[Record-Breaking Domestic Cold Wave]②Only 'Jupjup' for Special Deals... Domino Crisis from Fashion Market Onward

Q3 Domestic Sales Performance Analysis of Distribution Companies
Fashion Industry Hit by Recession: "Survival is the Goal"
Department Stores with High Fashion Share Also See Performance Decline
Convenience Store Growth Stagnates... Large Marts Experience Negative Growth

Earlier this month at an outlet in Paju, visitors crowded both inside and outside a white tent set up among the quiet luxury fashion brand stores. At this permanent discount shopping mall, which offers the largest discounts on clearance stock items, the busiest display was the one with T-shirts priced at just 19,900 won. As soon as a customer checked the size and put the T-shirt down, another visitor quickly snatched it up. An industry insider said, "Only special-priced items are sold during large-scale discount events," adding, "These days, it is difficult to meet sales targets even with low margins and high volume."

Since the COVID-19 pandemic, the domestic retail industry has been struggling with economic stagnation caused by the 'triple burden' of high inflation, high interest rates, and high exchange rates, leading consumers to cut back on spending. Although year-round discount events were held, the results fell short of expectations. Instead, price discount wars led to declining profitability across department stores, large supermarkets, and convenience stores. The fashion market, which is not a necessity, took the hardest hit from the domestic demand slump, to the extent that "survival is the goal this year."

Customers visiting Lotte Premium Outlet, provided by Lotte Department Store.

Thinner Wallets... Direct Hit to the Fashion Industry

On the 18th, Asia Economy analyzed the performance of Samsung C&T Fashion Division, Handsome, LF Fashion Division, and Shinsegae International, finding that their combined sales in the third quarter of this year totaled 4.4515 trillion won. This represents about a 3% decrease compared to last year's sales of 4.5852 trillion won. The prolonged recession led to fewer consumers purchasing clothing and fashion products, dragging down sales.

Brands operated by major fashion companies are mainly located in department stores, where the average unit price is relatively high. Although not luxury brands, their mid-to-high price range meant they were hit hardest by the decline in consumer spending.

As sales decreased, profits also fell. The total operating profit was 243.1 billion won, down 40 billion won (14%) from last year's 283.1 billion won. Except for LF Fashion, Samsung C&T Fashion, Handsome, and Shinsegae International saw significant profit declines. Many companies had operating profit margins below 5%. Samsung C&T Fashion recorded an operating margin in the 8% range, LF and Handsome in the 4% range, and Shinsegae International around 2.9%.

It is also difficult to expect strong winter season performance, which accounts for half of fashion companies' sales. Although temperatures dropped below freezing this month, abnormal weather continued, with daytime temperatures reaching 20 degrees Celsius last month, the prime shopping season for winter wear, leading to sluggish sales. The 'December 3 emergency decree' incident further dampened consumer sentiment, negatively impacting the fashion industry. A fashion industry insider said, "At the beginning of the year, we thought the economy would improve in the second half, but it seems difficult until the first half of next year," adding, "We need to sell a lot of winter padding and coats to make a profit, so we are worried."

On the other hand, cost-effective SPA (Specialty retailer of Private label Apparel) brands are experiencing soaring sales. Uniqlo (FRL Korea), a company with an August fiscal year-end that was hit hard by the 'No No Japan' movement since 2019, recorded sales of 1.0602 trillion won (September 2023 to August 2024), surpassing annual sales of 1 trillion won. This is about a 15% increase from last year's 922 billion won. Operating profit rose by about 8 billion won to 149 billion won from 141.3 billion won the previous year. The operating profit margin was 14%, higher than other fashion companies. Domestic SPA brands are also expected to perform well. Shinseong Tongyang's 'Top Ten' is also expected to approach 1 trillion won in sales this year.

Fashion Market Slump... Even Department Stores Frown

The fashion industry's slump extended to department stores. The three major department stores?Lotte Department Store, Shinsegae Department Store, and Hyundai Department Store?all saw their third-quarter results decline this year. Operating profits, which indicate earnings from business activities, decreased by 8% for Lotte, 5% for Shinsegae, and 11% for Hyundai compared to the same period last year. Sales slightly increased only for Shinsegae (2.5%), while Lotte (-0.8%) and Hyundai (-2.1%) showed declines. Looking at cumulative third-quarter figures, the drop in operating profit is clear. Lotte Department Store's cumulative operating profit for the third quarter this year was 225.2 billion won, down 19.4% from the previous year.

This was due to the prolonged late summer heat this year, which led to poor sales in the fashion category. Clothing sales in department stores for outdoor wear, sportswear, women's and men's fashion, children's wear, and golf account for 40-50% annually, nearly half of total sales.

As a result, department stores, considered the 'head of distribution,' have become overshadowed by convenience stores. According to monthly retail sales trends surveyed by the Ministry of Trade, Industry and Energy, convenience stores accounted for 17.9% of total retail sales in September. This surpassed department stores (17%), large supermarkets (12.7%), and corporate supermarkets (SSM, 2.8%), making convenience stores the highest revenue share among offline retail channels.

However, convenience stores are also showing signs of stagnation due to market saturation and the domestic demand slump. Operating profits are shrinking. GS Retail's convenience store division, which operates GS25, the top convenience store chain, recorded a cumulative operating profit of 164.1 billion won in the third quarter this year, a 1% decrease from 165.9 billion won a year earlier. GS Retail's annual operating profit shrank from 256.5 billion won in 2019 to 218.3 billion won last year.

The large supermarket industry has also been hit by the domestic demand slump. Additionally, the e-commerce sector's strengthening of quick commerce services such as dawn delivery has gradually eroded their performance. Emart, the largest player in the large supermarket sector, posted improved results in the third quarter this year on a standalone basis compared to the same period last year. However, when looking solely at the discount store division, which is their core business, the story is different. Emart's discount store division recorded cumulative third-quarter sales of 8.8642 trillion won and operating profit of 66.8 billion won, down 2.5% and 8.6%, respectively, from the previous year. Due to worsening performance, Emart conducted voluntary retirement twice, in March and this month. This is the first time since its founding that Emart has held company-wide voluntary retirement. Lotte Mart also saw its cumulative third-quarter sales and operating profit decline by 4% and 2.4%, respectively, compared to the previous year.

The only domestic retail channel to show growth was Coupang. Coupang exhibited even steeper sales growth this year compared to last year. In the third quarter, sales reached 10.69 trillion won, a 32% increase from 8.1038 trillion won the previous year. It maintained rapid growth with 28% and 31% growth rates in the first and second quarters, respectively.

Although there were concerns that the growth might slow due to the paid membership (Wow) fee increasing from 4,990 won to 7,890 won after about two years, Coupang's growth engine did not falter. As of the third quarter, the number of active customers purchasing Coupang products was 22.5 million, an 11% increase from 20.2 million in the same period last year. This is attributed to more people using Coupang instead of visiting large supermarkets for daily necessities. Analysts say Coupang's growth is driven by low prices and fast delivery right to the doorstep.