WAL-MART'S WITHDRAWAL FROM SOUTH KOREA Reference no 306-601-1 Technical assistance £444 (091234 756410, e ecchaecchcom North American customers 1-41 781 239 5884, @ ecchusa@ecchcom oncomento: SBB-TRRS-TTEA0OGITIE? —_]IBS ieee nis 306-601-1 Wal-Mart’s withdrawal from South Korea Japan is not America: Korea is not America, Global giants like Wal-Mart fail in these countries because they don't try hard enough to localize their businesses.! =~ Edwin Memer, President, Atlantis Investment Research, Tokyo Is takes some adaptation to address the South Korean market correctly, and Wal-Mart has been nowhere near the top five. If can't be inthe running then it fees it should withdraw.* Planet Retail’ analyst Bryan Roberts In May 2006, Wal-Mart, the largest retailer in the world? announced its exit from South Korea, selling its 16 stores to Shinsegae Co., the country’s top discount chain, subject to approval from South Koroan regulators, Shinsegae Co. agreed to buy Wal-Mart Korea for 825 billion won ($882 million), Wal-Mart said that its decision to withdraw from South Korea was in keeping with its alobal strategy, “As we continue to focus our efforts where we can have the greatest impact on four growth strategy, it became increasingly clear that in South Korea's current environment it would be diffcul! for us to reach the scale we desired. We have decided to sell our business to the ‘market leader as we believe this is the best option for our associates, customers. and shareholders,” Mike Duke, vice chairman of Wal-Mart Stores said. Wal-Man’s performance in the South Korean market which was considered highly competitive and demanding was not encouraging. Analysts wondered why the world’s largest retailer, with an annual total sales of '$31244 billion, as of January 2006 and serving more than 175 million customers weekly in 15 ‘countries worldwide" decided to pull out of a growing economy like South Korea’ While the majority blamed Wal-Mart's failure to localize its strategies as the reason for the debacle many fel thatthe environment in South Korea was not conducive to foreign brands. Hardly a month before Wal-Mart's announcement, Cartefour of France, worlds second-largest retailer quit the South Korean market. Many interational brands like Nokia, Nestlé and Google, struggled in the South Korean markel, While analyzing the reason for its withdrawal, experts felt that Wal-Mart should use this failure to its advantage in other Asian economies like Japan and China, Background In the early 90s, Wal-Mart entered the global markets, concentrating on the Americas- Mexico, Brazil, Argentina and Canada, considering the huge market potential in these countries and also that these were not very mature markets. It entered Mexico in 1991, Brazil and Canada in 1994 ‘and Argentina in 1995, The need for globalization was to maintain its growth levels and meet Wall Street expectations. The saturation of the American markets was an added reason, In its cniry strategies into new markets, Wal-Mart either acquired or allied with an existing retail chain, Tt was fairly successful in its inital international operations’. In continuation of its overseas * Seyoon Kim and Wiliam Si, Lost nthe cultural translation WalMart misread South Korea and Japan, nenational Herls ebuno, 7262006 £ Wala eis South Kora, Anita vb, www foodendinkourope.com, 2, May 2006 2 woewarpeiacom “atta facts * South Korea was he tenth largest economy inthe wo 5 of 2008 ‘nts als fom nterational operations was $5 bilion n 1987 “This Case was wen by Rao , John O and Bhaskaran Sand Kura K, IBS Reseach Cote. Ws iiended obo aed as tho basis for class cussion rather than to istate ether elecve or inetlecve handing of « management situation, ‘The ease was comple rom published sources. (208,85 Research Center. No pait of ths publication may be copied, stored, tansmitee, reproduced or disbuted In any form or msm vwateoever without th pemision af the copyright owner. @ the case for learning. ianmem Cipaeas Cams ‘eigen es306-601-1 ‘growth, Wal-Mart focused on Asia, It entered China in 1996 and South Korea in July 1998. ‘Commenting on Wal-Mart's entry into South Korea, Bob L. Martin, president and chief ‘executive officer of Wal-Mart Intemational said, "Korea is an exciting, high-potential market and ‘an excellent next step in our Asia expansion. We began exploring the Korean market more than four years ago, and we are very excited about this chance 10 serve customers here the Wal-Mart way.” Marketing experts said that although South Korea was only as big as Florida in size, it had nearly thrice its population. Considering that there were 135 