend of the customers. If we look at some of the patterns that we had as consumers in terms of our shopping experience, of course, there's the aspect of us as purchasers or buyers that absolutely need to just make our daily purchase of such daily livelihood-related goods. But there's also another aspect of shopping, that is to just enjoy the overall experience itself. So for example, people who lined up before the opening of the department stores to just enjoy the experience of shopping itself. So in terms of e-commerce, until now, a lot of the focus has been on providing functions that enable easy and efficient purchasing available as an experience only. But moving forward, there should also be the different aspect of the joy or the enjoyment of shopping itself on the e-commerce side as well. And we believe that right now, the services available that consume the consumer's time by offering enjoyable shopping experiences has now just started. For Lotte department, there are a lot of shopping experiences in space that we can leverage at the online space as well. So there are already some ongoing projects to that extent. In the space of beauty, for example, we have the available assets of the luxury cosmetics from department stores, also from the H&B road shops. And the marketplace that also has various different types of brands available that are available in the marketplace. If we have a differentiated approach to integrate and combine all of these services into a new type of service, it could be potentially a game changer and also build top-of-mind position in consumers' perspective. We will pursue such ongoing project efforts, not only in the space of beauty, but into expand different categories moving forward. Fourth, we could also point to this trend that we see in the pandemic that we have respond to. So during the pandemic, there was about 50% of retail -- retail consumption that was done in the e-commerce space. But if you still go to the stores of Lotte Hypermarket, we do see still a lot of the traffic, people who are coming to the Hypermarket store themselves. This is because in terms of shopping for hyper fresh food categories, like vegetables or meat or fish, people actually still have difficulties and some kind of avoidance in shopping in such fresh food categories online. Even if it is available and shipped, delivered in ice fast, they do not simply want to have that experience of leaving out such fresh food outside on their doorsteps for a few hours. We would like to really see a lot of such experiences that we could really foster because -- There are very strong points in the hyper fresh food category that Lotte currently has available at are as capacity. So if we look at a lot of the premium hyper food grocery categories available, they are very fresh and quite tasty. So if we look at the key performance during our October sales event, the premium of Korean beef increased by 320% in terms of sales compared to the previous year. And also sashimi and sushi performed quite well. And we plan to expand a lot of such services that we have for such fulfillment so that the customers have the experience of fulfillment of such hyper fresh food categories also in the e-commerce space. And we will try to leverage a lot of such experiences in the e-commerce space so that we could really turn around a lot of the sluggish hypermarket performance that we saw and turn that around in the online space as much as possible. And lastly, we would like to move on to logistics. As I mentioned before, there are diverse needs that the customers currently have in the market. And in order to fulfill those needs properly, we need the most advanced and optimal fulfillment system available so that we can meet those demands. For the hyper fresh grocery category, it's really important that we have store-based micro fulfillment center or what we refer to as MFC. We're currently in the process of continuously expanding this. So now we're up to 19, and we have the plan to expand further up to 25 until the end of this year, and this number will continue to grow. Next year, we are going to further advance and also expand the MFCs that are available and also expand a lot of the usage of the central fulfillment centers, the CFCs, in the current logistics centers that are available. By leveraging this and using them together, combining them well, we will try to respond to meet the customers' needs to the best extent. And such additional efforts to further advance the logistics centers that are existing will be pursued as well. So in summary, what I would like to emphasize is that we're going to leverage the legacy free innovative platform that we have established to maximize the usage of the tangible and intangible assets of. We are going to use this to be able to leverage and meet the need of the shopping aspect of the consumers and even in the future generation and also move to really focus and differentiate our positioning in the hyper grocery category so that we have solidified a different and competitive advantage there. And also try to combine the best of the fulfillment centers we have available so that we offer the best logistics system available to meet the customer demand as well. So in short, we are going to emerge as a new different type of differentiated e-commerce business that really is worthy of the branding of Lotte.

