Department Store Industry Sees the End of the Long COVID-19 Tunnel

[Asia Economy Reporter Seungjin Lee] The department store industry, which suffered a sharp decline in sales due to the direct impact of the novel coronavirus infection (COVID-19) in the first half of this year, is showing signs of performance recovery. Steady sales of luxury goods, increased sales of home appliances due to the recent prolonged rainy season, and various differentiation strategies introduced by department stores have brought back customers who had stopped visiting.

According to the department store industry on the 15th, department stores that recorded the worst performance in history in the first quarter of this year began to improve their performance starting from the second quarter. Department stores, which repeatedly experienced negative growth in the first half of the year, returned to a growth trend in July and August, showing a clear rebound.

Shinsegae Department Store recorded a sales decline of -11.7% year-on-year in the first quarter of this year, but despite the adverse factor of excluding disaster relief fund usage in the second quarter, it improved significantly to -3.7%. Compared to the same period last year, sales increased by 0.9% in July and by 10.3% from August 1 to 12, showing definite performance improvement.

Lotte Department Store’s sales plummeted by -21.5% year-on-year in the first quarter due to multiple temporary closures caused by COVID-19 confirmed cases visiting stores. However, it showed a clear upward curve with -12.3% in the second quarter, -5% in July, and +5% from August 1 to 12. Hyundai Department Store reduced its negative growth rate from -17.7% in the first quarter and -10.3% in the second quarter compared to the same period last year, and recorded 0.3% in July and 6.9% from August 1 to 12, entering a growth phase again.

The increase in department store sales was driven by a steady rise in consumers seeking luxury goods. Luxury sales increased by 20-40% each month compared to last year. As international travel was impossible due to COVID-19 blocking air routes, more people sought luxury goods as a form of 'revenge consumption.'

In addition, consumers looking for dehumidifiers and dryers at department stores increased significantly due to the longest rainy season in history. Also, demand from prospective couples, which had been postponed due to COVID-19 in the first half of the year, began to surge, leading to a significant increase in sales of wedding-related goods.

Accordingly, Lotte Department Store is holding the 'Lotte Wedding Week' event until the 23rd to attract prospective couples. During this period, Lotte Department Store has prepared a 'Double Mileage Event' that doubles the points earned on purchases from the most preferred luxury, home appliance, and furniture brands by prospective couples.

The department store industry expects performance recovery in the second half of the year. Various differentiation strategies tailored to the changed consumption culture due to COVID-19 are bearing fruit, and new store openings, which had been scarce for a while, are scheduled for the end of the year.

Shinsegae Department Store plans to continue its large store strategy centered on luxury goods. Following differentiation strategies such as the recent renewal of the food hall on the first floor of Times Square store, it will continue efforts to attract luxury brands, including being the first in the industry to introduce new Louis Vuitton men's products. Lotte Department Store will focus on strengthening its foundation by closing five stores within the year.

Hyundai Department Store plans to open Namyangju Premium Outlet in November and Yeouido Department Store early next year. Hyundai Department Store Yeouido will become the largest department store in Seoul with a sales area of 90,000㎡ (approximately 27,225 pyeong) upon opening.

A department store industry official said, "Although the COVID-19 situation remains serious, if the worst cases like those in March and April this year do not recur, the performance in the second half of the year is expected to be not bad," adding, "We plan to implement various differentiation strategies in line with the non-face-to-face consumption culture."