E-commerce Strategy Adoption... Department Stores Increase Direct Purchase Stores

Bulk Purchase Discount Sale of Off-Season Products
Applying Years of Accumulated Know-How
Differentiation in Online and Product Selection
Added Department Store Trust Creates Synergy

[Asia Economy Reporter Seungjin Lee] The department store industry is expanding direct purchase stores that buy out-of-season products and inventory at low prices to overcome the recession. This is a strategy that e-commerce companies like Coupang use to gain an advantage in price competitiveness and improve logistics and delivery efficiency, and the department store industry is following suit. Having lost the lead to online platforms and facing a steadily declining offline retail market, they plan to attract consumers by securing price competitiveness through direct purchases.

Off-Price Stores Cheaper Than Outlets

According to the distribution industry on the 15th, the three major department stores (Lotte, Shinsegae, Hyundai) are accelerating efforts to strengthen their "off-price store" business. Off-price stores are an offline retail model that emerged in response to economic downturns, where large quantities of out-of-season products from famous brands are directly purchased and managed from inventory to sales.

Lotte Department Store's off-price store, "Lotte Tops," recorded a high sales growth rate of 53% in the first half of this year despite the impact of COVID-19. This contrasts sharply with Lotte Department Store's overall sales, which fell by 12% compared to the previous year during the same period. Since opening its first store in 2015, Lotte Tops now operates 39 stores nationwide. Lotte Department Store has strengthened competitiveness by launching a separate brand called "Sneaker Bar" for sneakers, which have shown excellent sales performance within Lotte Tops. Four new stores are scheduled to open in October. Lotte Department Store plans to continuously expand Lotte Tops.

Shinsegae Department Store recently opened the "Factory Store" at Starfield Anseong. The Factory Store directly purchases and sells out-of-season products from famous brands. Discounts go up to 80%, raising price competitiveness to online lowest price levels. Currently operating nine stores nationwide, the Factory Store is reported to have achieved sales results exceeding its target by more than 10%.

Shinsegae Department Store, planning to expand the Factory Store, has recently registered multiple trademarks related to this business. To prepare for fierce competition among direct purchase stores in the future, Shinsegae has preemptively secured trademark rights by registering names such as "Super Save" and "Last Cut," related to the Factory Store.

Hyundai Department Store has also entered the direct purchase competition. After opening the first "Offworks" store at Hyundai City Outlet Dongdaemun in September last year, it opened the second store at Hyundai City Outlet Garden Five in August. Offworks also exceeded its sales target by more than 10%.

Blending Offline Experience and Expanding Online

The strong performance of direct purchase stores in the offline retail market slump is analyzed to be due to the trust built over many years of operating offline stores combined with efforts to strengthen online business and resulting synergy effects. E-commerce companies like Coupang have rapidly grown by prioritizing price competitiveness through direct purchase methods. Coupang’s direct purchase business, Rocket Delivery, offers about 6 million products. However, for luxury clothing and accessories, there are many consumer complaints including counterfeit disputes. It is also difficult to find clear differentiation in product selection.

In contrast, the department store industry has successfully attracted consumers by reflecting accumulated know-how in direct purchase stores, achieving both price competitiveness and product differentiation. For example, Lotte Tops quickly responded to the COVID-19 impact by securing popular stock of about 50 famous luxury brands from major cities worldwide such as Milan and Paris based on its experience.

Recently, direct purchase stores have entered integrated online malls operated by distribution companies themselves, greatly enhancing competitiveness. Shinsegae Group’s integrated online mall, SSG.com, officially opened the Factory Store in April. This was a decision to target the MZ generation (born early 1980s to early 2000s) familiar with online shopping. With low prices and high product differentiation, the MZ generation continues to visit, and SSG.com plans to gradually expand the number of products sold to 1,000 by next year.

A distribution industry official explained, "Direct purchase has the advantage of selling products cheaply, but the downside is that the retailer must manage inventory directly, so there was some negativity about expanding direct purchase stores in the past. However, as the MZ generation, which pursues rational value consumption, becomes the main consumer group and offline store competitiveness weakens, direct purchase stores are becoming a new breakthrough for the distribution industry."

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