"Department Stores, Marts, Convenience Stores: Economic Improvement Difficult in Q1 This Year... 19 Consecutive Quarters of Negative Outlook"

'2020 1st Quarter Retail Business Sentiment Index (RBSI)'
RBSI for 1Q this year is 88... down 3 points from the previous quarter

Source: Korea Chamber of Commerce and Industry

[Asia Economy Reporter Dongwoo Lee] A survey has revealed that the growth stagnation in the retail distribution industry is becoming more entrenched. In the first quarter of this year, the perceived business conditions in retail distribution showed a downward trend, continuing a negative outlook on economic improvement for the 19th consecutive quarter.

The Korea Chamber of Commerce and Industry (KCCI) announced on the 21st that the 'Retail Business Survey Index (RBSI)' for the first quarter of 2020, based on a survey of 1,000 retail distribution companies, was recorded at '88', down 3 points from the previous quarter.

The RBSI indicates that if the index exceeds the baseline (100), more companies expect the economy to improve compared to the previous quarter, whereas a value below 100 means more companies anticipate a recession.

KCCI analyzed that the current RBSI trend is maintaining an overall downward trajectory since the 2008 global financial crisis. This is explained by the weakening of 'consumer purchasing power,' which has the greatest impact on retail distribution, as the Korean economy continues its low-growth trend.

By business type, only online and home shopping (105) exceeded the baseline, showing a favorable trend. In contrast, department stores (93), large discount stores (80), and convenience stores (75) declined compared to the previous quarter. Supermarkets (75) are expected to remain sluggish at the same level as the previous quarter.

In particular, the decline in the department store sector was significant. The outlook for department stores in the first quarter of this year was 93, down 10 points from 103 in the fourth quarter of last year. Although the year-end luxury goods consumption and the rise in living product categories created a positive atmosphere, the relatively warm winter and sluggish consumption combined to continue the weakness in fashion product categories.

The outlook for large discount stores (80) also fell by 1 point from the previous quarter. This is due to struggles caused by the expansion of e-commerce market share and the increase in single-person households. Competition with e-commerce is expected to intensify this year as well, and large discount stores are anticipated to respond by strengthening product categories unavailable online, securing price competitiveness, and expanding into overseas markets.

Source: Korea Chamber of Commerce and Industry

The convenience store sector also recorded 75, down 3 points from the previous quarter, continuing a negative outlook following the last quarter. KCCI analyzed that the seasonal factor of the winter off-season significantly affected the convenience store industry, with reduced store visits and sluggish sales of alcoholic beverages and drinks impacting performance.

The supermarket sector also showed a negative outlook (75) at the same level as the previous quarter. The industry faces a difficult situation this year as competition intensifies with online delivery service providers over their main product, fresh produce.

On the other hand, online and home shopping maintained a positive outlook by recording 105, the same as the previous quarter, exceeding the baseline for 40 consecutive quarters. According to Statistics Korea, the cumulative transaction amount of online shopping surpassed 121 trillion won as of November last year, breaking the annual record set in 2018.

Among online shopping methods, the share of mobile shopping reached 65.9% during the same period, the highest recorded since statistics began. In contrast, the share of PC-based shopping shrank to 34.1% from 37.9% in the same period last year.

Regarding profitability in the retail distribution industry for the first quarter of this year, 37.0% of respondents expected it to 'worsen,' more than four times the 8.9% who expected it to 'improve.' The proportion of respondents anticipating deterioration was higher than those expecting improvement across all business types, indicating a prevailing negative outlook.

Retailers cited the following difficulties: ▲ contraction of consumer sentiment (56.7%) ▲ rising costs (22.7%) ▲ intensified competition among business types (14.9%) ▲ government regulations (3.5%) ▲ rising product prices (1.1%). However, large discount stores, department stores, and online/home shopping sectors identified 'intensified competition among business types' as their second major difficulty, while convenience stores and supermarkets pointed to 'rising costs' due to minimum wage increases as their second major challenge.

Kang Seok-gu, head of the Industrial Policy Team at KCCI, stated, “To encourage consumers to open their wallets, it is necessary to not only recover the economy but also promptly reconsider regulatory policies affecting the currently struggling retail distribution industry.”

This content was produced with the assistance of AI translation services.