Hyundai Department Store and Shinsegae's Painful Point... Concerns Over Furniture Subsidiaries in the 'Performance Swamp'

Housing Market Slump Leads to Demand Drop... Competing with E-commerce
Hyundai Livart's Operating Profit Halved Last Year
Casamia Expected to Continue Losses for 2nd Year
Parent Company 'Upset' Over Equity Method Earnings Impact on Consolidated Results

[Asia Economy Reporter Cha Min-young] Furniture subsidiaries of Hyundai Department Store Group and Shinsegae Group recorded sluggish performance last year. The competition in the furniture market intensified due to the offensive of emerging e-commerce companies such as Coupang and Naver Shopping, and it is interpreted that the demand for built-in furniture also decreased due to the sluggish housing market, which is a front-end industry.

On the 12th, Hyundai Department Store Group announced that its affiliate Hyundai Livart recorded an operating profit of 23.6 billion KRW last year. This is a 50.9% decrease compared to the previous year. It is also far below the FnGuide consensus (average estimate) of 35.3 billion KRW. During the same period, sales amounted to 1.2376 trillion KRW, down 8.4% from the previous year, and net profit also plunged 50.5% to 19.3 billion KRW.

The sluggishness of Hyundai Livart is due to the deterioration of the housing market while aggressively increasing stores and showrooms, which caused a sharp rise in selling and administrative expenses. Last year, Hyundai Livart newly opened 4 'Livart Style Shops' and 5 'Livart Stay' stores. Specialized by category, 'Livart Office,' 'Livart Kids,' and 'Livart Kitchen' each increased by 2 locations, opening a total of 6 showrooms. Facility investments related to the expansion of the Yongin factory and the construction of the logistics center, which have continued since 2017, are also ongoing.

Shinsegae Group's unlisted furniture subsidiary Casamia is also estimated to have continued sales decline and operating losses for two consecutive years. Simply summing up the estimates of four major securities firms, Casamia's consolidated sales and operating profit for 2019 are estimated to be about 112.5 billion KRW and minus 14 billion KRW, respectively. Following an annual operating loss of minus 400 million KRW in 2018, the deficit widened further.

Despite the sluggishness of traditional offline stores, Casamia continues to strengthen its online and offline distribution channels. Last year, 23 new stores were opened, including the independent store Daechi Hanti Branch. In particular, it is entering group channels such as E-Mart, Starfield, and department stores, providing comprehensive support. Additionally, it is expanding through 20 internet distribution channels, including the group’s online mall SSG.com. Since entering as a specialty store through SSG.com’s 12th brand tab in August last year, it has been increasing 20-30s consumers through various online events. However, it has not yet achieved the expected effect.

The poor performance of furniture companies was anticipated due to the deterioration of the housing market, which is a front-end industry. According to the Ministry of Land, Infrastructure and Transport, the number of housing permits issued nationwide last year was 487,975 units, down 11.9% from the previous year. As government regulations on the real estate market tightened, the annual number of housing permits has decreased for four consecutive years since 2016, when it was 726,048 units, down 5.1% from the previous year. By region, the metropolitan area recorded 272,226 units, down 2.8% from the previous year, with Seoul accounting for 62,272 units, a 5.3% decrease.

Underperforming subsidiaries are also a painful issue for parent companies because equity method gains and losses are directly reflected in consolidated earnings. As of the end of September last year, Hyundai Green Food held a 41.2% stake in Hyundai Livart, whose largest shareholder changed from Hyundai Home Shopping to Hyundai Green Food in May last year. Casamia was 95.7% owned by Shinsegae as of the end of 2018.

In fact, Hyundai Green Food’s consolidated sales and operating profit last year decreased by 3.9% and 34.4%, respectively, compared to the previous year. Although temporary gains occurred from asset disposals, equity method impairment losses were recognized in the consolidated statements. However, despite Casamia’s sluggishness, Shinsegae is expected to achieve results about 8.8% and 6.7% higher than the previous year, supported by department stores and International.

A Casamia official said, "Last year’s sales exceeded the previous estimate by about 6 billion KRW. Although the deficit widened, please understand it as an investment for business expansion, including distribution network expansion, workforce reinforcement, and internal system reorganization."

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