Wal-Mart stores” and 33 Sam's ‘Clubs* in Florida (at the time of Wal-Mart’s South Korean entry), relatively more number of stores were expected in South Korea South Korean Retail Market ‘Till the carly 90s, department stores were the major retail formats used by South Koreans. However, during the Asian economic crisis in 1997” and the liberalization ofthe retail markets in 1998, (Exhibit I: Regulatory environment for Retail) the scene changed with the advent of discount stores, supermarkets and hypermarket, which offered a large variety of merchandise at discounted rates, There was a shift in shopping formats from ‘mom and pop" stores" and department stores to discount superstores, hypermarkets and convenience stores. (Exhibit Il: Shift in Retail Formats). In 2003, sales at discount stores, as a proportion of consumer retail expenditure rose to 13.2%, overtaking department stores sales. The main advantage that Korean consumers recognized in discount stores was that they were spacious and provided an enjoyable store environment, The products offered were of good quality at low prices, Discount stores generally offered large numbers of products in a ‘warehouse” format rather than a westem style ‘supermarket’ format (Exhibit II: Warehouse Style format). Multiple brands of similar products were displayed on shelves and the option of buying in bulk at discounted prices was provided. With the change in posterisis spending and shopping habits, the discount stores were highly successful and expanded rapidly, and the number of discount stores doubled in the three-year period between 1999 and 2001. The locally owned E-Mart, which opened in 1993, was one of the early entrants in the discount store segment. Following the shift in shopping formats, Department Stores re-positioned themselves in the market as a destination for luxury items, focusing mainly on high-end clothing and leather goods, high priced food items, bakery and nutritional foods products, imported exclusive food brands, targeting the rich and the upper class customers (Exhibit IV: Department Store format) Department stores usually had a specific area for international products that included fresh meats, natural cheeses, wine, beverages, condiments/sauces, bottled fruit and jams. Some major department stores formed alliances with famous butchers and farms, and opened special counters for these products. They even organized tours tothe farms, in order to convince customers of the quality of their food products. Hypermarkets and supermarkets were large store formats, offering customers a wide range of products from food, household goods, clothing, and tools inthe mid to low end category. They could realize economies of scale owing to their enormity and offered a better price advantage, They also offered convenience to customers through long opening hours and had high customer trafic, ‘Traditional wet markets in Korea, which were large wholesale markets, specialized in fresh produce. Although their numbers were gradually declining due to the shift in shopping formats, ‘many Koreans continued to shop at these markets for fresh food, (Exhibit V: Traditional Wet * Waldlar stores offered coting, ines, smal applnces, harévae, sporting goods and sina items * Sans Clubs efered bulk tm to customers who purchased warehouse memberships 2 The Asan economic eis was a nan eas that started in July 1987 In Thalnd and affected currence, stock mares, and other asst pias in several Aslan counties {TA single family operated business, wthot any hie Iabor and where members ofthe family wore Involved ins dayto- day fnetoning svsrasereess Ta aca onc chars ctnaeceiesc som & er arte i F3 f 8 f 4 | i g i i ¥306-601-1 ‘Market format) Apart from these shopping systems, convenience stores and transaction over the internet were also prevalent in South Korea. When Wal-Mart announced its entry into South ‘Korea, many viewed it as the David vs. Goliath battle andthe local retailers were apprehensive. Wal-Mart in South Korea ‘Wal-Mart entered South Korea by taking over four stores of Netherlands’ Makro Cash & Carry chain and six undeveloped sites. Wal-Mart Korea was established as a wholly owned subsidiary of its US parent. The acquired stores were a single-level unit with more than 100,000 sq. f. of selling space, The stores were relatively new as Makro had been operating in Korea only for bout two years. The four stores were revamped according to Wal-Mart specifications and were named Wal-Mart Korea, Three stores were located in Seoul and its suburbs, and one in Taejon, (Exhibit VI: Map of South Korea) The first store was constructed at Kangnam, Seoul