Department stores are booming while markets are deserted... Deepening 'K-shaped polarization'

10 Department Stores with Annual Sales of Over 1 Trillion Won This Year... Double Compared to Last Year
Luxury Watches and Jewelry in High Demand... Local Shopping Districts Still in Recession
Consumption Imbalance Due to COVID-19 'K-Shaped Polarization'
Experts Emphasize "Long-Term, Customized Response Needed"

Citizens waiting in front of a luxury brand store. Despite the COVID-19 pandemic, demand for luxury watches, jewelry, and accessories remains strong. / Photo by Yonhap News

[Asia Economy Reporter Lim Juhyung] Despite the economic downturn caused by the COVID-19 pandemic, department stores leading with luxury brand sections continue to experience a 'solo boom.' It is expected that 10 domestic companies will exceed 1 trillion won in sales this year alone. This boom in department stores sharply contrasts with the bleak outlook for local small businesses, which are expected to suffer additional damage due to reinforced social distancing measures.

This phenomenon is pointed out as a facet of the so-called 'K-shaped polarization,' which has emerged as the recovery speed between income classes has significantly diverged since the COVID-19 crisis. The term refers to the economic recovery splitting like the letter 'K,' where one line rises upward while the other falls downward, indicating a divide between the affluent and the lower-income classes. Experts advise that long-term measures are necessary to prevent the adverse effects of this growing polarization.

◆Luxury stores achieve record-breaking sales... Local small businesses face bleak prospects

According to the distribution industry, it is expected that 10 domestic department stores will exceed annual sales of 1 trillion won this year. Last year, when the COVID-19 pandemic began in earnest, only five department stores recorded annual sales exceeding 1 trillion won based on the Financial Supervisory Service's electronic disclosure. This year, that number is expected to double.

Total department store sales are also expected to rise sharply. According to Hana Financial Investment, the domestic department store industry is projected to reach about 31.9 trillion won this year, a 17% increase compared to the previous year, influenced by base effects and revenge consumption.

Despite the ongoing threat of COVID-19, the department store industry's 'solo boom' continues, largely due to luxury brand sections. Recently, domestic luxury stores have reportedly been extremely popular, with crowds flocking daily.

For example, as of the 15th, Galleria Department Store, which surpassed 1 trillion won in annual sales for the first time in 31 years since its opening, reportedly saw luxury brand sections account for about 40% of total sales. According to Galleria, during the same period, sales of jewelry and high-end watches grew by 67%, and luxury accessories sales increased by nearly 49%.

On the 4th of last month, a rental inquiry notice was posted in the underground shopping mall at Yeongdeungpo Station in Seoul. / Photo by Juhyung Lim skepped@

The dazzling performance of domestic department stores, which focus on mid-to-upper-class products like luxury goods, sharply contrasts with the bleak outlook for 'local small businesses.' Due to social distancing measures reducing face-to-face services and the resulting downturn in food service and lodging industries, self-employed individuals and small business owners have already suffered significant damage.

According to the National Statistical Portal, as of the first half of this year, the real sales volume of domestic industries such as restaurants and pubs fell by 7.2% compared to the same period last year, reaching the lowest level since statistics began in 2010.

Job recovery in self-employment has also been much slower than in other sectors. According to the 'November Employment Trends' released by Statistics Korea, the number of employed people in the country increased by 553,000 from the previous year to 27.795 million last month. However, the number of employees in lodging and food services, where self-employed workers are concentrated, decreased by 123,000 and 86,000, respectively. While other sectors are gradually recovering, self-employment remains trapped in a recession.

◆'K-shaped polarization' deepens, polarizing the consumer market as well

The contrast between department stores and local small businesses is said to reflect the deepening 'K-shaped polarization' as the COVID-19 pandemic progresses.

K-shaped polarization refers to the phenomenon where the speed of economic recovery varies significantly depending on specific social classes. Particularly, due to the nature of the infectious disease COVID-19, industries relying on face-to-face services were heavily restricted, while information technology and export industries suffered relatively less damage.

Additionally, aggressive economic stimulus measures by central banks worldwide, fearing financial shocks, led to rising prices of financial assets such as stocks and real estate, providing an opportunity for the wealthy, who already had surplus funds for investment, to increase their assets.

Self-employed individuals and small business owners who rely on face-to-face services suffered significant damage, while the information technology and export industries experienced relatively less impact. The photo shows a job information bulletin board. / Photo by Yonhap News

In fact, the '2021 Social Survey Results' released by Statistics Korea in August clearly show differences in perceived economic conditions based on income levels.

According to the survey, 30.1% of household heads with a monthly income of 6 million won or more reported an increase in income compared to two years ago. However, only 4.7% of the impoverished group with a monthly income below 1 million won said their income had increased compared to two years ago. Wealthier households have thus become more capable of comfortable consumption than before.

◆Experts: Long-term responses needed to address polarization

The bigger problem is that as the COVID-19 crisis continues, the risk of further deepening K-shaped polarization is high. In particular, on the 17th, the government reversed its previous 'gradual recovery to daily life (With COVID-19)' policy and returned to social distancing measures to curb virus spread.

Accordingly, social distancing guidelines have been strengthened, including: limiting private gatherings to a maximum of four people regardless of vaccination status in both metropolitan and non-metropolitan areas; restricting indoor business operating hours; limiting the number of participants in large-scale events; and strengthening the quarantine pass system. Self-employed and small business owners, who heavily depend on the domestic economy, will inevitably have to endure significant damage once again.

On the afternoon of the 17th, a notice of temporary closure due to the spread of COVID-19 was posted at a restaurant in Seoul. / Photo by Yonhap News

Experts diagnose that as K-shaped polarization worsens, significant side effects could occur across society, and measures to alleviate this are necessary.

Seong Eunmi, a research fellow at the Gyeonggi Welfare Foundation, pointed out in the 'Gyeonggi-do K-shaped Polarization Status Diagnosis' report released in May, "While temporary daily and low-wage jobs decreased due to the COVID-19 health crisis, high-wage regular jobs increased, causing polarization, with women and young workers particularly affected."

She added, "The decrease in self-employment and low-wage jobs will lead to an expansion of welfare recipients. Long-term responses are needed for the polarization phenomenon that emerged after COVID-19, especially urgent tailored policies for women and youth."

Professor Kim Taegi of Dankook University's Department of Economics suggested that financial support alone has fundamental limitations and that investment in worker retraining is necessary to reduce polarization.

Professor Kim said, "Since COVID-19, non-face-to-face services and technology industries have risen, causing many existing workers to be excluded from new work environments. This phenomenon cannot be solved by simple financial support measures. Providing retraining programs to help them transition to other occupations is essential to fundamentally reduce the polarization gap."

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