ANNUAL REPORT 2016 BEYOND & GREATER About this Report BEYOND & GREATER Annual Report 2016 LOTTE SHOPPING ANNUAL REPORT 2016 This annual report is designed to inform readers about Lotte Shopping’s exciting and innovative new ideas in the retail industry of today and tomorrow. We are committed to offering customers and shareholders the ultimate in value and satisfaction. COVER STORY The cover of this report features photographs depicting the world of Lotte Shopping. It shows readers the wide range of channels, products, stores, and services that we have to offer them. UNIQUE FEATURE This year’s report includes a “Beyond” section outlining our efforts to create the retail industry of the future and a “Better” part that describes our financial and non-financial management performance and our activities in the area of corporate social responsibilities. *** LOVELY LIFE Our “Lovely Life” corporate slogan reflects our commitment to providing our customers with richer and happier lives. We are committed to embracing change and innovation for the betterment of all our stakeholders. MILESTONES 1979-2005 2011 2014 BEYOND & GREATER '79 11 - Founded as Lotte Shopping Co., Ltd. '11 02 - Opened second Lotte School in Vietnam '14 05 - Opened Lotte Department Store Shenyang, 12 - Opened first otteL Department Store China 04 - Opened Lotte Mall Daegu Esiapolis Annual Report 2016 '96 06 - Opened Lotteshopping.com online shopping mall 06 - Opened Lotte Department Store Tianjin in China 09 - Opened first otteL Department Store in '98 04 - Opened first otteL Mart 08 - Opened 200th Lotte Mart store (83rd in China) Hanoi, Vietnam '00 01 - Spun off otteshopping.comL to create Lotte.com 12 - Opened Lotte Premium Outlets Paju 10 - Opened Lotte Outlets Goyang Bus Terminal '01 05 - Opened first otteL Super 12 - Opened Lotte Mall Gimpo Airport 10 - Opened Lotte Avenuel World Tower '02 10 - Acquired Nowon Department Store from Midopa 11 - Opened Lotte Mall Suwon '03 11 - Opened first otteL Young Plaza 12 - Opened Lotte Premium Outlets 12 - Spun off credit card business to Lotte Card subsidiary 2012 Gwangmyeong '04 03 - Acquired twenty-five supermarkets from Hanwha Super 12 - Opened Lotte Outlets Guri '12 01 - Acquired CS Mart '05 03 - Opened first venuelA 12 - Opened Lotte Mall East Busan 02 - Launched Lotte DatViet home shopping business in Vietnam 03 - Launched “elLotte” premium online mall 2006-2008 05 - Acquired two Grand Department Store branches 2015 '06 02 - Listed on London and South Korean stock exchanges 06 - Opened firstVIC Market, in Geumcheon '15 03 - Opened Diamond Plaza department store in 08 - Acquired Woori Home Shopping 08 - Acquired Lotte Square Hanoi, Vietnam '07 09 - Opened first verseaso Lotte Department Store, in Moscow 09 - Opened Lotte Department Store Tianjin in 05 - Opened Lotte Factory Outlets Incheon 12 - Entered Chinese hypermarket sector with acquisition of Makro Tianjin Cultural Center, China 06 - Spun-off LOHB’s health and beauty store as '08 08 - Opened second overseas Lotte Department Store, in Beijing 09 - Opened 100th Lotte Mart store in China a separate company 10 - Entered Indonesian hypermarket sector with 10 - Acquired Himart 07 - Opened Lotte Department Store Masan acquisition of Makro 09 - Opened Lotte Outlets Gwanggyo 10 - Opened first otteL Outlets, in Gwangju 11 - Opened 40th Lotte Mart in Indonesia 12 - Opened first otteL Premium Outlets, in Gimhae 2013 12 - Opened Lotte Mart Yeongdeok 12 - Opened Lotte Mart Ho Chi Minh in Vietnam featuringshowroom-style format '13 01 - Acquired Lotte Midopa (first overseas Lotte Mart store) 01 - Opened Lotte Outlets Seoul Station 04 - Opened Lotte Department Store Weihai, China 06 - Opened Lotte Shopping Avenue in Indonesia 2016 2009-2010 08 - Opened Lotte Department Store in New Century '16 03 - Opened Lotte Department Store '09 07 - Opened first otteL School in Vietnam Global Center, Chengdu, China elCUBE Hongdae 09 - Opened Lotte Outlets Suwan in Gwangju 09 - Opened Lotte Outlets Buyeo 06 - Opened Lotte Super Premium Food Market 09 - Acquired 7-Eleven convenience store chain (Korea Seven) 12 - Opened Lotte Premium Outlets Icheon Dogok 10 - Acquired Times hypermarket chain in China (68 stores) 07 - Launched Choice L Gold Premium '10 01 - Acquired Buy The Way convenience store chain Integrated PB Brand 02 - Acquired GS Square department stores and 07 - Opened thirteenth Lotte Mart in Vietnam GS Mart hypermarkets 08 - Opened Lotte Outlets Uijeongbu 08 - Acquired equity stake in Chinese home shopping 09 - Opened Lotte Mall Jinju network Lucky Pai 12 - Opened forty-sixth Lotte Mart in Indonesia 08 - Opened Lotte Outlets Yulha in Daegu 12 - Opened Lotte Outlets Namak 08 - Opened first directlyoperated Lotte Mart in Indonesia 11 - Acquired Nice Claup Fashion 1979 2016 2 3 CONTENTS BEYOND GREATER 01 05 07 *** Beyond Expectations, Smart Shopping *** Greater Vision *** Greater Tomorrows page. 4~7 page 24~47 page 64~73 4 Shopping Meets Technology 26 About the Lotte Group 65 Lotte Shopping’s CSR 28 Company Profile 66 Customer-Oriented Management 30 2016 