"Recovery Expected in Department Store and Discount Store Sectors... Need to Increase Retail Weighting"

On September 5, Kiwoom Securities stated in a report that expectations are rising for a recovery in the department store and discount store sectors, suggesting that it is necessary to increase the weighting of the retail sector.

Park Sangjun, a researcher at Kiwoom Securities, believes that the department store sector could see accelerated growth during the consumption recovery phase, especially as the number of foreign visitors to Korea increases.

On the 31st, Myeongdong in Seoul is bustling with foreign tourists and citizens. Photo by Yonhap News Agency

Researcher Park explained, "In July, the total number of arrivals to Korea and the number of Chinese arrivals increased by 23% and 31%, respectively, compared to the same period last year," adding, "The global popularity of K-content such as K-Pop Demon Hunters and the growing interest in Korean culture are leading to a steady increase in foreign tourists visiting Korea."

He continued, "Recently, the growing number of foreign tourists are increasing their spending at department stores, focusing on luxury goods and food," and noted, "Major department store companies are continuing to see double-digit growth in sales to foreign customers."

As a result, he projected that there is a high possibility that the same-store sales growth forecasts for department store companies in the third quarter will be revised upward. Researcher Park analyzed, "While domestic consumption is rebounding due to the cumulative effect of interest rate cuts and a low base from the same period last year, inbound momentum is also strengthening," and added, "From the fourth quarter, the impact of visa-free entry for Chinese group tourists is likely to become evident, which could further amplify the inbound momentum."

For discount stores, competitors are expected to benefit from the accelerated closure of Homeplus stores.

Researcher Park said, "Homeplus, which announced the closure of 15 stores on August 13, plans to close 5 stores in November and 10 stores in December this year," and estimated, "By the end of this year, the number of Homeplus discount stores is expected to decrease by 18 compared to the beginning of the year, bringing the total to 108."

He went on to say, "Discount stores are expected to struggle with sales in the third quarter due to factors such as the timing of Chuseok and exclusion from consumption coupon usage. However, from the fourth quarter, the visibility of a sales rebound is high, driven by the recovery in consumer sentiment and the low base effect from last year," and added, "In the first quarter of next year, the impact of competitor store closures will be reflected earlier, which is likely to further accelerate the growth of same-store sales."

Researcher Park also pointed out, "Homeplus's decision for early closures suggests that its cash flow is not as strong as expected. If an M&A is not completed before regulatory approval by the 22nd, there is a possibility of further net reductions in store numbers," and concluded, "Expectations for restructuring in the discount store industry are likely to have a positive effect on the valuations of major discount store companies."