Retail Distribution Industry Q2 Economic Outlook Index 66... 'All-Time Low'

Online Shopping Also Dark
Urgent Need to Supplement Domestic Demand Measures

Korea Chamber of Commerce and Industry

[Asia Economy Reporter Dongwoo Lee] The outlook for the retail industry in the second quarter appears bleak due to the novel coronavirus disease (COVID-19) crisis. There are calls for supplementing domestic demand measures, such as improving business regulations on large-scale stores and reducing rent.

The Korea Chamber of Commerce and Industry announced on the 12th that the ‘2020 2nd Quarter Retail Business Survey Index (RBSI)’ based on a survey of 1,000 retail companies was recorded at ‘66’. This is the lowest figure since the survey began in 2002 and falls far short of the baseline of 100. A figure above 100 indicates an expected improvement in business conditions, while a figure below suggests deterioration.

Until now, online and home shopping sectors had been the only ones maintaining a positive outlook despite the COVID-19 impact, but they have turned negative (84). Other sectors such as large discount stores (44), convenience stores (55), department stores (61), and supermarkets (63) saw their indices drop sharply, signaling the full onset of COVID-19’s effects.

The sharp decline in the 2nd quarter RBSI is mainly attributed to the contraction of consumer sentiment caused by COVID-19. In fact, the Bank of Korea’s ‘March Consumer Sentiment Index’ recorded 78, falling to levels seen during the global financial crisis.

By detailed sector, multi-use facility types such as large discount stores and department stores showed significant drops. The business outlook index for large discount stores was 44, the lowest among detailed sectors, with the largest drop of 36 points compared to the previous quarter (80). The department store sector also showed a gloomy outlook (61) with a large decline of 32 points.

Large discount stores are expected to continue their downward trend due to competition from online shopping, reduced foot traffic caused by COVID-19, and overall sales slumps except for essential daily goods. Sales of travel and leisure-related products, popular in spring, are also expected to plummet, further worsening the outlook.

Department stores had hoped for some recovery early this year after a sluggish winter in the fashion product category, but COVID-19 is expected to deepen the slump. Particularly, sales of products requiring long customer stays and face-to-face transactions, such as fashion, cosmetics, and food courts, are feared to decline sharply.

The convenience store sector forecast dropped 20 points from the previous quarter to 55. Convenience stores consider the second quarter, when the winter low season ends and outdoor activities increase, as a sales ‘turning point’.

However, this year, the ‘social distancing’ campaign has led to the cancellation of various gatherings and local festivals, resulting in decreased sales at stores located in tourist areas and along highways. Additionally, the postponement of school openings from elementary to university levels has depressed school district commercial areas, making it difficult to expect seasonal effects.

Supermarkets showed a gloomy outlook (63) continuing from the previous quarter, but the decline (12 points) was relatively smaller compared to other sectors. Due to reduced outings, supermarket usage near residences with good accessibility increased somewhat, and preference for single-person products rose, leading to some sales growth. However, the COVID-19 rebound effect is not expected to last long, and the second quarter outlook declined.

Online and home shopping, which had maintained a favorable trend, also fell below 100 from 105 in the first quarter to 84. Concerns that consumption sluggishness caused by COVID-19 will be unavoidable except for some fresh foods and daily necessities outweighed expectations of a rebound benefit from non-face-to-face shopping preferences.

The Korea Chamber of Commerce and Industry stated, “The retail industry, except for online, already has weakened fundamentals, and the adverse factor of COVID-19 is worsening management difficulties,” adding, “Bold measures are needed to alleviate the burdens on the distribution industry, which is struggling due to reduced consumption.”

In fact, the difficulties reported to the Korea Chamber of Commerce and Industry’s COVID-19 task force from the distribution industry included many requests to ease regulations and cost issues that are immediate burdens on companies, such as ‘improving business regulations on large-scale stores,’ ‘reducing rent for stores inside public stations,’ and ‘introducing a system for next-day credit card payment deposits.’ The government agreed on the 9th to the industry’s proposals submitted through the Chamber, including ‘reducing traffic inducement charges for large distribution facilities’ and ‘reducing road occupancy fees for small business owners.’

Meanwhile, industry requests by sector included ▲ online and home shopping asking for ticket discount support and delivery platform small business delivery fee support ▲ supermarkets requesting nationwide simultaneous sales promotions of daily necessities to stimulate domestic demand ▲ convenience stores requesting expansion of usage areas for local love gift certificates.

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