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Personal luxury goods market continues to expand despite pandemic
By Lee Gyu-lee
While COVID-19 has dealt a blow to almost every industry worldwide, bringing chaos and economic recession, the personal luxury goods market in Korea has shown an unusual pattern.
Unfazed by the pandemic, it has set itself apart from the general economic slump with steady growth.
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This situation is in stark contrast to the fact that the global personal luxury goods market value suffered a 23-percent drop during the same period ― from $318.6 billion in 2019 to $246 billion in 2020 ― which saw Korea taking up an even greater portion of the market.
Buoyed by these booming luxury goods sales, Korea's online channels for luxury brand shopping have also seen a boost, with new platforms emerging and existing ones stepping up their game in the heated competition.
Online sales made up about 10.6 percent of the luxury market, compared to 8.6 percent in 2016. In 2020, the market for online luxury goods shopping had an 11-percent jump from the previous year, estimated at 1.6 trillion won ($1.34 billion).
Suh Yong-gu, a professor of management at Sookmyung Women's University, explained that the luxury goods market has been expanding, owing to the so-called MZ Generation ― a newly coined term referring to both Millennials (born 1981-1995) and Generation Z (born 1996-2005) ― consumers.
"The majority of consumers for the luxury goods market are the MZ Generation. Their purchasing power, finance and income might not be sufficient to conveniently afford these goods. But compared to the older generation, they favor luxury goods and are more inclined to make purchases," the professor told The Korea Times.
"The reasons behind it include the splurging, the flex consumption trend, and the revenge spending pattern due to frustrations from the pandemic, such as not being able to travel abroad," he explained. "Flex" is a slang term coming from hip-hop music, meaning to "show off," and "flex consumption" refers to buying expensive goods to flaunt an extravagant lifestyle.
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| People wait in line to enter Shinsegae Department Store in Jung District, central Seoul in this Oct. 6 file photo. Korea Times file |
To grab a piece of the burgeoning market, conglomerates are quickly jumping in to secure their own channels for online luxury goods shopping.
Lotte Group's subsidiary, Lotte Duty Free, opened its first online luxury shopping platform, "Sogong 1st Ave," earlier this month. The online duty-free service became home to about 30 high-end luxury and designer brands, such as Valentino, Moncler, Alexander McQueen and Fendi.
Tech giants Naver and Kakao have been adding more diverse luxury brand goods on their e-commerce platforms.
Naver launched a new category dedicated to luxury goods on its Naver Shopping platform this July, and Kakao has been opening up official brand stores, such as Tiffany & Co. and Mulberry, within its e-commerce service.
Leading menswear online shopping platform Musinsa rolled out an in-app boutique in June to enable its users to shop specifically for luxury brands, curated by the service.
Professor Suh noted that such diversified channels to supplying luxury goods have triggered a cycle of increased supply and demand.
"In the past, for most cases, people had to go to a department store and, oftentimes, wait in a line to purchase luxury goods," he said. "But as supply channels have diversified, the supply has contributed to a further increase in demand, which eventually leads to an even greater expansion of its supply chain."
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| Mustit's brand model, Ju Ji-hoon, top, and Trenbe's model, Kim Hee-ae / Courtesy of Mustit and Trenbe |
Amid the growing competition, the existing luxury and designer brand online platforms, such as Mustit, Trenbe, Balaan and Catch Fashion, are forging a way to secure their slice of the business, using big-name stars as brand models.
Mustit started a marketing campaign with the Netflix series "Kingdom" star, Ju Ji-hoon, in August. The company revealed that it has earned 32 billion won ($27 million) during the month after the campaign's launch, and the number of newly registered users increased by 66 percent, compared to the previous month.
The platform, which was founded in 2011, saw a huge jump in its transactions over the past two years, from 95 billion won in 2018, to 150 billion won in 2019, then to 250 billion won ($210.7 million) in 2020, according to the company.
Catch Fashion has seen a 183 percent spike in new users during the month following its featuring of actor Jo In-sung in its brand campaign in September. Trenbe, advertised by actress Kim Hee-ae, also saw an increase in monthly transactions by about 4.2 billion won compared to the previous month.
A frequent online buyer of luxury goods, surnamed Kim, remarked that the platforms' marketing increases the reliability of shopping online for high-priced goods, which shoppers previously preferred to purchase in person.
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| Catch Fashion saw a 183-percent spike in new users this October. Courtesy of Catch Fashion |
"Those platforms try to ensure their products are authentic and advertise that they will reimburse people for any counterfeited goods. So I can put my trust in these services when making purchases," Kim said.
"Shopping online is convenient because I don't have to wait in line, and some of the platforms will also offer promotional discounts… more recently, I can easily find most of the goods that sell offline on those online platforms, so now I don't really feel the need to buy them offline."
As the online shopping market for the sector grows, investment in those platforms is also flowing in. The total investments that four platforms ― Mustit, Trenbe, Balaan and Catch Fashion ― have secured adds up to over 150 billion won.
Balaan raised 32.5 billion won in a Series B round last month, raising its total funding to 48.5 billion won. Trenbe collected 40 billion won, Catch Fashion 38 billion won, and Mustit 28 billion won.
Yet, despite the thriving business, Professor Suh says that the personal luxury goods market might face a pullback in a post-pandemic world.
"One thing we need to consider is that, as we go into the post-pandemic world, when people can travel overseas with no restrictions and have more access to stores for shopping offline, they might not shop as much online, unless the goods are cheaper," he said.
"This means that the rate of growth in the industry might not be as high as it is now. However, regardless of that, overall luxury consumption will continue to grow, as the MZ Generation shows a strong preference for and knowledge of high-end brand goods."
