"More Debt with Every Door Opened" 1,100 Fashion Retailers Shut Down

Prolonged COVID-19 Impact Deepens
Foot Traffic Drops, Leading to Deficits
162 of 620 Seoul Stores in Myeongdong Closed

Cosmetics Increased by 261
One-Brand Shops Down, Large Select Shops Up
Major Companies Restructured Over 800 Stores Last Year

[Asia Economy Reporter Lim Hye-seon] Kim, who operated a street store in Goyang-si, Gyeonggi-do, closed his men's clothing store last year. Due to the COVID-19 pandemic, foot traffic dropped sharply, and he could not endure months of losses. Kim said, "There were many days when I couldn't even sell two T-shirts a day," adding, "Working alone for 10 hours without any staff, I was only accumulating debt without covering rent and maintenance costs, so I could no longer maintain the store."

More than 1,000 Clothing and Shoe Stores Closed Last Year

Those working in the fashion industry are going through the worst period due to the impact of COVID-19. As the pandemic prolonged and more people stayed home, demand for clothing purchases plummeted. Even large fashion corporations downsized as much as possible to get through the 'dark tunnel.' With decreased foot traffic and remaining demand concentrating on e-commerce, street store operators in fashion were pushed to the brink. The notion that street stores have high profit margins is now a thing of the past. Until two years ago, the average margin rate of street stores was in the 30% range, but since last year, it has dropped to less than half. As demand shifted to e-commerce, even 'blockbuster stores' with annual sales of 5 billion KRW disappeared.

According to the National Tax Service's 'Status of Top 100 Lifestyle Industry Registered Businesses' released on the 29th, the number of fashion retail businesses stood at 91,201 as of the end of January this year, down by 1,162 (1.3%) from 92,362 in January last year. The category of fashion retail businesses includes clothing and shoe stores. The total number of businesses in the top 100 lifestyle industries was 2,571,568, a 7% increase from last year. This increase is attributed to more neighborhood commercial businesses and lodging establishments.

The number of fashion industry businesses decreased in 13 out of 17 local governments nationwide. Only in Seoul did 620 businesses close. In the tourist district of Myeongdong alone, 162 stores shut down. This was followed by Seodaemun-gu (51), Gangnam-gu (38), and Mapo-gu (24). On the other hand, Jeju, which attracted tourists despite COVID-19, saw an increase of 50 stores.

Given this situation, vacancy rates in major commercial districts have also risen. In the first quarter of this year, 4 out of 10 stores in Myeongdong were vacant due to the lack of tenants. According to the Korea Real Estate Agency's first-quarter commercial real estate leasing trends, the vacancy rate for medium to large stores in Myeongdong was 38.3%, up 16 percentage points from 22.3% in the fourth quarter of last year. Vacancy rates in Seoul's Hongdae and Hapjeong-dong also rose to 13.1% from 8.6% in the previous quarter. A fashion industry insider explained, "Although rents have decreased due to higher vacancy rates, the fashion market's uncertainty is so great that very few operators are willing to invest in street stores," adding, "We expect this trend to continue this year."

Cosmetics Stores Increased, but...

The number of cosmetics businesses, a key street store category in major commercial districts, increased by 261 compared to last year. However, Seoul saw a decrease of 84 stores. Nearly 30 stores closed in Myeongdong. Although the numbers increased, the reality is quite the opposite. A cosmetics industry insider said, "While one-brand shops decreased, large multi-brand stores increased," explaining, "In local commercial districts, the closure of large supermarkets led to more cosmetics stores opening as street stores, which only increased the numbers."

Statistics from the National Statistical Office do not include large corporations' directly operated stores, so some believe the actual number of closed stores is higher than the statistics show. Brands like Innisfree, Missha, Nature Republic, and The Face Shop have more directly operated stores than franchises. Missha closed 164 stores last year, and Innisfree reduced 260 stores. A cosmetics industry insider said, "Last year, major cosmetics companies restructured over 800 one-brand street stores, mainly focusing on directly operated stores."

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