Department Stores Stretching... Duty-Free Shops Still in Shock State

Worst Ever Performance Recorded Due to COVID-19
Department Stores Show Growth Again in July and August
Luxury Consumption Surges as Overseas Travel Stops
Expecting Second Half Recovery with Differentiation Strategies and New Stores

Duty-Free Shops Face Tougher Q2
Losses Widen Compared to Q1

[Asia Economy reporters Minyoung Cha and Seungjin Lee] The department store industry, which suffered a sharp decline in sales due to the direct impact of the novel coronavirus disease (COVID-19) in the first half of this year, is showing signs of performance recovery. Based on steady sales growth in luxury goods, various department stores are attracting customers by presenting differentiated strategies. On the other hand, the duty-free industry, which experienced a difficult second quarter as challenging as the first quarter, faces a bleak outlook for the upcoming third quarter amid uncertainty over when international flights will resume.

Department Stores Expect Performance Recovery in the Second Half

According to the department store industry on the 14th, department stores that recorded the worst-ever performance in the first quarter of this year began to improve their results starting from the second quarter. Department stores, which had been experiencing negative growth in the first half of the year, returned to a growth trend in July and August, showing a clear rebound.

Shinsegae Department Store recorded a sales decline of -11.7% year-on-year in the first quarter of this year, but despite the adverse factor of excluding disaster relief fund usage in the second quarter, it improved significantly to -3.7%. Compared to the same period last year, sales increased by 0.9% in July and by 10.3% from August 1 to 12, showing definite performance improvement.

Lotte Department Store saw sales plummet by -21.5% year-on-year in the first quarter due to multiple temporary closures caused by COVID-19 confirmed cases visiting stores. However, in the second quarter, sales declined by -12.3%, then by -5% in July, and from August 1 to 12, sales rose by +5%, showing a clear upward curve. Hyundai Department Store reduced its negative growth rate from -17.7% in the first quarter and -10.3% in the second quarter compared to the same period last year, and recorded 0.3% growth in July and 6.9% from August 1 to 12, re-entering a growth phase.

The increase in department store sales was driven by a steady rise in consumers seeking luxury goods. Luxury sales increased by 20-40% monthly compared to last year. With international travel blocked due to COVID-19, more people sought luxury goods as a form of 'revenge consumption.'

The department store industry expects performance recovery in the second half. Various differentiated strategies introduced to adapt to the changed consumption culture due to COVID-19 are bearing fruit, and new store openings, which had been scarce for a while, are scheduled for the year-end. Shinsegae Department Store plans to continue its large-scale store strategy centered on luxury goods. Following differentiated strategies such as renewing the food hall on the first floor of Times Square branch, it will continue efforts to attract luxury brands, including being the first in the industry to introduce new Louis Vuitton men's products.

Lotte Department Store will focus on internal strengthening by closing five stores within the year. Hyundai Department Store plans to open Namyangju Premium Outlet in November and Yeouido Department Store early next year. Hyundai Department Store Yeouido branch will have a sales area of 90,000㎡ (approximately 27,225 pyeong), making it the largest department store in Seoul upon opening.

On the 18th, the duty-free shop at Terminal 1 of Incheon International Airport was quiet due to the impact of the novel coronavirus (COVID-19). Photo by Mun Ho-nam munonam@

Duty-Free Shops Face Greater Difficulties

The duty-free industry experienced a more difficult second quarter than the first. This is because the record-breaking performance in January this year was excluded, exposing the industry fully to the impact of COVID-19. According to the Korea Duty Free Association, total domestic duty-free sales from January to March this year reached 4.2147 trillion KRW, but from April to June, sales dropped 26% to 3.1177 trillion KRW. The number of users plummeted 77%, from 6.18 million to 1.39 million.

Hotel Shilla, which generates about 90% of its sales from duty-free business, recorded an operating loss of 63.4 billion KRW in the second quarter, increasing its deficit compared to the first quarter (-55.8 billion KRW). Shinsegae DF also saw its operating loss worsen to 37 billion KRW in the second quarter from -32.4 billion KRW in the previous quarter. Lotte Duty Free, before announcing its results, is also reported to have increased its deficit in the second quarter.

As a latecomer, Hyundai Department Store Duty Free recorded sales of 117.2 billion KRW in the second quarter, an increase of over 30 billion KRW compared to 80 billion KRW in the first quarter. Operating loss improved to 18.1 billion KRW from -19.4 billion KRW in the previous quarter. This is attributed to the stabilization of the Dongdaemun branch, which opened in February.

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