in July 1999 amid some opposition from local residents, Wal-Mart was also confronted with anti- American sentiments from some consumers who refrained from shopping there. ‘Wal-Mart faced competition from both local and international players. The main local players ‘were Shinsegae" -which operated the E-Mart chain of discount stores, Samsung -which set up a joint venture with Tesco of the UK in 1999 and operated the Home Plus chain of discount stores, Hyundai, and Lotte, (Exhibit VI: Players in the Discount Segment) The international players ‘were Carrefour (opened in 1993) and Costco (in 1998). As of 2003, the five major players in the Korean Discount Store market were: E-Mart, Lotte Mart, Home Plus, Carrefour Korea and Kim's Club. While Wal-Mart was known for its discounting strategies", its competitors adopted multi-tier approach, dealing in both discount merchandise and luxury goods. Both Shinsegae and Lotte, apart from operating discount stores, operated in the luxury retail segment also. The local ‘etailers were well established in the South Korean marke, the majority of them having evolved from family businesses which had a global outlook. In a bid to adapt itself to the South Korean consumers who were trend-conscious, Wal-Mart Korea made sure that their latest offerings were available at its store. For instance, it introduced the stylish George apparel line"” in 2003 and expanded the line to footwear in 2004. It expanded its operations and as of 2006 it had 16 stores ranking fifth among the five major discount store ‘operators in South Korea, Wal-Mart’s dismal performance In its South Korean operations, Wal-Mart never managed to rise past fifth place in the competitive and locally dominated market, This seemed a sharp contrast to the US retail scene where Wal-Mart was responsible for §-10-10 pereent of al retail sales and this puzzled analysts. For the year 2005, it posted a net loss of 9.9 billion won ($10 million), on sales of about 750 billion won ($787 million) At the time of its announcing its exit, the E-Mart chain of Shinsegue accounted for 30 percent of the local market, followed by Homeplus, with 17 percent and Lotte ‘Mart with 12 percent. Carrefour and Wal-Mart with 4% tailed with smaller market shares. B- ‘Mart, which had bought the Wal-Mart stores for 825 billion won ($882 million), said that the new stores would be converted to the firm's E-Mart banner. * Formerty part of Sameung Grou, te county’ largest conglomerate, Shinsegae was spun of inthe 1990s bu was stl ontology tessa of Samsung's chairman "7 Oftering gods ata lowiscounted price "George was a UK based apparel brand oferng fashion at reasonable rato Fee pata conn echt soe “ae Aa306-601-1 Reasons for exit Store format and ambience While analysts pointed to many areas where Wal-Mart had failed, the chief one seemed to be its store format. According to Rob Gregory, Planet Retails Asia analyst, “When foreign competitors centered they went with the hypermarket model that they used all over the world. They look like warehouses. But South Korean shoppers were used to a quality shopping experience” South Korean consumers, especially the wealthy, were stylish and were used to exceptionally high ccustomer service levels, and valued convenience, quality and choice above price. Local operators like E-Mart (Exhibit VIM; Interior of an E-Mart Store) and Lote paid great attention to the store décor. They built eye-catching displays and hired sales men who hawked their goods with ‘megaphones and hand-clapping. In sharp contrast, the Wal-Mart outlets (Exhibit IX: A Wal-Mart Store in South Korea) were simple in appearance and had the "warehouse-type feel” which was not accepted by South Korean shoppers. While this worked for Wal-Mart in the US, analysts said that Korean shoppers did not like to shop in huge stores which had a large number of products of the same type stacked in boxes. Commenting on Wal-Mart's store format, housewives who shopped at E-Mart in Seoul said that Wal-Mart's Seoul store looked like a ‘cheap marketplace.” “I just don't like to shop in a place that looks like a warehouse,” a 38 year-old housewife said. "I can get everything I need, ‘from fresh produce to televisions, at a cheap price while being treated like a customer in a department store,” she added, While some complained that Wal-Mar’s warchouse-style layouts ‘were dark and boring, others said that the store format was inconvenient for comparing prices and products. Wal-Mart utilitarian design- ceilings with exposed pipes also put off shoppers who ‘were used to the decorated ceilings in E-Mart stores. Analysts blamed Wal-Mart