[Interpreted] Now we can begin the Q&A session. [Operator Instructions]

[Interpreted] I would like to ask some questions to the e-commerce division and also the Hypermarket. So as explained, in the month of August, there has been integrated governance into the e-commerce division from different department stores and hypermarket so that the governance is now in one team. So can we ask what triggers that kind of organization change? And what was the reason for such a decision being made? And what would be the expectation out of such changes? Do you expect that there would be renewed commitment for the e-commerce business? And what would be, in your view, the exact meaning and output that you expect out of such governance change would be the first question. And the next question for the e-commerce division is in terms of the traffic drivers online, what would be a differentiating point compared to the competition, what we would call as killer traffic drivers. so have you considered a little bit more into the aspects of what exactly that would be specifically for Lotte? We'd like to hear your views on that. Next question would be for the Hypermarket. So you mentioned before that one strategic direction would be to open up with different warehouse type of stores in areas for regions that the competition has not yet any footprint. And of course, if there could be that approach of having, for example, 100 first new such type of stores opening, see if they're profitable and then bring them to the next level. But if we also think of it in a different light, it could mean that such regions or areas that don't have such warehouse-type stores, the reason that the competition is not there is because maybe it doesn't have that much of a business sense at that point in time and it might be a little premature to have such warehouse-type of stores. But even so, do you believe that there is a potential revenue pool to expect and it would still be worthy to be more proactive and becoming the first mover to gain your position in that area or region? Do you expect that it could actually be profitable by year 1? We would like to hear more on what we're thinking is there. And separate to that, we are also a little bit interested in hearing a little bit more on what you exactly mean in terms of your color of how you want to differentiate from your key capabilities of groceries and selection and focus. Because a lot of the other competition also has been pursuing the same line of initiative or strategic direction. So the overall direction just mentioned does not seem to be very much different from the competition. So if we do have the same game plan as the competition, and there, of course, there could be a lot of uncertainties that would determine the outcome of that, but could you shed a little bit more color into what you exactly mean by focusing your efforts on groceries and also selection and focus from Lotte's footprint [indiscernible] the Hypermarket?

[Interpreted] We'll first get the answer from the e-commerce and then we will get some answers from the Hypermarket.

[Interpreted] There were 2 questions. I think, first, in terms of the integration of the governance structure in our organization, that was the first question, and what the killer traffic drivers are was the second question. So to answer the first question, when I first joined and asked a lot of the stakeholders what is the top priority that we must achieve, this was mentioned as #1. We had to integrate the governance structure in our organization. And this was achieved with a lot of support from multiple stakeholders. And we do believe that it has a lot of support and momentum in fulfilling the different changes and the decision-making process in our group. So it's a matter of transforming from a previous perspective and approach, really focusing from the supplier side, looking at how we could leverage best the capabilities of individual affiliates and changing that to more consumer base focus and consumer base perspective in the digital space. So I think we did for such change to move past from the supplier-based approach to really focus from a consumer's perspective. And it's only been 3 months, but in terms of the overall speed of how things are working and how we operate, it has improved dramatically. On promotion that we mentioned before, that we pursued in the month of October, we have reduced the time that's necessary for such preparation of events by more than 3, 4 weeks and that drastically improved. And we are working together as one team. So we do believe that as the head of the Hypermarket division, Mr. [ Kong ] mentioned before, there are a lot of differentiation points and advantage that we can leverage to the full extent. So if we bring together from the supply side, the channel side and the marketing side, there are a lot of key reasons that are quite beneficial for us to move forward and operate better in this new governance structure. The second question being on the question on the killer traffic drivers. I think it's quite important to understand how the Korean users really leverage and experience such channels in their shopping processes. So in Korea, we have to really recognize that the users are multichannel users. So if you have an opportunity to look at cellphones of people who are on their daily commute, they open up about 5 to 10 shopping mall websites on their phone. And this could actually be quite advantageous for us because from our side of Lotte, we have the supply that comes together from all different type of affiliates and channels, the department stores, the hypermarkets, so they have reasons to come to one of the Lotte sites. And also, if we combine that with a lot of the beauty different channels, as we mentioned before, that's our key differentiator. The second reason that would attract consumers to come to the Lotte platform. And there is a high probability that a lot of such consumers are point number, so this could be leveraged as well. And when we take a look at a lot of the co-marketing opportunities that are available -- that was available during the Lotte ON sale event, there is collaboration that could be done together with the other Lotte affiliate, like Lotte World, cinema and hotel and such additional services that are available, even without much promotion, a lot of the customers are leveraging them quite well as well, attracting a lot of interest. So we do believe that from the product side and also from the asset side, there is a lot to leverage as a whole Lotte group. And by leveraging all of these key advantages together, we can find our position to really provide differentiated experience to the customers.

