Consumption is Increasing... But Department Store Stocks Remain Stagnant

[Asia Economy Reporter Minji Lee] Despite a surge in revenge consumption driving department store sales growth to the highest level in 16 years, the stock prices of department store companies remain lukewarm. This is interpreted as reflecting concerns over intensified competition with e-commerce companies and the possibility of delayed recovery in the duty-free industry.

As of 9:30 a.m. on the 19th, Shinsegae is trading at 276,000 won, down 0.54% from the previous trading day. Lotte Shopping fell 0.81%, while Hyundai Department Store rose 0.23%. Analyzing their one-month returns, Lotte Shopping and Shinsegae declined by 4% and 2.3%, respectively, while Hyundai Department Store only managed a 0.5% increase.

This year, the sales growth of department stores has been unprecedented. According to the economic trends published by the Ministry of Economy and Finance on the 16th, department store sales surged 63% year-on-year, marking the highest growth rate since the Green Book was first published in 2005.

In the first quarter, the same-store sales growth rate of department store companies is expected to be in the 20% range. The predicted first-quarter same-store sales growth rates by company are Shinsegae Department Store at 30%, Hyundai Department Store at 25%, and Lotte Department Store at 18%, in that order.

Nevertheless, the stock prices of listed companies owning department stores remain sluggish. This is largely due to strong concerns about intensified competition with e-commerce companies. Eunyoung Park, a researcher at Samsung Securities, said, "Despite better-than-expected strong domestic demand leading to improved earnings, stock prices are stuck in a narrow range," adding, "There is a persistent concern about the decline in market share of traditional retailers amid the competitive landscape between e-commerce companies and offline channels."

In the case of Lotte Shopping, which reflects the performance of Lotte Department Store, the stock price is expected to show little movement until the acquisition results of eBay Korea, which it joined to secure e-commerce consumers, are announced around May to June. Since the COVID-19 outbreak, the penetration rate of e-commerce in the retail market has grown to 43%, establishing itself as a central axis of the retail market. The industry expects that even after the end of COVID-19, consumers will not reduce their use of e-commerce, so a reevaluation of corporate strength is anticipated depending on whether the eBay Korea acquisition is successful.

Additionally, concerns about earnings decline due to the resurgence of COVID-19 and delayed recovery in the duty-free industry are also reflected. Duty-free operators are securing profitability by reducing costs through changes in airport rent payment methods and eased competition. However, since unrestricted overseas travel is expected to resume later than initially anticipated, likely starting next year, it will take more time before explosive demand recovery occurs.