Due to a Mild Winter, Department Stores Return Year-End 'Celebration Fireworks'

Late-Arriving Cold and Generally Warm Weather
Winter Clothing Demand in October-November ↓, Performance Recovery Slows
Concerns Over Economic Slowdown This Year... "Luxury Goods Will Decide the Outcome"

Customers are shopping at the Lotte Department Store Main Branch in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Major domestic department stores are expected to receive results that fall short of market expectations during the year-end peak season, which should mark the finale of the endemic (periodic infectious disease outbreak) era. The late-arriving cold this winter and generally warm weather weakened demand for winter clothing more than anticipated.

According to FnGuide on the 12th, the fourth-quarter earnings of the three department stores?Lotte, Shinsegae, and Hyundai Department Store?are expected to fall below market consensus (estimates). Lotte Shopping's expected operating profit for the fourth quarter of last year, including Lotte Department Store's performance, is 179.4 billion KRW, up 64.14% compared to the same period last year. During the same period, the expected sales amount rose 3.28% to 3.9085 trillion KRW. Although strong performance centered on department stores showed a clear improvement in earnings this year, there is a sense of disappointment in the year-end momentum, when demand for high-priced thick coats and gifts usually surges.

Lotte Department Store's same-store sales growth rate is expected to be around 6% compared to the previous year. Last year, mild weather continued until November, and the fashion category growth rate, which had advanced due to the endemic effect this year, slowed down. Although the same-store sales growth rate in December, when temperatures dropped, is estimated to have recovered to around 12%, it is expected not to offset the earlier situation.

Shinsegae, including department stores and duty-free shops, is expected to have an operating profit of 209.4 billion KRW in the fourth quarter of last year, up 7.27% from the same period last year. The expected sales amount is 2.1903 trillion KRW, a 13.25% increase. Despite the COVID-19 situation, Shinsegae Department Store showed a clear improvement in performance within the department store industry, driven by revenge consumption centered on luxury goods, compounded by the base effect of previous strong results. Shinsegae's department store division saw a significant increase in operating profit due to high growth in fashion category sales from the first to third quarters, but the growth rate of the high-margin clothing category slowed to single digits in October and November, affecting performance.

Hyundai Department Store's expected operating profit for the fourth quarter of last year is 120.1 billion KRW, an increase of 27.49% compared to the same period last year. The same-store sales growth rate was forecasted to be around 5%, but considering the impact of the temporary closure of Hyundai Premium Outlet Daejeon due to a fire, the same-store growth rate is evaluated at about 8%. Similarly, the mild weather affected the slowdown in the fashion category growth rate in October and November.

Industry insiders expect the domestic consumption slowdown this year to cast a shadow over the overall department store business. Accordingly, there are voices that luxury goods will once again determine the fortunes of the department store industry this year, as they have relatively low sensitivity to economic fluctuations. As the luxury goods industry has implemented smaller price increases, the rise in luxury prices compared to last year is expected to partially offset the reduced number of customers. A department store industry official said, "Until the second half of last year, the outlook for the department store industry was not bad, but as concerns about an economic recession deepen, worries about the business environment are also growing," adding, "Department stores with a high proportion of luxury goods in total sales are likely to receive relatively good results."