Despite Concerns Over High Inflation and Exchange Rates... Department Stores' Q3 Performance Soars

Amid Consumption Polarization, Reopening Spurs Expansion in Fashion and Beauty Spending
High Exchange Rates Create Spillover Effects...Less Consumption Dispersion Due to Overseas Travel
Lotte, Shinsegae, Hyundai Department Stores Expected to See Operating Profit Growth of 69.7% to 368.5%
Despite Economic Slowdown Concerns, Luxury-Focused Department Store Spending Remains Resilient
Year-End Consumption Boost Expected...Strong Performance Likely to Continue for the Foreseeable Future

[Asia Economy Reporter Kim Yuri] Despite consumers' concerns growing amid high inflation and high interest rates, expectations for the performance of the three major department stores in the third quarter of this year are rising. As reopening (economic resumption) coincided with a polarized consumption situation, consumption across categories such as luxury fashion and beauty revived, and the high exchange rate led to less consumption dispersion through overseas travel, which is also analyzed to have had a positive impact.

According to the distribution industry on the 18th, the three major department stores?Lotte, Shinsegae, and Hyundai Department Store?all posted double-digit growth rates in operating profit in the third quarter. Leveraging the strong performance of department stores, the consolidated results of Lotte Shopping, Shinsegae, and Hyundai Department Store also showed a noticeable upward trend.

According to FnGuide, the third-quarter consensus estimate for Lotte Shopping is sales of 4.0344 trillion KRW and operating profit of 135.4 billion KRW. Sales are expected to have slightly increased by 0.69% compared to the same period last year, while operating profit is projected to have surged by 368.51%. This indicates a steep recovery centered on department stores. In particular, through renewing major stores such as the flagship store, strengthening product planning capabilities, and enhancing the luxury image, the proportion of luxury sales, which was in the low 10% range at the end of 2019, is known to have recently increased to the mid-20% range. The growth rates by category in the department store division, including luxury goods, men's and women's fashion, and accessories, were analyzed to be mostly around 20-25%. The increase in operating profit was further boosted by a one-time cost of 60 billion KRW due to voluntary retirement last year.

Despite favorable results last year, Shinsegae's third-quarter sales estimate is 1.9278 trillion KRW, and operating profit is expected to increase by 15.64% and 69.73%, respectively, to 173.8 billion KRW. It is analyzed that the balanced strong performance of stores such as Gangnam, the flagship store, as well as Daejeon Shinsegae Art & Science and Centum City store, which opened in August last year, Daegu Shinsegae, and Gwangju Shinsegae, is driving the overall consolidated operating profit growth. The 'Metropolitan No.1 Store' strategy, which continuously strengthened luxury content such as luxury goods, is also considered to have positively influenced the performance.

Hyundai Department Store is expected to record sales of 1.1404 trillion KRW and operating profit of 85.4 billion KRW in the third quarter. These figures represent increases of 23.31% and 79.79%, respectively, compared to the same period last year. The Hyundai Seoul, which opened in February last year, continues to maintain high growth supported by the MZ generation (Millennials + Generation Z), and the base effect from the Trade Center store’s temporary closure due to a COVID-19 cluster infection in the third quarter of last year is also reflected. At that time, the Trade Center store was closed for a week, resulting in an estimated sales loss of about 20 billion KRW.

The industry expects the strong performance streak of department stores to continue for the time being as consumption polarization deepened through the COVID-19 pandemic. Although concerns about economic recession and weakened consumer sentiment due to high inflation and high interest rates are growing, consumption at department stores, centered on luxury goods, is analyzed to be relatively unaffected. On the contrary, as direct overseas purchases and the duty-free market are hit by the high exchange rate, a positive spillover effect is also expected. A distribution industry official said, "With the MZ generation accounting for a large portion of department store sales, not only luxury brands represented by 'EruSha (Herm?s, Louis Vuitton, Chanel)' but also quasi-luxury brands are gaining attention by emphasizing individuality, which is favorable for department stores," adding, "The year-end consumption effect is more anticipated than concerns about the economy."

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