for not studying the cultural significance of the retail shopping environment before designing and deploying stores. Marketing experts opined that being put-off by the store environment itself, Wal-Mart's low price and vast range offering would not excite the customer. According to a KCCI study, Koreans weighed store formats and freshness of produce offered over discounted prices. E-Marts public relations team manager Kim Dae-Sik said, “We found out that the ever-true principle of ‘mass supply at low prices' seemed insufficient to attract Korean consumers. In addition, Koreans tend to feel satisfied just by seeing a variety of fresh fruits and vegetables from the entrance." Recognizing that a "picasant shopping environment and friendly services" were crucial to satisfy up scale tastes of local shoppers, who were long accustomed to department stores, local retailer E-Mart displayed products in an “easy-to-spot manner” rather than piling them on shelves, South Koreans missed the wholesome shopping experience at the ‘Wal-Mart's stores and this did not attract a large number of customers to is stores. Number of stores Wal-Mart also suffered from its scope of operations. Even after nearly a decade of operations, it had opened only 16 stores throughout South Korea. In the capital Seoul, there was only a single Wal-Mart store. “Wal-Mart and Carrefour were not aggressive enough in expanding thelr networks in South Korea,” said Koo Chang Gun at Korea Investment and Securities. Many Koreans had never heard of Wal-Mart, It also failed to address the fact that most South Korean housewives did not like to travel long distances to buy their daily needs. The limited store ‘operation restricted them from building the kind of market share that would allow them to press suppliers for a better price. This lack of scale caused a competitive disability to Wal-Mart in tems of its pricing. For example, a pack of five Shin Ramyun noodles was priced at 2,350 won at ‘korea Chanber of Commerce and Industry Sal canna eahgeom oon eras abun ne ote aught by Samara Ale in306-601-1 ‘Wal-Mart's Seoul store, compared with 2,150 won at E-Mart. Incheon rice was $5,700 won for 20 kilograms (44 pounds) and 50,400 won at E-Mart (Prices as in May 2006). The E-Mart chain, the discount leader in Korea operated 79 stores throughout the country and on an average, added bout 10 new stores a year. Ths vast network gave E-Mart bargaining power with suppliers. Goods offered “The goods offered at Wal-Mart also put off South Korean consumers. It concentrated on offering dry goods, from electronics to clothing, at its stores, while their local rivals focused on food and beverages, the segment that according to specialists atracted South Koreans to hypermarkets and discount stores. Also, a majority of Koreans did not prefer Wal-Mart's wide shoes-to-sausage product range. They preferred daily outings to a variety of local stores that specialized in groceries, drugs or houschold goods, rather than shopping once a week at Wal-Mart ‘Traditionally South Koreans preferred fo buy ftesh food and consume it within a day ot two, rather than doing a weekly shopping. This was particularly true for meat and fish, which was likely to be bought on the day of consumption. Analysts felt that with change in lifestyles and. ‘westernized habits, the shopping patterns would change. Housewives were dissatisfied with food and beverage offerings at Wal-Mart. They did not like the imported frozen foods it stocked along with fresh meat and vegetables, which was also sold in larger quantities. “ never liked shopping in those dark stores where they sell frozen imported food in bulk, not fresh products sold in smaller bundles. They have stacks of goods in boxes, That ‘may be good for some Ameriean housewives who drive out in their own cars. But Koreans, prefer smaller packages. Why would you buy a box of shampoo bottles?” commented a housewife in Seoul, Need for localization ‘Wal-Mart had often been criticized for its lack of localization in some markets outside the US. In Brazil for example, Wal-Mart stores had stocked golf clubs where the game was unfamiliar. It had also attempted selling ice skates in Mexico. In Korea also, Wal-Mart had failed to tailor some basic design elements. Its stores originally had taller racks than those of local rivals, forcing shoppers to use ladders or stretch for items on high shelves, Analyzing the reasons for Wal-Mart's filure, the performance of Tesco Ple, U.K's largest retailer seemed encouraging, In 2000, it tamed with Korea's Samsung Group to open its first Korean store, Tesco owned 89 percent of the venture