Department Store Trio Sales 'Stagnant'... Growing Concerns Over Economic Recession

The domestic department store industry in South Korea saw its sales virtually stagnate in the second quarter of this year due to the economic downturn. Among the three major domestic department stores, all except Hyundai Department Store experienced a decline in profitability.

According to the distribution industry on the 8th, Lotte Department Store's sales in the second quarter of this year amounted to 836.1 billion KRW (including shopping malls and outlets), marking only a 0.7% increase. Operating profit stood at 58.9 billion KRW, down 9.0% compared to the same period last year. The company explained that profitability declined due to increased fixed costs and one-time expenses caused by rising prices.

The 'Big 3' department stores in Korea: Lotte Department Store, Shinsegae Department Store, and Hyundai Department Store (clockwise from top)
[Photo by Lotte, Shinsegae, Hyundai Department Store]

원본보기 아이콘

Shinsegae Department Store's second-quarter sales rose 2.1% year-on-year to 641.7 billion KRW. This figure includes the combined results of its separate subsidiaries in Gwangju, Daegu, and Daejeon, marking the highest sales ever recorded in the second quarter. However, operating profit decreased by 11.2% year-on-year to 81.8 billion KRW. The company attributed this to increased expenses such as depreciation costs related to the renovation of major stores, including the food hall at the Gangnam branch.

Hyundai Department Store posted second-quarter sales of 611.9 billion KRW and operating profit of 71.0 billion KRW. These figures, which include outlet performance, represent increases of 3.0% and 18.3% respectively compared to the same period last year. The sales figure is the highest ever for a quarter, and the company analyzed that the strong sales momentum was driven mainly by the young fashion and sports product categories.

The department store industry analyzed the slight increase in sales as "a relatively strong performance amid an overall worrisome economic slump." Department stores have recently focused on renewing large stores, putting great effort into increasing customer dwell time. There is also an analysis that the slight sales growth in the second quarter was led by large stores that completed renovations.

A Lotte Department Store official said, "Since Time Villas Suwon, which reopened after renovation, is showing good results, we plan to sequentially complete renovations of major stores in the second half of the year to further strengthen the competitiveness of domestic stores." Shinsegae Department Store also stated, "We plan to continue growth by renovating the food hall at the Gangnam branch in the second half of the year." Earlier, Shinsegae Department Store opened 'Sweet Park,' a store carefully selecting desserts, at the Gangnam branch in February, followed by the opening of 'House of Shinsegae' in June, a hotel-grade space. Hyundai Department Store said, "Large stores such as The Hyundai Seoul and Pangyo branch drove sales growth."

However, the department store industry is concerned that performance may worsen as consumer spending continues to decline in the second half of the year. An industry insider said, "Since the economic contraction signals are very strong, we will need to monitor the situation more closely in the second half."

© The Asia Business Daily(www.asiae.co.kr). All rights reserved.