Department Store Business Yields No Profit... Fashion Companies Packing Up One After Another

LF to Close Over 200 Offline Stores
Performance Hit by Direct Impact of COVID-19
Streamlining Inefficient Stores and Strengthening Online Presence

[Asia Economy Reporter Lim Hye-seon] Domestic fashion brands are accelerating their movement to '? (escape) department stores.' Companies struggling with management difficulties due to the COVID-19 pandemic are reorganizing their businesses to focus on online rather than offline channels. Department stores are also reducing their reliance on domestic fashion brands by closing inefficient stores to survive.

According to the distribution and fashion industry on the 24th, fashion giant LF is in discussions with department stores to withdraw about 200 out of its total 800 stores. Most of LF's brands, including Hazzys, Daks, Jill Stuart New York, and Maestro, are subject to this. A distribution industry official said, "We understand that Lotte Department Store, the largest among Lotte, Shinsegae, and Hyundai Department Stores, is seeing the most store closures," adding, "The plan is to reduce loss-making stores through consultations with department stores." Kolon FnC, which recently established a sales headquarters integrating online and offline brands through an organizational restructuring earlier this month, is also showing signs of change. The industry expects Kolon FnC to reduce offline stores through brand efficiency efforts.

The movements of companies owning accessory brands are no different. Samsung C&T Fashion Division has decided to sequentially close about 50 Beanpole accessory department store outlets by early next year. Bruno Magli, a handbag brand operated by Kumkang, will withdraw from 16 department store locations. Vinci, which operates about 20 stores in department stores, has also planned a phased reduction. Loveket plans to close five stores by the end of the year. Metrocity also plans to reduce about 10 stores out of its 57.

Fashion companies are leaving department stores, their main distribution channel, for survival. Not only domestically but globally, the fashion market hit hard by COVID-19 is staggering. Even Brooks Brothers, the oldest American fashion company with a 200-year tradition, filed for bankruptcy protection this month. The domestic fashion market is also experiencing an unprecedented crisis. Samsung C&T Fashion Division posted an operating loss of 31 billion KRW in the first quarter, turning to a deficit. Operating profits of LF, Handsome, and Shinsegae International decreased by 50.2%, 11.5%, and 59.0%, respectively. They have implemented emergency management measures such as reducing executive salaries by 10-30% and introducing a four-day workweek for employees. Fashion companies plan to boldly close inefficient stores and focus on strengthening online business to improve their business structure. With department stores closing loss-making stores, fashion companies are expected to aggressively restructure their stores. A fashion industry official said, "When paying department store commissions of 30-35% and store owner commissions of 15%, there is actually nothing left. In the past, if you couldn't enter offline distribution channels like department stores, you couldn't grow your brand, but as consumer patterns shift online, there is no reason to keep stores at a loss."

On the other hand, department stores are strengthening imported brands with good performance while phasing out domestic fashion brands. Imported brand sales in the first half of this year grew by more than 10% compared to the same period last year, but domestic fashion brands decreased by more than 20%. Hyundai Department Store was the first to signal this exit. Hyundai Department Store is renewing the basement level 2 of its Apgujeong main store into 'The House H,' focused on imported contemporary brands. Most domestic brands withdrew during this process. Four traditional brands?Beanpole, Hazzys, Lacoste, and Polo?also left. Shinsegae Department Store is filling the third floor of its renovated Gangnam store with luxury brands, moving existing fashion brand stores to upper floors.

A fashion industry official said, "Now is the time for distributors and fashion companies to devise strategies that allow both to 'win-win,'" adding, "We need to prepare ways to coexist focusing on practical benefits rather than scale."

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