'Consumption Slowdown' Clouds... 2023 Retailers' Umbrella is 'Differentiation'

"3 Highs and Economic Slowdown... 2023 Retail Industry's Core Focus on 'Differentiation'"

Department Stores Expected to Slow Growth... Impact of Asset Price Decline and Increased Overseas Travel
Supermarkets See Increased Grocery Sales Due to Rising Home Meal Demand... Negative Effects from Slowed Appliance and Furniture Consumption
Convenience Stores Shift Keyword from 'Proximity and Convenience' to 'Product and Marketing Differentiation'
E-commerce Fully Shifts to 'Profit-Making Strategies'... Focus on 'Building Membership Ecosystem'"

[Image source=Yonhap News]

[Asia Economy Reporter Kim Yuri] The domestic distribution market, which had been dominated by COVID-19, is expected to be most significantly affected next year by domestic and international uncertainties such as international affairs and financial conditions. In preparation, distribution companies are analyzed to need to focus more than ever on proactive cost reduction and strengthening internal capabilities. Above all, it is anticipated to be a year when the sorting of wheat from chaff will begin in earnest, depending on whether customer-tailored differentiated products and services are established.

Experts gathered at the '2023 Distribution Industry Outlook Seminar' hosted by the Korea Chamber of Commerce and Industry on the 22nd commonly included these points in their reviews of this year and forecasts for next year by sector. Kim Myung-gu, Partner at Monitor Deloitte, emphasized, "In an era where market competitiveness can be lost in an instant if consumer behavior characteristics are not understood, next year stores, value chains, and service models must be completely reorganized to be customer-centric."

◆Next Year’s Real Consumer Purchasing Power ↓... Preparing for Slower Retail Market Growth

This year, the domestic retail market is expected to grow by 5.7% as consumption concentrated on domestic reopening-related markets due to delayed recovery of overseas travel. Next year, with the full-scale recovery of overseas travel and a decrease in consumers' real purchasing power due to high inflation and high interest rates, the retail market growth rate is expected to slow down compared to this year.

Department stores are evaluated as relatively defensive during recessions because sales focus on VIP customers amid consumption polarization, but growth is expected to be limited as consumers in their 20s and 30s, who increased after COVID-19, are hit by consumption stagnation. Lee Kyung-hee, Executive Director at Emart Distribution Industry Research Institute, said, "This year, department stores achieved significant growth due to continuous increases in luxury sales and strong performance in fashion and sports following the lifting of social distancing," adding, "Next year, overall growth is expected to slow due to asset price declines, interest rate hikes, and an increase in overseas travelers."

Large discount stores also saw sales growth in categories related to outings such as fashion due to the endemic this year, but growth slowed due to sluggish sales in living and home appliances, which grew rapidly during COVID-19. Lee predicted, "Next year, food sales at large discount stores will show a favorable trend due to rising dining-out prices and economic recession maintaining high home meal consumption, but noticeable performance rebounds will be difficult due to a slowdown in non-essential category consumption."

◆Duty-Free: High Exchange Rates and China Lockdowns Eased, E-commerce Shifts to 'Profit-Making Strategy'

The duty-free industry is also diagnosed to face uncertainty resolution as a key issue next year. Shin Ja-hyun, Director at the Korea Duty Free Association, said, "Despite various policy supports this year such as lifting purchase limits, raising the duty-free limit to $800, and extending license periods to 10 years, uncertainty was not completely resolved due to high exchange rates and ongoing Chinese lockdowns," adding, "Next year, despite improvements in the COVID-19 environment leading to increased travel demand and international exchanges, China’s adherence to the 'Zero COVID' policy and expansion of Chinese duty-free businesses backed by government support remain threatening."

Convenience stores have recovered growth since last year, with cumulative sales in the third quarter of this year rising 10.5% compared to the same period last year. The keyword for convenience stores next year is expected to completely shift from 'proximity and convenience' to 'product and marketing differentiation.' Yang Jae-seok, Executive Director at BGF Retail, said, "The industry will respond by expanding products reflecting MZ generation (Millennials + Generation Z) consumption trends, expanding convenience store-based content areas such as dramas and entertainment, and strengthening policies on value consumption products like health and eco-friendliness."

E-commerce is expected to strengthen its shift from a 'spending strategy' to a 'profit-making strategy' next year. Coupang’s first-ever operating profit in the third quarter this year caused a significant impact in the industry, prompting most companies to emphasize profitability-focused strategies from the second half of this year. The domestic online shopping market transaction volume this year is expected to reach 209 trillion won, growing 8.5% year-on-year but falling short of expectations. Next year’s growth rate is also analyzed to be around 9%, similar to this year. Seo Jeong-yeon, Research Fellow at Shin Young Securities, forecasted, "Price increases and consumption contraction are expected until the first half of next year," adding, "Each company will focus on building a 'membership ecosystem' aimed at consumer lock-in."

◆The Biggest Issue for the Distribution Industry This Year: 'Deterioration of Consumer Sentiment'

Meanwhile, according to the 'Top 10 Consumer Market Issues of 2022' announced by the Korea Chamber of Commerce and Industry based on a survey of 300 distribution companies, the biggest issue in the distribution industry this year was deterioration of consumer sentiment (51.3%).

Other issues included profitability deterioration due to intensified competition among business types (30.7%), pressure from high inflation causing price wars (25.7%), offline businesses entering online markets (24.0%), slowdown in online consumption due to daily life recovery (21.3%), delivery wars (20.0%), popularity of cost-effective convenience store lunch boxes (17.3%), COVID-19 disaster relief funds (14.0%), expansion of digital transformation in distribution companies (13.3%), and controversy over the abolition of mandatory holidays for large discount stores (12.7%).

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