Impact of Endemic Optimism on Consumer Spending Surge
Strong Growth in High-Margin Fashion and Outdoor Sectors... Operating Profit Expansion
Workwear Prepared for Reopening... Golf and Tennis Fever
Specialized MZ Generation Stores Open One After Another, Unlocking 2030 Wallets
[Asia Economy Reporter Kim Yuri] The department store industry is receiving better-than-expected results for the first quarter of this year, driven by a surge in consumer sentiment amid expectations of an endemic phase (periodic outbreaks of infectious diseases). With the lifting of social distancing measures due to COVID-19 last month, demand for high-margin fashion products has surged, leading analysts to expect promising results for the second quarter as well.
According to the distribution industry on the 11th, Hyundai Department Store's consolidated operating profit for the first quarter of this year was 88.9 billion KRW, a 36.7% increase compared to the same period last year. Sales for the same period rose 36.8% to 934.4 billion KRW. These figures exceed the financial investment industry's first-quarter earnings consensus estimates of 856 billion KRW in sales and 78.8 billion KRW in operating profit. The operating profit surpassed the market's upper estimate (85 billion KRW). In particular, the department store division's operating profit reached 102.7 billion KRW, a 35.2% increase year-on-year, matching the level of the peak fourth quarter and driving performance improvement. Sales also increased 9.2% year-on-year to 543.3 billion KRW.
It is analyzed that the strong operating profit was influenced by significant growth in high-margin product categories such as fashion and sports, due to the easing of social distancing measures. The reopening trend in the first quarter saw office workers who had been working from home preparing work clothes, and more people preparing for outdoor activities as the weather warmed. Golf (50.3%), overseas luxury goods (30.6%), outdoor wear (26.5%), women's fashion (22.6%), and men's fashion (22.1%) all showed steady growth compared to the same period last year. Especially, the influx of the 2030 generation (people in their 20s and 30s) to stores like Pangyo Branch and The Hyundai Seoul, which expanded assortments for the MZ generation (Millennials + Generation Z), positively impacted department store sales. For Hyundai Department Store in the first quarter, sales growth rates by category for customers in their 20s and 30s were golf (83.0%), outdoor wear (48.7%), overseas luxury goods (46.8%), men's fashion (41.8%), and women's fashion (35.1%), all exceeding the average growth rates.
Lotte Department Store also saw a 9.4% increase in first-quarter sales to 740 billion KRW compared to the same period last year, with operating profit rising 2.6% to 105 billion KRW, driven by solid growth centered on overseas fashion (23.4%). The company stated, "Despite a temporary acquisition tax of 16.1 billion KRW due to the merger of four subsidiaries related to new businesses?Lotte Incheon Development, Lotte Town Dongtan, Lotte Songdo Shopping Town, and Lotte Shopping Town Daegu?operating profit slightly increased compared to last year," adding, "We view the performance improvement that will be fully realized from this year positively."
The market also expects Shinsegae, which is scheduled to announce its first-quarter results this afternoon, to show noticeable performance improvement. According to FnGuide, Shinsegae's consolidated operating profit estimate for the first quarter (including duty-free shops) is 142.7 billion KRW, a 15.5% increase year-on-year. The sales estimate is 1.679 trillion KRW, up 27.2% from the same period last year. Analysts believe that increased foot traffic due to reopening, rapid recovery of high-margin clothing sales, and continued strong growth in luxury goods positively influenced the results.
This positive trend is expected to continue into the second quarter. Although concerns remain that the lifting of overseas travel restrictions will disperse 'revenge consumption,' causing the industry to peak and then decline, the growth in demand for high-margin fashion products has continued, with major department stores recording double-digit growth rates through last month, exceeding expectations. An industry insider said, "If this trend continues even after the full recovery of overseas travel, concerns about the industry will be alleviated," adding, "Rather, consumption of overseas travel-related products may occur at department stores."
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