Clothing Stocks Eyeing 'Jipkok Shopping'

Increased Interest in Online Sales Due to COVID-19 Impact

[Asia Economy Reporter Kum Boryeong] Clothing stocks, which have been hit hard by the impact of the novel coronavirus disease (COVID-19), are increasing their online business, drawing attention to whether this strategy will succeed or fail.

According to Statistics Korea and KTB Investment & Securities on the 8th, the online penetration rate of clothing in the second quarter was 29.2%.

The online business of listed clothing companies has been accelerating since the COVID-19 outbreak. Comparing the proportion of domestic online sales at the end of last year and the first half of this year, Fila Holdings expanded from 8% to 15%, Shinsegae International from 5% to 10%, and F&F from 4% to 9%. Although the growth rate is significant, there is still high potential for growth in online sales compared to the industry average.

For listed clothing brands, online penetration has traditionally been low among product categories. This is because when they enter platforms like Coupang and 11st, they have to sell at prices lower than department store retail prices. However, as department stores and agency channels were directly affected by COVID-19, clothing stocks had no choice but to enter the online business.

KTB Investment & Securities researcher Baesong explained, "As clothing consumption behavior shifts from offline to online, the success or failure of traditional clothing companies will depend on their online response strategies," adding, "With offline shopping spaces physically shrinking, it is time for clothing companies to actively expand their online business."

Clothing stocks are particularly interested in the D2C (Direct-to-Consumer) model, which drives traffic to their own malls for direct sales. In the D2C channel, there are no sales commissions, and the same products sold in department stores can be sold under the same conditions. Shinsegae International launched the online-exclusive brand '10MONTHS' through its own platform 'S.I Village' from early this year. It is reported to have achieved more than twice its sales target so far. Brand X Corporation, famous for 'Jeximix,' has focused on D2C from the beginning, with 91% of total sales coming from its own channels.

However, a rapid improvement in clothing stocks' performance is unlikely in the near term. Fila Holdings' operating profit forecast for the third quarter is 78.5 billion KRW, down 37% from the previous year. Meritz Securities estimated Shinsegae International's third-quarter consolidated operating profit at 6.1 billion KRW, a 67.8% decrease compared to the previous year. Hanuri, a researcher at Meritz Securities, analyzed, "The domestic clothing sector declined by 17%, showing poor performance," adding, "Margin contraction is inevitable."