and paid royalties to Samsung to trade under the name Samsung Tesco Home Plus. "Tesco was smart to pay to use Samsung's name, a brand that all Koreans are fond of, and trust,” said an analyst. Tesco planned to more than double its Korean outlets to 102 by 2009, the company said. The South Korean venture was one ‘of Tesco's biggest overseas success stories, generating a third of its overseas sales. Tesco's success was attributed to its localizing strategies made possible by its joint venture with Samsung, its Korean partner. “Asian consumers are showing a new form of modernity and sophistication that would challenge even the most experienced brands. The retailers with the Tocal-market knowledge and distribution network will ultimately emerge as the winners,” Martin Roll, a branding consultant in Singapore said. Analysts said that local companies in Korea had the competitive advantage of connections that gave them well-established networks to draw on. ‘According to an investment analyst, "The South Korean economy uses the chaebol system" of inter-related companies, forming friendly conglomerates. Its similar to the Japanese system, but ‘even stronger.” “Lage famiy-controled Korean corporate groups asited by government nancing, whic have played a major on ‘he South Korean economy since the 19605. Some had bacome wolexnown international brand names, such as Samsung, yunda and. Hyunds, san Nec? fa es Ss ARG rae rats eee notre chains conec cena Pucese or use ne 24888 elon Baers, al Calle them ries.306-601-1 Samsung Tesco, ranked No, 2 in South Korea, hired a Korean chief exceutive and made stores "friendly" tothe needs of Korean shoppers, which Wal-Mart and Carrefour failed to do. It offered consumer electronies with food in a discount forma, and this was highly popular among Korean shoppers. Another advantage that Tesco enjoyed was that the Samsung brand was well recognized by the Koreans, who were considered patriotic and passionate about their home grown brands. Many South Koreans used Hyundai or Kia cars" and preferred local hand phone brands to foreign ones, Local giants Samsung and LG dominated, and Nokia, the world’s primary cell phone maker, basically stopped promoting its cell phones in 2004, World’s leading search engine, Google was a small player in the local Web search engine market, which was dominated by the Naver Web site!” of the South Korean company NHN and the portal of Daum Communications", Naver and Daum encouraged users to post questions and let others answer them, creating a fastexpanding Korean-language database that attracted Web surfers in South Korea, Nest the food and beverage company also failed to make a mark with its flagship baby formula segment. Carrefour SA, Europe's largest retailer, quit South Korea in April 2006, decade after operating a network of 32 stores. It sold its stores to local retailer E-Land on April 28, 2006 for $1.88 billion. ‘This probably explained the anti Wal-Mart sentiments echoed by some consumers who resisted its entry and triggered complaints to the country’s Fair Trade Commission. It was alleged that ‘Wal-Mart required vendors to supply products at extremely low prices, which was banned under South Korean monopoly laws. The Fair Trade Commission investigated Wal-Mart and Wal-Mart was fined in December 1998 and then again in March 2001 for unfair business practices, although other retailers in Korea faced rigorous scrutiny and penalties as wel. Wal-Mart also faced resistance from Korean trade unions. The unions opposed Wal-Mart's removal of the small trade union, which the Makro (the chain it took over) workers had created. Wal-Mart made sure that no union could enter to organize the workers and prevented employees from joining unions, Despite several demonstrations held by the Korean commerce trade union KPSU, other Korean UNT affiliates, UNI Commerce and UFCW, Wal-Mart refused to enter into a dialogue with trade unions. The opposition from the unious was widely covered in the Korean press. The union groups planned to establish unions in other retailers like E-Mart and Tesco Samsung Home Plus who also prevented their employees from joining unions. (Exhibit X: Protests against Wal-Mart in South Korea) Lessons for Wal-Mart ‘Analysts wondered if Wal-Mart would leam localization lessons from its experience at South Korea and apply it at other Asian markets like China and Japan. “There's no guarantee that the same thing won't happen in Japan if Wal-Mart sticks to its own way and ignores the Japanese ‘consumers’ demands,” & retail analyst said. Japanese, like Koreans looked first for fresh produce when they visited