Performance Highlights 68 Environmental Management 34 Global Network 70 Win-Win Partnerships 36 CEO’s Message 72 Social Contributions 40 Board of Directors 42 Governance 02 43 Ethical Management 44 2016 News Highlights *** Beyond Boundaries, Omni Channel page. 8~13 8 Flexible Shopping, Flexible Shipping 06 08 *** Greater Performances *** Financial Statement page 48~63 page 74~160 03 50 Lotte Department Store 75 Independent Auditor’s Report 52 Lotte Mart 76 Consolidated Statements of Financial Position *** Beyond Frames, New Format Business page. 14~19 54 Lotte Card 78 Consolidated Statements of Comprehensive Income 56 Himart 79 Consolidated Statements of Changes in Equity 14 Providing Innovative Services 58 7-Eleven 81 Consolidated Statements of Cash Flows 60 Lotte Super 84 Notes to the Consolidated Financial Statements 61 Lotte Home Shopping 62 Lotte Cinema 63 LOHB’s 04 *** Beyond Limitations, New Stores page. 20~23 20 Creating Diverse Memories LOTTE SHOPPING ANNUAL REPORT 2016 4 5 3D Virtual Fitting Showing you how you’ll look in advance Lotte Department Store’s 3D Virtual Fitting service combines shopping for clothes with high-tech augmented reality technologies to let shoppers check out how they’ll look in the clothing they’re interested in through Digital Mirror and smartphones, without having to actually put them on. 01. BEYOND EXPECTATIONS Smart Shopping Augmented Shopping Meets Reality Digital Motion Technology Recognition Mirror Camera 2 3 Technologies Amazing shopping experiences Lotte Shopping uses cutting-edge ICT technologies to provide customers with excitingly new shopping experiences. They include 3D Virtual Fitting with high-tech augmented reality (AR) technologies, a Smart Shopper, a Foot Scanner that measures foot sizes in 3D, and Baro Coupon, offering discount movie coupons through the magic of sound wave communications. LOTTE SHOPPING ANNUAL REPORT 2016 6 7 Foot Scanner Custom-tailored shoes Lotte Department Store uses 3D foot-measuring scans at its main branch. The scanner measures the shoe size of a customer in 3D and delivers its recommendations within seconds. Customers then have the option of buying shoes in the best size to fit them off the rack or having them custom-made. Smart Shopper Eliminating shopping carts Smart Shopper was initially deployed at the food stores of 3D Lotte Department Store Bundang. It’s an innovative, omnichannel Scanning service that combines offline shopping with state-of-the-art ICT technologies. Shoppers can have their purchases delivered to their homes by swiping the bar codes of the products they want at a terminal at the store and then paying for them at a self-serve Precise checkout. They can also make changes to their purchases or cancel Information Technology Measuring them by using an order-viewing device while they’re still shopping. Technology There’s no need for lug around a big, heavy shopping cart! Technologies ICT 4 NFC Baro Coupon A quick and easy way to get discount movie coupons Lotte Cinema can now supply discount coupons to customers just by tapping their cell phones. Using Lotte’s sound wave technologies, theatergoers can receive discounted movie admissions just by following the instructions given in the cinema. LOTTE SHOPPING ANNUAL REPORT 2016 8 9 02. BEYOND BOUNDARIES Omni Channel Flexible Shopping, Flexible Shipping Online to Offline Offline to Online Himart 7-Eleven Easy and convenient shopping Customers can pick up their online purchases just by driving to one of our department stores, marts, supermarkets, convenience stores, Lotte Mart parking lots, or gas stations. If the things they want aren’t available Lotte Super Lotte Department Store at an offline store, they can order them at one of Lotte’s online shopping malls. Lotte Homeshopping LOTTE SHOPPING ANNUAL REPORT 2016 10 11 Technologies Smart Pick LOTTE DEPARTMENT STORE’S SMART PICK RESULTS FOR 2016 Merging online and offline shopping Smart Pick is Lotte Shopping’s signature omnichannel service. Combining the best of online and offline shopping and operated by 175,614 (+183%) Smart Pick 2 The 7-Eleven Cross-Pick Service Number of orders Lotte Department Store, Lotte Mart, Lotte Super, and Himart, it allows 35 Lotte’s Cross Pick service allows customers to pick up shoppers to pick up their online purchases at any nearby offline store. NUMBER OF STORES merchandise purchased from online shopping malls at In 2016, Lotte Department Store and Himart launched the Cross-Pick EQUIPPED WITH any 7-Eleven convenience stores that are open 24/7. It was service in July and November respectively. The service allows customers SMART PICK ACROSS 17,434 (+190%) launched by Lotte Department Stores and Himart in July Sales (in KRW billions) to pick up their online orders at any 24/7 7-Eleven location. Lotte Mart SOUTH KOREA Lotte Department Store and November, respectively, in 2016. and Lotte Super introduced the Drive & Pick service, which allows shoppers to pick up their online orders at gas stations or the parking lots of the stores without having to leave the comfort of their cars.