Fashion Giants Depressed by Weak Consumer Spending... Third Quarter Earnings Plummet

Major Fashion Conglomerates' Q3 Earnings Decline
Post-Revenge Spending Ends, Consumption Slows Amid Economic Downturn

Domestic fashion conglomerates, which had been posting strong performances due to revenge spending after the pandemic, are now facing disappointing results in the third quarter due to a slowdown in consumption amid economic downturn.

According to the Financial Supervisory Service's electronic disclosure system on the 13th, Samsung C&T Fashion Division recorded sales of 456 billion KRW in the third quarter of this year, down 3.2% compared to the same period last year, while operating profit increased by 13.8% to 33 billion KRW.

Since 2016, Samsung C&T Fashion Division has been improving its business structure by gradually phasing out underperforming brands and focusing on new luxury brands, resulting in a strong performance. This success is attributed to the continuous discovery and growth of new luxury brands centered around select shops such as ‘Beaker’ and ‘10 Corso Como’. Additionally, the value-for-money brand ‘8Seconds’ showed double-digit growth, which also contributed to the results.

While the eldest sibling Samsung C&T managed to defend its performance, other companies could not avoid significant declines. Handsome recorded sales of 324.1 billion KRW, down 5.1% year-on-year, and operating profit fell sharply by 73.1% to 8.8 billion KRW. Shinsegae International also saw sales drop 18.5% to 315.8 billion KRW and operating profit decrease 75.1% to 6 billion KRW. LF, which has yet to announce its results, is expected by market research firm FnGuide to report third-quarter sales of 422.8 billion KRW, down 2.7% year-on-year, and operating profit of 14.6 billion KRW, a 51.1% decline.

The main reason for the poor results across major fashion companies is believed to be the decline in consumption due to the economic recession. During the pandemic, fashion companies experienced a boom as revenge spending demand was concentrated in fashion, and last year they continued growth benefiting from the reopening of economic activities. However, with the complete lifting of quarantine restrictions, domestic consumption has increasingly shifted overseas, leading to a sharp slowdown in fashion consumption.

Moreover, the ongoing rise in prices has reduced disposable income, which dealt a direct blow to clothing consumption, a non-essential good that consumers can postpone without affecting their daily lives. The combination of high inflation and high interest rates has also lowered asset values and increased interest burdens, resulting in decreased clothing consumption.

Besides the consumption slump caused by the economic downturn, there is also an internal industry view that the younger generation’s interest has shifted significantly from mainstream brands to emerging designer brands. The MZ generation (Millennials + Generation Z), emerging as a key consumer group in the fashion industry, tends to seek out lesser-known brands and consider the philosophy behind products rather than simply consuming popular brands. To respond to this trend, major fashion companies are increasing investments to launch or import new brands, which is also impacting their earnings decline.

Amid difficulties caused by both internal and external factors, a dramatic rebound in the fourth quarter, the industry's peak season, is unlikely. Consumer sentiment remains depressed, and the domestic clothing market has experienced rapid growth in recent years due to revenge spending. Sojeong Cho, a researcher at Kiwoom Securities, said, “A rebound in the fourth quarter is expected to be difficult due to the economic slowdown,” but added, “If the weather turns colder than expected, sales of high-priced winter products may increase, potentially bringing forward the timing of profit improvement.”

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