"End of Social Distancing, Let's Go Shopping"…Department Stores Smiled in Q2, Competing for 'Core Content' in Second Half

High Margin Fashion Growth↑
Profitability Improvement Expected
Endemic Era Strategy Reorganization
Strengthening Experiential Core Content

The department store industry is highly anticipating the report card for the second quarter of this year. Since social distancing measures due to COVID-19 ended in April and people who had been staying home started engaging in outdoor activities, the number of department store visitors has increased. Additionally, the growth in the high-margin fashion category is expected to improve profitability. The department store industry plans to focus on equipping key experiential content suitable for the endemic era, along with major store renovations in the second half of the year.

According to the distribution and financial investment sectors on the 5th, the consolidated results of Lotte Shopping, Shinsegae, and Hyundai Department Store for the second quarter are expected to improve simultaneously, led by strong department store performance. According to FnGuide, Lotte Shopping’s second-quarter consensus estimates are sales of 4.0082 trillion KRW and operating profit of 59.7 billion KRW, representing increases of 2.7% and 685.5% respectively compared to the same period last year. Shinsegae’s sales and operating profit are estimated at 1.7633 trillion KRW and 125.2 billion KRW, up 26.4% and 30.2% respectively. Hyundai Department Store is also expected to see sales of 990.2 billion KRW and operating profit of 71.3 billion KRW, up 14.6% and 23.6% respectively.

The department stores showed remarkable progress in the men’s and women’s fashion categories. Especially, as the COVID-19 situation prolonged, while the luxury category showed high sales growth due to revenge spending, the fashion category recorded even higher growth rates, contributing to improved profitability. Ju Young-hoon, an analyst at NH Investment & Securities, said, "Among industries showing results after the end of social distancing in April, department stores are the industry with the highest performance related to reopening. The same-store sales growth rates for Shinsegae, Lotte, and Hyundai Department Store in the second quarter are about 19%, 13%, and 13% respectively. Since clothing category sales growth rates have surpassed luxury growth rates since April, profitability improvement beyond sales growth is expected."

The department store industry has begun reorganizing strategies suitable for the transition from the revenge spending era to the endemic era. While last year focused on opening new stores in key regions, this year, following the first half, the second half will also focus on strengthening key experiential content through renovations of existing stores and aim for selection and concentration aligned with the demands of the times.

Lotte Department Store has been conducting sequential renovations since June last year, starting with the golf section and expanding overseas fashion and contemporary brands. On the 30th of last month, the women’s overseas fashion hall opened on the second floor of the main store, featuring brands such as Balenciaga, Marni, Celine, and Maison Margiela. Sales during the first weekend after opening increased about threefold (180%) compared to the same period last year on the second floor, showing a strong start. In July last year, the men’s overseas fashion hall opened on the fifth floor, focusing on luxury brands favored by young men such as Louis Vuitton, Tom Ford, Dolce & Gabbana, and Valentino. Brands with a high proportion of male customers, such as Loro Piana, Balenciaga, and Kenzo, which were previously operated as mixed-gender stores, were opened as men’s specialty stores, producing results. Over the past year (July 2021 to June 2022), sales at the men’s overseas fashion hall in the main store more than doubled (120%) compared to the previous year.

Shinsegae Department Store is also focusing on the Gyeonggi branch, which has been gradually renovated with luxury, living, and street fashion halls. Results are also emerging. Since the food hall’s renovation opening on July 6 last year until the end of June this year, sales per pyeong (3.3 square meters) doubled compared to before renovation. The average spending per customer also increased by 15%. The ‘Shinsegae Prime’ paid membership service, first introduced in the food hall at the Gyeonggi branch, showed that members’ average monthly spending was five times higher than non-members. The number of visits was three times higher than non-members, and the number of members surpassed 1,500. Due to these effects, the paid membership for the food hall is planned to be introduced next month at Gwangju Shinsegae, following Daejeon Shinsegae Art & Science in February.

A department store industry official said, "In the second half, we will focus on rearranging key product groups and securing major content tailored to customer lifestyle patterns in the post-COVID complete normal life. Since the effects of renovations have been verified mainly in places where renovations are already underway, renovations tailored to the characteristics of major stores will continue in the future."

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