Fashion Industry Soars on Q3 Earnings... Threats from Inventory Assets and Triple High Phenomenon

Strong Performance Continues in Fashion Industry for Q3
Uncertainty Remains Whether Uptrend Will Continue into Q4
Concerns Over Inventory Management Issues and Triple High Phenomenon

[Asia Economy Reporter Song Seung-yoon] The fashion industry, which has been continuing strong performance in the third quarter, shows mixed outlooks for the fourth quarter. Due to the '3-high phenomenon (high inflation, high interest rates, high exchange rates)' causing weakened consumer sentiment and issues with inventory asset management, it is uncertain whether this upward trend will continue.

According to the industry on the 20th, companies that announced their third-quarter results, including Samsung C&T, Shinsegae International, Handsome, and Kolon Industries FnC division, all reported cumulative sales increases compared to the previous year. Samsung C&T's fashion division recorded an operating profit of 29 billion KRW in the third quarter of this year, up 70.6% year-on-year, based on strong online sales of luxury brands and balanced growth across all sectors. Sales during the same period increased by 25.6% to 471 billion KRW. The cumulative sales for the third quarter reached 1.459 trillion KRW, a 17.7% increase compared to the same period last year.

Shinsegae International also achieved strong results in the third quarter of this year, benefiting from increased demand for fashion and cosmetics amid the reopening (resumption of economic activities). On a consolidated basis, Shinsegae International's operating profit for the third quarter of this year was preliminarily estimated at 24.2 billion KRW, a 71% increase compared to the same period last year. Sales rose 10.6% to 387.5 billion KRW compared to the same period last year, and net profit increased by 66.7% to 16.3 billion KRW. This marks the highest performance ever recorded for the third quarter.

Handsome, affiliated with Hyundai Department Store, also posted third-quarter sales of 341.4 billion KRW, up 15.2%. Operating profit increased by 2.5% to 32.6 billion KRW, showing solid performance. Most categories, including women's and men's contemporary brands, grew evenly. Kolon FnC also recorded its highest third-quarter sales of 245.5 billion KRW, up 21.2% year-on-year, driven by increased demand for golf brands. Although operating profit showed a loss of 100 million KRW, the loss margin was significantly reduced by 400 million KRW compared to the previous year.

Although most fashion companies posted good results, it is still difficult to guarantee that this effect will continue into the fourth quarter. If the 3-high phenomenon persists, spending on clothing is likely to decrease, leading to a contraction in consumption itself. This is likely to result in a burden of inventory assets. The fashion market, which experiences rapid trend changes, launches new products every season, and if sales do not proceed smoothly, inventory inevitably accumulates.

Many companies have already increased production in anticipation of rising demand following the full reopening (resumption of economic activities), but if consumption shrinks, concerns over inventory management will inevitably grow. Due to the industry's sensitivity to trends, if sales are not made in a timely manner, the value drops sharply, and expenses such as storage costs are likely to accumulate. Ultimately, this turns into dead stock, becoming a burden on companies.

An industry insider said, "If the 3-high phenomenon continues, consumers are likely to reduce clothing expenses first, so it is difficult to make a definitive judgment on fourth-quarter performance," adding, "Overall production has increased, but each company is devising ways to reduce inventory assets, so there should not be a major problem."

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