discount supermarkets and Wal-Mart's low- price strategy did not compensate for a lack of localization, which included the look and feel of stores. Wal-Mart entered Japan in 2002 by buying into debt-ridden Seiyu Ltd, As of 2006, Wal-Mart owned majority stake at Seiyu, increasing its investment in the Japanese retailer. Despite this, Seiyw forecast a fourth year of losses for 2006, from about 400 stores it operated there. Japan, where consumers were very choosy, had been a challenging market for many forcign retailers. Carrefour SA of France, the world’s No, 2 retailer, quit the Japanese market in 2005 after it failed to woo buyers there. ‘Kia was a subsidy of Hyundel and nats own ange of ars "Naver as the fest ad ening web portal in South Korea. tha sown propriety search engine and ws the market leader inthe search engine marke, "Daum was a popular web portal in South Korea anda close competitor to Naver eS Febi dherts Cone epee TN Sen Rolie for306-601-1 Wal-Mart pointed to declining returns on investment and capital as the reason for its exit from South Korea, Reinforcing the company's commitment to growing profits rather than just sales, ‘Wal-Mart's spokesman said, “We had an investment of roughly 81 billion in Korea. We weren't ‘able 10 build that investment in the way that we felt was best for the company. We're expecting now to be able to take that eapital and invest it in a way that witl enable us to grow [return on investment] more quickly.” According to Wal-Mart, the sale price of $882m, was “roughly ‘equivalent t its initial investment in the South Korean market. ‘This was the first time that Wal-Mart had left large, intemational market. Previously, in early 1998, Wal-Mart exit Indonesia in a much smaller way. It got out of a three-year-old partnership to run two super centers in Jakarta, Indonesia, which disallowed foreign investment in retail stores. Wal-Mart decided to continue to operate its global procurement office in Seoul, which exported South Korean products such as apparel, plush toys and home textiles. Blaming severe competition and domination of the South Korean retail market by E-Mart, Wal- ‘Matt's spokesman Bill Wertz said that Wal-Mart’ failure could not be atributed to any specific reason, "Korea is a very competitive market and a very expensive market, so it was difficult for us 10 achieve the return on investment. We feel that we can take the investment that we had in ‘South Korea and put it into other growth opportunities elsewhere around the world and do better {for the company, In sure we made mistakes as every retailer does. But I don't think there was ‘any single factor that made the difference for ws," We Suid, ‘The sale of Wal-Mart stores to Shinsegae was expected to help Shinsegae consolidate its lead at home. After strengthening its position locally, the retailer planned to shift its resources to China and have 34 E-Mart stores in China by 2010. Meanwhile, the Korean retail market and the discount sector in particular were poised for growth, South Korea's discount store sector, which ‘was approximately $26 billion in 2005, had been growing at about 17 percent a yeer over the past five years atthe expense of traditional mom-and-pop stores. The expansion had helped the top three retail players consolidate their position.” ‘Wal-Mart further justified its exit saying that it was looking to other markets around the world for growth. “We are continuing to look for growth opportunities all around the world,” spokesman Bill Wertz said. Some analysts said that Wal-Mart was making the right move in concentrating ‘on other markets, especially South America, China and India. Love Goel, chairman & CEO, Growth Ventures Group, an US-based investment firm with interests in the retail sector said “Wal-Mart has made a briliant move to withdraw from Korea to focus on India. The Indian ‘marker is much less competitive and its middle class is hungry for modern retailing practices and products sold by western retailers like Wal-Mart.” China's deregulation at the beginning of 2005 had made it easier for foreign players to open new ‘hypermarkets and made them more aggressive in expanding in China, Asia's second-biggest retail ‘market aftr Japan. “China, obviously, is potentially a much bigger market than South Korea, said Paul McKenzie, head of consumer research at CLSA. “Unlike South Korea, you don't have ‘one dominant player. Shinsegae's E-Mart just dominates the field, whereas China's market is ‘much more fragmented so there's more opportunity there,” ‘Months before withdrawing from South Korea, Wal-Mart made major investments in other geographical