[Interpreted] Yes, let me also take a question to answer for -- from the Hypermarket. I think in terms of the new business formats that we're newly pursuing, there was a question on the approach towards strategic directions that we had in trying to roll out such work on site stores in regions or areas that the competition does not exist. I think the rational kind of question that was raised was, I guess, the assumption that, what is it because that the market itself is small that the competition is currently not operating there, and we would like to respond to that. So the focus that we have for such new tech format is in the Goyang region, and we do believe actually that there is the market demand available there. Because if we look at the store density compared to the competition, what Lotte has in terms of the process in that region is quite different. In the city of Gwangju, we have 4 hypermarkets and the competition only has 2. And out of those 2, 1 is actually quite small in terms of its size. So we thought with the available hypermarket stores that we have available Gwangju, 4 in total, rather than operating all of them as hypermarkets, it would make more sense to convert some of them into such cash and carry-type stores so that it fulfills the need that we definitely do see for such store format in the Gwangju area. And the second reason would be that in terms of opening new stores, it also is quite efficient in the process that is -- we have available as an option to have a transformation of the existing stores. Because if we look at a lot of the options that are available for new store openings, it is often met with obstacles such as shared growth and certain types of regulations that block certain companies from opening up new such stores in a specific region. I think that was the key reason that the competition could not have any kind of operation of stores in a specific region. It was not that they did not want to, but they couldn't simply. So our strategy is to focus on the density of the stores that are available in the market and also look at regions, markets that have high demand. So we have the available option to swiftly and efficiently turn some of the existing hypermarket format into such cash & carry to fill the needs that we definitely do see available. The second question was in terms of recollection and focus for the nonfood category and pursuing the strategic direction of specialized branding. You asked what I pointed out, if this isn't overlapping with a lot of the positions that other competition has as well. So you're correct to definitely to make that point. And if we look at the overall situation in the hypermarket landscape, the competition that we have to consider among the 3 major players, including ourselves, would be the company that starts with E, the company that starts with H. And they are also pursuing a lot of different kind of discussions and initiatives on discussing what their future direction for nonfood category should be. And in terms of the company that starts with H, they have really focused on tenant approach in the past. But since COVID-19, we did witness that in terms of their competitiveness, it did deteriorate quite a bit. If we take reference from the company that starts with E, we did see that they have strengthened a lot of the direct purchase in their products, and that is the concept that they have worked on continuously to try to improve such offerings for differentiation. And in terms of the approach, you could say that Lotte Hypermarket's overall vision and direction is quite similar to that. However, compared to -- our focus at this point in time would not really be how we differentiate or set apart itself from the competition, but try to catch up to the areas that Lotte Hypermarket has been relatively lagging behind. So for example, for the nonfood category, in terms of the product offering that's already secured, by moving into a more specialized direction, we would be trying to concentrate in securing the available product offerings that are truly specialized, higher-end quality, so that these types are available for such growth and future offerings that meet the needs of the customers' demand. For example, I think we could specifically point to the know-how that we have for health-related supplements and also cosmetics because we have significant experience already gained from the operation of LOHB's. And this would be realized in the operation of LOHB's Plus. And these kind of capabilities with the experience accumulated thus far is something that the competition simply cannot imitate. And also [ Mega Wine ] is something that we have very strong hopes on because we can leverage the full potential of Lotte [indiscernible], which is the beverage arm of Lotte group. And we have the sufficient data already available in the database to pursue different types of [indiscernible]. So to sum up, I would say in conclusion, the strategic direction we have is to play catch-up in the nonfood category so that we solidify and secure the opportunity for exponential growth in sales in the nonfood category. And also as we pursue and advance more into that space, find our way to differentiate so that we have a different type of concept and experience available to the customers.

[Foreign Language] Because we're almost running out of time, we'll take just one more question, preferably a short one and we'll wrap up today's session. [Operator Instructions] [Foreign Language] Due to the time constraint, we'll finish today's earnings announcement today here now. And other questions will be further answered by the IR individual meetings. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]