Will the 'Rebound' in the Distribution Sector Fade Due to Itaewon-Originated Infections?

Hyundai and Lotte Department Stores Close Early Due to Employee COVID-19 Cases
Weekend Sales Disrupted
Home Shopping and Hotel Stay Product Sales Impacted
Hotel Industry Fears 10% Occupancy Rate Decline

[Asia Economy Reporters Minyoung Cha and Seungjin Lee] The retail sector, which was aiming for a performance rebound in the second quarter amid the calming of the novel coronavirus infection (COVID-19), is now suffering a second shock triggered by the 'Itaewon Club mass infection incident.' With the total confirmed cases from the second and third waves already approaching around 90, concerns about a cooling of consumer sentiment reminiscent of the past 'Shincheonji mass infection incident' have grown.

◆ Department stores closing again = According to the related industry on the 12th, after an employee of the foreign liquor company Pernod Ricard Korea tested positive for COVID-19 following a visit to Itaewon on the 2nd, a lockdown order was issued for the entire Seoul Square building where the company is located. 11st, which is also housed in the same building, plans to implement remote work until the 13th as a first step and will decide on an extension thereafter. Mercedes-Benz Financial Services Korea, which occupies the same floor as Pernod Ricard Korea, has also closed its office and is conducting partial remote work.

The damage to department stores that directly face consumers is even greater. Hyundai Department Store Jungdong Branch also faced an early closure after an employee of a tenant brand tested positive on the 10th. Lotte Department Store Myeongdong Main Branch closed its luxury brand 'Gucci' store on the morning of the 9th after an employee tested positive and then ended operations for the entire main branch early that afternoon. This disrupted weekend sales, which account for a large portion of revenue.

The fashion industry, which suffered the worst first quarter due to the COVID-19 crisis, was not spared from the Itaewon mass infection incident. Hansae Co., Ltd. closed its headquarters and moved all employees to remote work after a confirmed case was reported. This employee showed symptoms after contact with the 66th patient from Yongin, known as an early case in the Itaewon cluster. Clothing vendors and manufacturers such as SeAH Sangyuk, which have frequent interactions, are also checking for contact with Hansae employees and taking follow-up measures.

In February, an emergency disinfection was conducted at Homeplus Seogwipo branch as a preventive measure against the novel coronavirus infection (COVID-19). The photo is not directly related to the article content. Photo by Homeplus

Home shopping also had to revise its broadcasting plans. GS Home Shopping had planned to air hotel accommodation ticket sales starting this weekend but is currently adjusting the broadcast schedule based on the confirmed case situation. The appearance of the 14th confirmed case in Jeju, who visited the Itaewon club, has also put a brake on Jeju tourism products. Lotte Home Shopping is currently running a Jeju travel special exhibition featuring Jeju accommodation, gourmet food, and rental cars. The hotel industry is also expressing frustration. Hotels that had seen occupancy rates drop to the 10% range have raised occupancy to over 90% in Jeju and Gangwon regions by promoting honeymoon packages and 1+1 discount offers, but now face another consumer cliff.

◆ Second quarter retail sector, adding insult to injury = The retail sector, which had pinned hopes on a recovery in the second quarter after the COVID-19 adversity in the first quarter, is now on high alert due to the increase in confirmed cases originating from Itaewon. In fact, the expressions of companies facing the first quarter earnings season this year are uniformly grim. Hyundai Department Store's operating profit fell 80.2% year-on-year to 14.9 billion KRW. Home shopping, which was expected to perform relatively well through non-face-to-face (untact) channels, also showed poor results. GS Home Shopping's operating profit dropped 23.2% year-on-year to 31.4 billion KRW, and Hyundai Home Shopping (-16.3%) and CJ O Shopping (-9.8%) also deteriorated significantly. Hansome, a fashion company affiliated with Hyundai Department Store, recorded an operating profit of 29.3 billion KRW, down 11.5% from the previous year.

Professor Yonggu Seo of the Department of Business Administration at Sookmyung Women's University explained, "Consumption, which had been depressed, was expected to form a U-shaped curve starting with the golden holiday at the end of April, but the upward curve sharply declined. The health authorities are also concerned about a second wave in autumn and winter, so there are worries about whether the depressed consumption can revive in the meantime." He added, "Recently, confirmed cases from Itaewon have been concentrated among people in their 20s and 30s, who were previously relatively active consumers. With their consumption significantly shrinking, consumer sentiment is expected to decline further going forward."

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