Record-breaking sales in the department store industry... The breakthrough for hollow success is 'Renewal'

Last year, the domestic department store industry recorded record-high sales centered on key stores, but operating profits declined compared to the previous year. Due to the impact of the 'three highs'?high inflation, high exchange rates, and high interest rates?consumer sentiment has weakened, and with the growth of the e-commerce market making new store openings burdensome, the plan for this year is to strengthen fundamentals through the renewal of existing stores.

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According to the Financial Supervisory Service's electronic disclosure system on the 13th, the sales of the three major companies?Lotte Department Store, Shinsegae Department Store, and Hyundai Department Store?all increased slightly last year. Lotte Shopping's department store division posted sales of 3.2228 trillion won last year, up 1.5% from the previous year, Shinsegae recorded 2.557 trillion won, an increase of 2.8%, and Hyundai Department Store also rose 4.9% to 2.4026 trillion won.

However, operating profits fell, with Shinsegae Department Store's operating profit decreasing by 12.4% to 439.9 billion won, and Hyundai Department Store's operating profit dropping 6% to 356.2 billion won. Lotte Department Store's domestic department store division operating profit increased by 2% to 498.4 billion won.

Compared to 2022, when both sales and operating profits surged, the sales growth rate slowed, and operating profits actually declined. Nevertheless, under the pressure of high inflation and high interest rates, Shinsegae Gangnam Store became the first in the domestic department store industry to achieve transaction volume of 3 trillion won, and key stores such as Lotte Department Store Jamsil Store and Main Store, as well as Shinsegae Centum City Store, all recorded transaction volumes in the 2 trillion won range, showing strong performance and delivering a relatively favorable report card.

The department store industry plans to continue its growth this year through store renewals and brand reinforcement, given the challenging economic conditions. Lotte Department Store will continuously pursue renewals centered on key stores such as the Main Store and Jamsil Store to strengthen premium offerings and competitiveness by store district. The 'New Premium' food hall, which started at the Incheon Store, will be sequentially applied to renewals at other stores. Additionally, the Suwon Store, scheduled to reopen after renewal in April this year, plans to introduce the largest contemporary brand in the region, considering the commercial district favored by the younger generation aged 20 to 30. The Incheon Store is pushing to strengthen luxury jewelry and watch brands.

Shinsegae Department Store is also strengthening its core business competitiveness through renewals. The Gangnam Store food hall, undergoing a major expansion and renewal for the first time in 15 years since 2009, will be reborn as the largest food hall in Korea, expanding from about 2,200 pyeong to about 6,000 pyeong. This location will house various dessert shops renowned both domestically and internationally, transforming it into a 'dessert sanctuary' that transcends gender and age. The company is also actively attracting luxury brands. Tiffany has opened a store in the Gwangju Store, marking the first time in that regional market. Discussions are underway to add one or two more luxury brands to the Uijeongbu Store this year.

Hyundai Department Store is conducting renewal work centered on key stores such as Apgujeong Main Store, Pangyo Store, and The Hyundai Seoul. It is particularly focusing on the entry of luxury stores. In April, The Hyundai Daegu will open the department store industry's first 'Comme des Gar?ons' play store. Following the luxury jewelry brand 'Maison Boucheron,' The Hyundai Daegu will also open a 'Celine' store next month. The Hyundai Seoul welcomed the luxury brand Louis Vuitton in December last year, and the Italian padding brand 'Herno' plans to launch within this year. The Jungdong Store, undergoing renewal since the end of last year, is in negotiations to bring in multiple overseas luxury brands.

These renewal efforts are expected to help improve the operating profits of each department store. Lee Jin-hyup, a researcher at Hanwha Investment & Securities, said, “As we enter a disinflation phase, consumer spending capacity, which had been constrained, is expected to gradually improve. Although fixed costs increased significantly last year, the possibility of further increases is limited this year, so we expect Shinsegae and Hyundai Department Store's operating profits to increase by 9% and 10%, respectively, this year.”

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