Homeplus reopens, but suppliers still gasping for air

Customers shop at the Daejeon Yuseong branch of Homeplus on Aug. 13, the first day of the hypermarket chain's reopening. [Yonhap]

"It would be hard to call this a recovery. We're barely on life support."

About two weeks have passed since Homeplus resumed operations, but the financial strain on its small and medium-sized suppliers and small-business vendors has not let up. While the resumption of deliveries has allowed some cash to flow again, unpaid receivables remain frozen as bond claims and order volumes have yet to return to pre-crisis levels.

The head of Company A, which supplies coffee and other products to Homeplus, said in a phone interview Wednesday that the firm is now delivering goods after receiving advance payments. "But the receivables we were never paid before are still sitting there as bond claims," he said.

Deliveries resume, but financial recovery remains uncertain

As part of its normalization process, Homeplus is currently paying some suppliers upfront before receiving their goods. The head of Company A said it was the first time the firm had ever delivered on a prepayment basis. "With the advance payments coming in, cash is circulating, and we're holding on as best we can with whatever profit comes out of that," he said.

Order volumes, however, have shrunk compared with before. The number of Homeplus stores has declined, and the chain is now placing orders only as needed — focusing on fast-moving products rather than stocking up in bulk. Company A is currently receiving orders calculated on a weekly or 10-day basis, pegged to projected sales. "Before, they would take large quantities to fill the shelves and then reorder on top of that," the company's head said. "Now they take exactly what they need for a given period — it's very tight."

Homeplus accounts for roughly 70 percent of Company A's sales. As the hypermarket's financial difficulties have dragged on, the supplier has sought to diversify into other retail channels, but breaking into new markets quickly has proved difficult. "We keep looking for new channels, but at the same time we want to do everything we can to help Homeplus get back on its feet," the company's head said. "If they survive, we all survive."

The reopening has at least bought suppliers some time to hold on. The head of Company A said there is now a glimmer of hope, but added: "We're on life support — it's CPR, not a full recovery."

A survey by the Korea Federation of SMEs had already confirmed the severity of the cash crunch facing Homeplus suppliers. According to the federation, a poll of 150 small and medium-sized businesses supplying Homeplus found that 76.7 percent reported financial difficulties due to delayed settlement of receivables. The average amount of unsettled receivables per company stood at 774 million won ($561,000).

Lee Byeong-gwon, second vice minister of SMEs and Startups, delivers opening remarks at a meeting with Homeplus suppliers and tenants held Tuesday at the Korea SMEs and Startups Agency's metropolitan area support center in Yeongdeungpo-gu, Seoul. [Yonhap]

Government steps in with funding, but vendors say more is needed

The government has acknowledged that the financial difficulties facing suppliers and tenants cannot be resolved by the reopening alone and has moved to provide support. South Korea's Ministry of SMEs and Startups held a meeting with Homeplus suppliers and tenants Tuesday afternoon at the Korea SMEs and Startups Agency's metropolitan area support center in Yeongdeungpo-gu, Seoul, to hear firsthand accounts of difficulties on the ground.

The ministry is providing 50 billion won in emergency business stabilization funds for small businesses affected by the Homeplus crisis. The interest rate has been lowered from 3.85 percent to 3.35 percent, and the loan ceiling has been raised from 70 million won to 100 million won. For small and medium-sized enterprises, the ministry has created a dedicated track worth 40 billion won within the emergency stabilization fund, with eased eligibility requirements and an interest rate cut of 0.5 percentage points. The Korea Technology Finance Corp. has also added Homeplus suppliers to its emergency business stabilization guarantee program, extending existing guarantees by one full year and providing access to new financing.

From the floor, however, vendors said the support needs to be made more effective in practice. Kim Seong-il, executive director of Hans B&F, said that when companies go to a bank, they are still put through the same credit checks and collateral requirements as for ordinary loans. "If the same standards as regular loans are applied, it's hard to feel the effect of the supplier support policy," he said. He also proposed allowing suppliers to use Homeplus trade receivables as collateral for loans.

Companies that have already taken out loans called for relief on repayment obligations. Kim Byeong-guk, head of Damsot, said his company currently lacks the capacity to repay its loans and asked that repayment schedules be managed more flexibly.

Suppliers broadly agreed that while financial support for individual firms matters, the fundamental solution lies in Homeplus itself returning to normal operations. Lee Yeong-ju, head of Chilgap Nonsan, which supplies processed food to Homeplus, said the chain's troubles should not be viewed simply as the rehabilitation of one large company. "I hope it is seen as a survival issue for the countless small manufacturers and small-business tenants connected to it," he said. "If Homeplus survives, its suppliers survive too."

Vendors also called on the government to shift mandatory hypermarket closure days from weekends to weekdays until normal operations are fully restored, in order to help sales recover.

With the deadline for approval of Homeplus's rehabilitation plan set for Sept. 4, uncertainty for suppliers is expected to persist for now. Second Vice Minister of SMEs and Startups Lee Byeong-gwon said the ministry would remain attentive and provide support regardless of how the Homeplus situation ultimately unfolds. "For matters that require coordination with relevant ministries, we will actively convey the voices from the field and work to have them reflected in policy," he said.

boo@heraldcorp.com