SEOUL, KOREA - Convenience store stocks, which have so far been considered high-growth shares, are showing weakness of late. The biggest factor that halted the growth of these stocks is the announcement of Shinsegae that it would move into the convenience store business. According to the Korea Exchange on July 21, the share price of BGF Retail, the operating company of Korea's No. 1 convenience store brand CU, has dropped 7.0 percent for the past week.

 

 Since the initial public offering in May, BGF Retail has shot up to a high of 69,000 won from the initial price of 57,000 won. But the company saw its stock price decline for four consecutive trading days to 62,000 won. GS Retail, the company running GS25 stores, saw its share price plunge 18.5 percent for the past week.

 

The reason for lackluster performance of convenience store stocks has to do with the fact that Shinsegae, Korea's major retail group with Shinsegae Department Stores and E-Mart stores, set out to create its own network of convenience stores with unique contract arrangements. WithMe FS, the subsidiary of Shinsegae, announced last week that it would recruit franchisees and will hold meetings for three days between July 26 and 28 to enlist new store owners.

 

Instead of sharing profit between individual store owners and the franchiser, WithMe will opt for a scheme by which owners pay a fixed amount every month. That means owners of successful operations can take more profit than under the current profit-sharing scheme. WithMe will charge no penalties for premature cancellation of franchise contract and allow owners to choose whether to open the store 24 hours and take a day off during the week. Based on the terms clearly favorable to franchisees, WithMe plans to expand the store numbers to 1,000 by the year's end and 2,500 within a few years.