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By Kim Jae-heun
Since the country eased COVID-19 social distancing measures putting limits on private gatherings and multi-use facility operating hours at the end of April, Korea's "big three" local department stores have enjoyed notable sales growth over the past three months, thanks to higher demand for luxury fashion goods and other high-end items. Their outlook for the second half of the year appears to be even brighter as customers are expected to continue "revenge spending," which means making up for missed overseas travel during the last two years by shopping, according to industry analysts.
Lotte Shopping, Shinsegae and Hyundai Department Store have all posted earnings surprises in the second quarter of this year.
Lotte Shopping, the operator of Lotte Department Store, marked operating profit of 74.4 billion won ($56.7 million) between April and June, up by 882.2 percent, year-on-year. Its net profit in the first half of this year turned into a surplus for the first time in three years too.
Lotte Shopping struggled during the earlier phases of the pandemic, but the department store company has put up a good fight since appointing a new CEO to revamp its retail business.
Lotte Department Store's sales and operating profit in the second quarter this year recorded 828.5 billion won and 104.2 billion, respectively, up by 14.9 percent and 68.5 percent, respectively.
"Lotte Shopping will continue to show a strong rebound in its operating profit for the second half of the year, and 2022 will be the first year for the company's annual net profit to make a turnaround," Kyobo Securities researcher Jeong So-yeon said.
Shinsegae and Hyundai Department Store also achieved all-time high business performances in the second half of this year, thanks to increases in sales in various sectors, including sports, domestic fashion and kids.
In particular, Shinsegae Department Store's revenue soared 25.5 percent compared to that of the previous year, reaching 623.5 billion won, and its operating profit skyrocketed 80.6 percent to record 121.1 billion won.
"We have to refurbish our Gyeonggi branch in time for the country's resumption of economic activities, and the new store in Daejeon getting off to a good start has had a huge impact in terms of our performance," a Shinsegae Department Store official said.
Huge jumps of Shinsegae Department Store's sales in women's fashion (up by 34.2 percent), menswear (up by 34.7 percent) and outdoor brands (up by 43.6 percent) have driven the company's offline business growth. The men's and women's fashion categories have high margins compared to that of luxury fashion. Revenue coming from young customers in their 20s and 30s has also increased 38 percent during the period.
"Considering the purchase cycle, Shinsegae Department Store's operating profit will continue to improve in the second half of this year due to strong clothing sales," Korea Investment & Securities researcher Kim Myung-joo said.
Hyundai Department Store is yet to reveal its business performance in the second quarter, but the local securities firm expects the company to show 999.2 billion won in sales and 77.2 billion won of operating profit.
Luxury goods and furniture sales are still big
The high sales growth of luxury goods and furniture has contributed significantly to major department stores' all-time-high figures.
A number of consumers spent substantial cash purchasing expensive designer-label clothing. Furniture is another sector that Lotte Shopping, Shinsegae and Hyundai Department Store have been focusing on. They all have their own furniture brands to prepare for the growth of the local market, which is expect to reach the size of 20 trillion won by 2024.
Shinsegae has Casamia and Hyundai Department Store acquired e-commerce mattress company Zinus in March. Last September, Lotte Shopping took over local interior and furniture brand Hanssem.
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