areas. In March 2006, Wal-Mart increased its investment in the Central American markets, It had lifted its ownership to 51% in Central American Retail Holding Co., a leading ‘retail chain and renamed it Wal-Mart Central America. The division operated 375 supermarkets in Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. “Dhis additional investment "penn pramercaracomipramercalpdrealestatPramerca_Asant2tQuartery 20202006 pat306-601-1 demonstrates our confidence in the partnership and in the future of this business in Central America,” Duke said then. Two other strategic intemational purchases it had made were, boosting its holdings in Seiyu Ltd. (lapan) to 53% and lifting its matket position to No. 3 in Brazil with the acquisition of Sonae Distribuicao Brasil S.A,” a retail chain in Brazil In growing its businesses outside the US, whether Wal-Mart would apply the lessons it had learned through its failed ventures and how it would use its failures as stepping stones for success was to be seen, Analysts also wondered if the exit of Wal-Mart and Carrefour would send unhealthy signals about South Korea's foreign investment scenario, thereby decreasing the inflow of FDL Articles Referred: ‘© Retail and Consumer trends in the South Korea Agti-Food Sector, Department of Primary Industries, May 2004 '* Global Retail & Consumer Study from Beijing to Budapest Pricewatethouse Coopers Report, 2004/2005 + Seyoon Kirn, William Sim, Wal-Mart Misreads South Koreans With Spartan Warehouse ‘Stores, www. bloomberg.com, May 25, 2006 ‘© Jennifer Waters, Here's a switch: Wal-Mart leaves a market, Dow Jones Newswires, May 22, 2006 ‘+ Reuters, Wal-Mart Selling Its South Korea Stores for $882M, FoxNews.com, May 22, 2006 ‘© Seyoon Kim and William Sim, Lost in the cultural translation Wal-Mart misread South Korea and Japan could be next, Intemational Herald Tribune, May 26, 2006 ‘+ Advertiser News Services, Wal-Mart's pullout ends struggle in South Korea, The Honolulu Advertiser, May 23, 2006 ‘* Wal-Mart leaves Korea - never a success story, www.union-network org, 27" June, 2006 » Sonae’s retail operations in ral included 140 hypormarkts, supermarkets and wholesale units, Th otal transaction was valued at approximately $757 milion ah by Goma Apel. to Tape 201s 30-Apraos SE ante ne yes eben cece oomExhibit I: Regulatory environment for Ret -FORELON IRE. NVESTMENT Inesinen Romotan Att proraa eg + Tx ets fr fx ester | conn moat ot {CS \AT moose onto gots [ron et | tition ton oan teapot | Tar exerpton on corset | i org invents welcomed a mest uses a8 Ferears my gna ovr 100 tee ‘Stes, trig coma [tonnsng sd neion bonieasiag sans. 306-601-1 REGULATORY ENVIRONMENT PROPERTY. REAL ESTATE REGULATIONS Fara edt acai 3 cf nd orcs ow eny hie fossa sropen a acaue domestic Uh thay 3 eae to parmisin ut on aang, ung nd erage te reforestation poets rem rem ice ina een atemague eanous ote Pek aceat tear geees eae Sahateaascerns cue tpt echoes tte hoy Siam ye. ete pose creas tapout Source: Global Retail & Consumer Study from Bejing to Budapest Pricewaterkouse Coopers Report ay hn eae partes oterave cera eeshieech cor eeExhibit Il: Shift in Retail Formats Pre 1990 Post 1990 Hh Excheive Deyartment Income Lave Depertnant Sues sms Shopping center Gena merchandise Non Mice stores Extent Itvone Converone stores Leva Discount stares Hypa Wraceouse chs Cenvontiond marke Conventional Low Income seont stows Mast Leal [Open aot ‘Morn and pop stoces 306-601-1 Source: Retail and Consumer trends in the South Korea Agri-Food Sector, Department of Primary industries 10 manna pores era conac oigees c Pocemtentrerntied306-601-1 Exhibit ITI: Discount Store in South Korea- Warehouse format Source: Retail and Consumer trends in the South Korea Agri-Food Sector, Department of Primary industries Exhibit IV: Department Store Format Source: Retail and Consumer trends in the South Korea Agri-Food Sector, Department of Primary industries306-601-1 Exhibit V: Traditional Wet Market Format Source: Retail and Consumer trends in the South Korea Agri-Food Sector, Department of Primary industries Exhibit VI: Map of South Korea | KOREA seca, 8 se 2 | sen, | seo rose | wean A os Pag H a os s se : B 2 pat Ta Ha i a, ae seyoH an oye ae a fe co g ove vo Source: Retail ancl Consumer trends in the South Korea Agri-Food Sector, Department of Primary industries 12306-601-1 Exhibit VII: Discount Players in South Korea Dissount stores /Hypermarksts cre shseane Source: Yonhap News306-601-1 Exhibit IX: A Wal-Mart Store in South Korea be fa ee perry RT Source: The Honolulu Advertiser Exhibit X: Protests against Wal-Mart in South Korea Source: www.union-nenworkorg