[Why&Next] Historic Domestic Demand Slump... Fashion Industry Faces 'Difficult Times'

Domestic Top 5 Fashion Companies All See Q2 Earnings Decline
Luxury and Spa Brand Demand Concentration... Consumer Polarization
Q2 Retail Sales Down 2.9%... Largest Drop in 14 Years

Major domestic fashion companies have fallen into the 'recession swamp.' As domestic demand continues to slump, high-priced fashion apparel, which is sensitive to economic conditions, has taken a direct hit. However, demand for 'cost-effective' products with high satisfaction relative to price has surged, clearly showing a recession-type consumption pattern.

According to the Financial Supervisory Service's electronic disclosure system on the 12th, the combined operating profit of five fashion companies (Samsung C&T Fashion, F&F, Handsome, Shinsegae International, Kolon FnC) in the second quarter of this year was 177.2 billion KRW, down 31.1 billion KRW (15%) from the same period last year. Sales decreased by 45 billion KRW from 1.939 trillion KRW to 1.8937 trillion KRW. Both sales and operating profits declined as the number of consumers buying clothes decreased.

Domestic Fashion Brands

Looking at each company's performance, the domestic fashion sector showed significant weakness. While sales of imported overseas luxury fashion centered on new luxury brands increased, the sharp decline in domestic fashion sales dragged down overall performance.

Shinsegae International and Handsome suffered the biggest blows, with operating profits falling by double digits. Shinsegae International's overseas and domestic fashion sales dropped by 5% and 12%, respectively. Although cosmetics recorded a 9% sales growth, the fashion business showed deepening sluggishness. In Handsome's case, the higher proportion of outlet sales led to a larger decrease in operating profit.

Samsung C&T Fashion experienced a relatively smaller decline in second-quarter performance thanks to strengthened competitiveness of imported overseas brands such as new luxury brands. Samsung C&T operates overseas brands including Ami, Maison Kitsun?, Jacquemus, Studio Nicholson, Ganni, and Lemaire. Among the top-selling products in the company's online mall, SSF Shop, during the first half of the year were Ami, Maison Kitsun?, and Lemaire, with Ami generating 1 billion KRW in sales from a single Polo T-shirt item.

Kolon FnC defended against performance declines with the outdoor market's semi-peak season, as Kolon Sports and Wac (golf brand) helped mitigate losses. Sales and operating profit decreased by 1% and 6%, respectively, marking the smallest decline among fashion companies. F&F's MLB brand recorded double-digit growth in the Chinese market, but MLB, Kids, and Discovery all showed declines in domestic and duty-free channels, impacting overall performance.

Second Quarter Retail Sales Decline for 9 Consecutive Quarters... Largest Drop Since Financial Crisis

The troubled domestic market is also confirmed by macroeconomic indicators. According to the '2024 Second Quarter Regional Economic Trends' released by Statistics Korea on the same day, nationwide retail sales in the second quarter of this year decreased by 2.9% compared to the same period last year. This marks the ninth consecutive quarter of decline and the largest drop in 14 years since the 4.5% decrease in the first quarter of 2009, right after the global financial crisis.

This is interpreted as a result of reduced spending due to continued high inflation. In fact, the recent fashion market shows extreme polarization. There is a concentration on high-priced luxury goods or affordable SPA brands and designer brands on fashion platforms. According to E-Land's SPA brand SPAO, sales volume in the first half of the year increased by 20% compared to the first half of last year.

Among domestic fashion sectors, the athleisure industry showed remarkable performance growth. Andar, an athleisure specialist brand operated by Eco Marketing, recorded second-quarter sales of 67.1 billion KRW and operating profit of 10.5 billion KRW, growing 9% and 50% year-on-year, respectively. Brand X Corporation, which operates Jeximix, posted second-quarter sales of 76.3 billion KRW and operating profit of 12.3 billion KRW, surging 30% and 88% during the same period. Over 90% of Brand X Corporation's sales come from Jeximix.

Both brands manufacture and sell men's clothing-focused golf wear, underwear, and swimwear in the domestic market, gaining a reputation for cost-effectiveness in the high-priced sportswear market. An Andar representative said, "Reflecting requests from male consumers, we significantly strengthened the men's lineup by incorporating self-developed high-performance fabrics with contact cooling functionality."

However, sales growth in overseas markets such as Japan, China, and Southeast Asia also supported the performance of both brands. Andar has positioned Japan and Southeast Asia as its primary bases. It opened its first global store in Singapore and plans to open a second store in the fourth quarter. In the Japanese market, it has been operating an online mall since January last year, with cumulative sales reaching 12 billion KRW. Brand X Corporation showed remarkable sales growth in the Chinese market, with 2.2 billion KRW in sales recorded for the first time. The company is actively targeting the market by aggressively opening offline stores. After opening the first store in Changchun on the 6th of last month and the second store in Tianjin on the 20th, it plans to open 100 stores by next year. Sales expected to be generated in the Chinese market this year are 8.5 billion KRW.

Oh Hyun-jin, a researcher at Kiwoom Securities, explained, "The female sports population in Asian markets such as Japan and China is rapidly increasing. The trend is shifting toward cost-effective consumption that pursues design satisfaction and comfort rather than being biased toward large brands."

Second Half Market Strategy: 'Beauty' and 'Overseas Expansion'

As domestic demand continues to slump, fashion brands plan to drive second-half performance through beauty businesses and overseas expansion. Handsome announced that it will acquire 100% of the shares of its cosmetics manufacturing subsidiary, Handsome Life & Co. Handsome Life & Co. specializes in manufacturing high-performance cosmetics. By incorporating it as a subsidiary, the company plans to present a diverse brand portfolio in addition to the existing premium brand 'Oera.'

2024 FW Paris Fashion Week System·System Homme Exclusive Presentation Scene. [Photo by Hanseom]

Handsome is also tightening its grip on the European market with its System and Time brands. Handsome opened a flagship store in Paris, France, for the System brand and a pop-up store at the Lafayette department store in France. In the future, it plans to open standalone stores in other major French department stores such as Printemps and Bon March?, as well as key department stores in Asia.

Shinsegae International is advancing its cosmetics business overseas. 'Amuse' and 'Swiss Perfection' are at the center of this effort. Since the recently acquired Amuse is gaining great popularity in North America, Southeast Asia, and Japan, it is expected to positively influence the overseas market development of other brands. Additionally, in the fashion sector, the company plans to strengthen imported overseas fashion by introducing more than three new global luxury brands and accelerate the Harley-Davidson license business.

F&F plans to focus on expanding sales as Discovery recently obtained licenses for 11 countries including China, Southeast Asia, and Taiwan. It plans to open its first store in Shanghai within the year. An F&F official said, "MLB continues its growth trend in China, and now Discovery can also operate there. We will brand Discovery as a premium lifestyle outdoor brand and target the Chinese market."

Kolon FnC also aims to boost sales in overseas markets. A Kolon FnC representative explained, "We will attract new customers through Kolon Sports' entry into Japan and the new entry of the designer brand Archivepke into Thailand."