[New Consumer Generation ] As the 'MZ Playground' Transforms, the Wallets of the 'Young + Rich' Open Up

Department Store as a Gourmet Spot, Art Gallery, and Fashion Show Venue
2030 Sales Share 40%... Young VIPs 25-31%
Growing Importance of MZ Generation Amid Economic Slowdown and Consumption Diversification

Editor's NoteDepartment stores are innovating their spaces by giving up retail areas and creating indoor parks by tearing down entire floors. They are acquiring additional buildings to create complex spaces that encompass exhibitions, education, and culture. Behind these recent changes in domestic department stores lies the significant shift in the customer base visiting them post-COVID-19. This shift is characterized by the expansion of 'young people (Young People)' and 'wealthy individuals (Rich People).' The lifestyle transformation of the younger generation, who spend time and money on new and hip items and spaces, along with a change in consumption patterns?saving decisively when needed and spending boldly when appropriate?has led to the expansion of emerging designer brands across all categories within department stores and made it possible to find famous exhibitions first at department stores. The 'Young & Rich,' who have significantly increased their assets during the liquidity era of COVID-19, have established themselves as another key customer segment for department stores. Amid the current endemic phase and looming economic recession concerns, wealth polarization is intensifying, making VIP marketing a strong pillar supporting department store sales. This article analyzes recent changes in department stores, their future movements, and the new consumer groups emerging in the endemic era.

Q. Where are the following places?

① The place where teenager A visited to see an exhibition by a famous overseas artist.

② The place where person B in their 20s went to taste the 'dessert with a line' in Yeonnam-dong, Seoul.

③ The place where person C in their 30s visited to buy a jacket from an emerging designer brand previously available only online.

The answer to all is 'department store.' In 2023, department stores have evolved beyond the traditional definition of 'large-scale modern comprehensive retail stores that display and sell various products divided by sections' to become complex spaces that gather famous restaurants and cafes nationwide, art museums hosting renowned exhibitions, and fashion show venues quickly showcasing trend-leading brands. They have transformed into multi-purpose spaces that consolidate the reasons why young generations scatter to Seongsu-dong, Hannam-dong, and Mangwon-dong to hang out.

Visitors are bustling at 'The Court,' an experiential tennis pop-up store held from the 19th to the 29th at Lotte World Mall in Jamsil, Songpa-gu, Seoul.
[Photo by Lotte Department Store].

As a result of these changes, the frequency of department store visits by the 20s and 30s age group has significantly increased. The department stores' allure to the younger generation, saying, 'Sometimes it will be a trip to Seongsu-dong, sometimes a trip to famous tourist spots nationwide, so come to the department store and open your wallets,' has worked. During the three years when COVID-19 was at its peak, sales from the 20s and 30s gradually increased to account for about 40% of total sales. From January to April this year, based on Shinsegae Department Store data, the proportion of sales from the 20s and 30s was about 38.2% of total sales. While department stores used to have a strong image as 'exclusive to middle-aged asset holders,' recently, they have transformed into places where younger customers?from teenagers to people in their 30s?are more frequently found. 'The Hyundai Seoul,' which opened in 2021 branding itself as an 'MZ generation playground,' attracted 52 million visitors aged 30 or younger out of 80 million visitors over two years, accounting for 65%.

Among the major trends, department stores have particularly focused on expanding the 'young and loyal customer' base. As the department store industry is all focused on capturing MZ generation (Millennials + Generation Z) customers, they offer noticeable benefits compared to competitors to familiarize future VIPs with their channels. Lotte Department Store introduced the 'Y Community.' It is a paid membership for those aged 20 to 35, operated at Jamsil and Main stores, with the concept of 'pay 100,000 KRW and receive welcome gifts worth 100,000 KRW, plus enjoy VIP-like benefits such as 10% discount coupons, free parking, and free coffee.' Launched in 2021, the cumulative number of members recently exceeded 5,000. The number of Y Community members increases by about 30% each season compared to the previous one. Member sales have nearly doubled, especially in luxury product categories, compared to before joining.

