To Clear the Department Store Gloom... Christmas Lights and Winter Coats Are Key

Department Store Big 3 Q3 Operating Profit Down 15~32% Each
Despite High Inflation Dampening Consumer Sentiment
Q4 Fashion Sales Rebound and Growth in Photo-Driven Consumption Expected

Major domestic department stores all received results below market expectations in the third quarter of this year. As household consumer sentiment continues to weaken, analysts say it will take time for the dark clouds hanging over department stores to clear. However, in the fourth quarter of this year, the impact from last year's high base is expected to lessen, and the trend in winter coat sales, a key indicator of year-end department store performance, will act as a variable amid the onset of the full-fledged cold weather this month. Considering the crowds flocking nationwide to take photos in front of Christmas decorations at department stores, the effect of derivative consumption at year-end is also seen as promising.

According to the distribution industry on the 10th, Lotte Department Store's operating profit in the third quarter of this year was 74 billion KRW, down 31.8% compared to the same period last year. Sales also decreased by 2.0% to 753 billion KRW. Poor sales of fall/winter (F/W) products due to higher-than-average temperatures held back performance. The increase in fixed costs due to inflation also posed a burden. The same-store sales growth rate for department stores declined by 1.6%. However, the increase in foreign tourist visits and the introduction of various popular food and beverage (F&B) contents that attract crowds drove sales at large stores including the main branch and Jamsil branch. Overseas stores also saw significant sales growth, with existing store sales increasing and the Lotte Mall West Lake Hanoi in Vietnam, which opened last September, performing well.

Shinsegae Department Store's third-quarter operating profit recorded 92.8 billion KRW, down 15.1% from the same period last year (including separate corporations in Gwangju, Daegu, and Daejeon Shinsegae). The decline in sales of high-margin categories such as clothing inevitably worsened profitability. Increases in management and promotional expenses linked to inflation also had an impact. Sales amounted to 604.3 billion KRW, down 0.9% from the same period last year.

Hyundai Department Store's separate operating profit for the third quarter was 79.8 billion KRW, down 17.4% from the same period last year. Operating profit decreased by 16.7 billion KRW due to increased costs from store renovations at the main branch, Mokdong branch, and The Hyundai Daegu. Sales rose 3.5% to 580.2 billion KRW. Sales showed strong growth centered on living (10%), young fashion (7%), and food (6%) product categories, but men's and women's fashion sales decreased by 3% and 1%, respectively.

The main store window of Lotte Department Store is decorated with a Christmas theme inspired by the story of the child 'Haeah' and the fairy 'Ttonttu'.
[Photo by Lotte Department Store].

Within the industry, there are concerns that the department store sector may be entering a low-growth phase again after experiencing a high-growth period during 2021?2022, driven by overseas travel restrictions, subsequent revenge spending, and a ‘flex’ culture fueled by rising asset values. With sustained high interest rates, the stock and real estate markets are stagnating, and disposable income is also decreasing, leading to continued weakening of consumer sentiment. However, the burden from last year's high base effect due to reopening is expected to be removed in the fourth quarter of this year. By fully unveiling the annually anticipated Christmas theme, derivative consumption from visitors is also expected. Above all, the speed of recovery in winter clothing sales, which account for a large portion of sales, is crucial. Since the full onset of cold weather only began this month, analysts say the situation needs to be closely monitored.

Lotte Department Store expects the effects of store renovations at Incheon and Suwon branches to fully materialize after the fourth quarter. Shinsegae Department Store plans to continue strengthening its online presence with initiatives such as the ‘Shinbaek Gift Hall.’ Hyundai Department Store is expanding volume by introducing major luxury brands at key stores. Next month, Louis Vuitton will open at The Hyundai Seoul, Dior at the Pangyo branch, and Boucheron at The Hyundai Daegu, respectively.

On the 9th, the Christmas decoration using media facade video lit up the exterior wall of the Shinsegae Department Store Main Branch in Jung-gu, Seoul. The media facade on the exterior wall of the Shinsegae Department Store Main Branch transformed into a massive screen measuring 63x18m, using 3.75 million LED chips. Photo by Hyunmin Kim kimhyun81@

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