Dollar store Daiso bucks retail slump, surpasses E-Mart, Lotte in valuation

Daiso, the largest discount store chain in South Korea, has turned the broader slump in offline retail into a growth opportunity, emerging as a game changer in the sector.

While offline retail giants scale back amid a consumer shift to e-commerce, Daiso continues to expand its footprint, drawing budget-conscious shoppers and foreign tourists seeking Korean beauty products and K-content merchandise.

Analysts estimate the corporate value of unlisted Asungdaiso Co., the parent company of Daiso, at 10 trillion-11 trillion won ($7.2 billion-7.9 billion).

That is about five times the market capitalization of E-Mart Inc., South Korea’s largest supermarket chain and Lotte Shopping Co., the operator of Lotte Department Store and Lotte Mart, valued at 2.4 trillion won and 2.0 trillion won, respectively.

They liken Daiso to Japan’s leading discount chain Don Quijote, citing similarities in scale and strategy and apply the same price-to-earnings ratio of 28.9 used for Pacific International Holdings Corp, the operator of Don Quijote, to assess Asungdaiso’s value.

Based on Asungdaiso’s projected 2025 net profit of 400 trillion won, its enterprise value is estimated at 10 trillion-11 trillion won.

“As it broadens its store network and product line, Daiso is capitalizing on economies of scale, reinforcing the value-for-money appeal,” said a retail industry official.

The budget store is also outperforming convenience stores that have stalled after a period of rapid expansion.

The combined number of stores operated by South Korea’s four major convenience store chains – CU, GS25, 7-Eleven and Emart24 – peaked at 55,202 at the end of 2023, but slipped to 55,194 last year.

Retail industry observers expect Daiso to sustain its growth momentum as it is expanding its product line to more expensive offerings, alongside Daiso-only products.

“Daiso is pulling in shoppers by selling not just household items, but also stationery, fashion, cosmetics and even food,” said a clothing merchant who has been operating at a traditional market in Mokdong, Seoul, where Daiso runs a store.

For both foreign visitors and younger consumers, Daiso has become a kind of playground where they can spend time browsing a wide array of affordable products.

Amid the worldwide enthusiasm for K-pop and Korean culture, foreign tourist spending at Daiso has surged 50% so far this year, compared to the same period of last year.

LOW RENTAL COSTS

Low rental costs also contribute significantly to its ultra-low pricing strategy.

In 2024, Daiso spent 203.4 billion won on rent, just 5.1% of 3.97 trillion won in revenue. In comparison, Starbucks Korea spent 8.2% of its revenue on rent last year.

Daiso avoids high-rent, ground-floor spaces in prime retail zones. Instead, it targets so-called B-grade locations on side streets, or underground or second- or third-floor spaces.

OPERATING PROFIT MARGINS

In terms of profit margin, the retail chain also outperformed major supermarkets, department stores and convenience stores, even while selling products priced between 1,000 and 5,000 won.

In 2024, its operating profit margin came in at 9.4%, significantly higher than that of the country’s staunch retail heavyweights such as Shinsegae and Costco Korea.

DIRECTLY MANAGED SHOPS

Daiso’s push to expand its network of directly managed stores is another key factor behind its success.

Directly-managed outlets can maintain consistent quality across all aspects of store management, from product displays to inventory control. They can swiftly adapt their merchandising strategy in response to market trends, compared with franchise-run locations.

Daiso has become a key driver of foot traffic and retail activity in local shopping districts and is now being actively courted by major retail complexes looking to host its stores.

It operates outlets within Shinsegae’s flagship retail complexes, including Starfield and Shinsegae Premium Outlets.

Write to Jae-Kwang Ahn and Tae-Woong Bae at ahnjk@hankyung.com
 

Yeonhee Kim edited this article.