Hyundai Department Store is also actively expanding 'Club YP,' introduced in 2021. Club YP, open only to those under 39, allows customers who spend over 30 million KRW or excel in donations or volunteer activities to use VIP lounges at The Hyundai Seoul and Pangyo stores. Services such as valet parking and six-month interest-free installments on luxury purchases are also provided. VIP-only 'Club YP Lounges' have opened at The Hyundai Seoul and Pangyo stores. Shinsegae Department Store moved faster, introducing the VIP Red tier in 2017 for customers spending over 4 million KRW, offering up to 7% discounts on fashion and accessories, access to members bars, free parking, and more, lowering the entry barrier for VIPs and attracting the MZ generation.

This strategy has been highly successful amid the liquidity expansion and asset price increases during COVID-19, producing numerous 'Young & Rich.' The average age of VIPs at major domestic department stores has significantly decreased. The proportion of 20s and 30s among VIPs at the three major department stores (Lotte, Shinsegae, Hyundai) rose from about 15-19% before COVID-19 in 2019 to 25-31% this year.

Even as the endemic era (periodic outbreaks of infectious diseases) fully unfolds and department stores face growing concerns, the importance of the 20s and 30s demographic remains substantial. While 'revenge consumption' centered on luxury goods is declining and spending is dispersing to overseas travel, factors such as reduced asset inflation and economic recession fears are dampening consumer sentiment. As a result, luxury sales growth rates at the three major department stores in Q1 this year remained in the single digits, contrasting with around 30% growth during the same period last year. The high baseline due to consumption concentration during COVID-19 has caused overall performance to slow this year.

Nevertheless, the department store industry's efforts to attract the MZ generation are intensifying. The lifestyle changes of the younger generation have already been confirmed through shifts in consumption patterns, and the fact that the 20s and 30s will be the main future customers remains unchanged. Accordingly, each company is increasing investment to transform into a new-concept department store catering to the new consumer groups of the endemic era.

Lotte Department Store is focusing on gathering the MZ generation by aiming to make its Jamsil store, one of the top nationwide in sales, a 'holy ground for pop-up stores.' The experiential tennis pop-up store 'The Court,' held this month at Lotte World Mall in Songpa-gu, Seoul, attracted over 50,000 visitors within three days of opening, continuing its success from last year. This year, 388.9 billion KRW will be invested in store renovations.

Shinsegae Department Store has set up a 'New Contemporary Specialty Hall' targeting the 20s and 30s at its Gangnam store and is creating MZ-exclusive halls at major stores nationwide, such as 'Hyper Ground' at Centum City, to attract customers. Plans include renovating the young fashion specialty hall at Gangnam in the second half of the year and expanding the SSG.com Shinsegae Department Store Mall's Shinbaek Gift Hall to continue growth both online and offline.

Hyundai Department Store is boldly giving up retail space to create various cultural spaces within department stores and is attracting numerous brands appealing to the 20s and 30s, successfully spreading the 'The Hyundai' brand nationwide. After The Hyundai Seoul, stores have opened in Daegu, and in Gwangju, the brand is being attached to a complex shopping mall. MZ specialty halls have been introduced at Pangyo and Mokdong stores. This year, 260 billion KRW will be invested to renovate the Apgujeong main store and Pangyo store. Galleria recently purchased a building near its luxury hall in Gangnam-gu, Seoul, for 89.5 billion KRW, planning to unveil an experimental complex space for the MZ generation there by 2027.

Experts expect the trend of expanding MZ customers by department stores to continue as part of securing future customers and broadening the customer spectrum to find breakthroughs after the endemic. Professor Seo Yong-gu of the Department of Business Administration at Sookmyung Women's University said, "Consumers, including those in their 20s and 30s, now perceive department stores not just as shopping spaces but as places leading culture and entertainment. Especially Generation Z, born after 1995, yearns for offline experiences, so department stores will accelerate changes by providing overwhelming in-store experiences to them."