Retail Sentiment Revived by Endemic 'Plummets Sharply'... 99 to 84

Business Survey Index '84'
Consumer Sentiment Declines Due to High Inflation and High Interest Rates

[Asia Economy Reporter Jeong Dong-hoon] The Retail Business Sentiment Index (RBSI) for the third quarter was recorded at 84, down 15 points from the previous quarter.

It was found that the retail industry's sentiment, which had been recovering due to the endemic phase (transition of infectious diseases to endemic status) and reopening (resumption of economic activities), has significantly deteriorated. The decline was the second largest since 2010, following the shock of the COVID-19 outbreak (22 points).

The Korea Chamber of Commerce and Industry announced on the 18th that the "2022 3rd Quarter Retail Business Sentiment Index," surveyed among 500 retail companies, was recorded at "84." The Chamber analyzed, "This is due to shrinking consumer sentiment and reduced purchasing power caused by steep price and interest rate increases and asset value declines, along with growing anxiety that the current situation may continue or worsen in the second half of the year."

An RBSI above 100 means that more companies view the retail business outlook for the next quarter positively compared to the previous quarter, while below 100 means the opposite.

Convenience Stores (103) Exceed Benchmark... Department Stores (97), Large Discount Stores (86), Supermarkets (51)

By business type, only convenience stores (96→103) exceeded the benchmark, while other offline channels such as department stores (111→97), large discount stores (97→86), and supermarkets (99→51) saw declines despite the favorable winds of endemic and reopening, which benefit non-face-to-face channels. Online shopping (96→88) is also expected to be affected by increased face-to-face consumption due to the endemic and fell below the benchmark (100) for two consecutive quarters.

Convenience stores (103) were the only business type to exceed the benchmark (100). Expectations were driven by increased foot traffic due to outings and outdoor activities expanding with reopening, marking a proper peak season after a long time. As dining-out prices rose, demand for cost-effective lunch boxes and convenience foods increased, and efforts to expand ultra-low-priced private brand (PB) products and small-pack new processed foods raised hopes for sales growth.

Department stores (97) were expected to hold up despite the overall decline in sentiment. Consumers with relatively higher income levels tend to be less sensitive to price increases and continue luxury consumption even during inflationary periods. The recovery of consumer sentiment and increased outdoor activities due to reopening have supported strong sales in the fashion category, helping to defend against the index decline.

On the other hand, large discount stores (86) were expected to be unable to escape the impact of rising prices. Middle and lower-income groups, burdened by high prices of daily necessities, tend to minimize grocery shopping or postpone purchases of non-essential items. In this tough high-price shopping environment, large discount stores are expected to focus all efforts on attracting customers through relatively inexpensive PB products, direct sourcing from production areas, and expanded discount events.

Supermarkets (99→51) recorded the lowest outlook, dropping 48 points from the previous quarter. Despite the shift toward face-to-face consumption, concerns that supermarkets would struggle caught between large discount stores and convenience stores contributed to the index decline. In fact, convenience foods tend to be purchased at convenience stores, while groceries such as agricultural, fishery, and livestock products and fresh foods, which are supermarkets' main products, tend to be bought at large discount stores, suggesting continued sluggishness for supermarkets.

Online shopping (88) fell below the benchmark for two consecutive quarters. Online shopping, which includes a large proportion of items such as clothing and electronics that are not immediately necessary, is expected to be directly affected by rising prices and interest rates. While online shopping had shown strong growth driven by non-face-to-face consumption trends, growth is expected to slow as the endemic phase leads to a return to normal daily life.

Response Plans to Environmental Changes... Strengthening Promotions, Enhancing Online, Cost Reduction

Regarding response plans to environmental changes, strengthening promotions such as price discounts (27.0%) was the most cited, indicating a focus on targeting weakened consumer sentiment and thinner consumer wallets. This was followed by enhancing online presence (22.8%), cost reduction (20.2%), and store renewal (9.2%).

Recent management difficulties were cited in order as price increases (34.2%), consumption contraction (27.0%), and rising costs including labor, finance, and logistics (18.8%).

Jang Geun-moo, Director of the Korea Chamber of Commerce and Industry's Distribution and Logistics Promotion Institute, emphasized, "With rising interest rates and prices and increasing domestic and international uncertainties, a contraction in consumer sentiment is inevitable for the time being. Companies must actively respond to changes in consumption patterns caused by cyclical economic fluctuations and not neglect efforts to secure price and product competitiveness."

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