Luxury goods sales at department stores slow in Q1 as overseas travel resumes

[Photo by Han Joo-hyung]

Luxury goods sales at South Korean department stores increased by a slower pace in the first quarter from a year ago as many consumers chose to take overseas holidays with the pandemic nearing its end.

According to multiple sources from the department store industry on Monday, luxury goods sales at the country’s three major department stores rose only by a single digit in the January-March period versus a year ago. Sales jumped 7 percent at Lotte Department Store, 7.8 percent at Shinsegae Department Store and 9.1 percent at Hyundai Department Store.

In March alone, luxury goods sales grew by double digits at the retailers thanks to the wedding season and new fashion items for the spring and summer season.

In January and February, the three department stores saw their luxury goods sales increase by less than 6 percent, slowing sharply from the growth seen a year earlier.

Luxury goods sales at Lotte Department Store had increased 30 percent in the first quarter of last year from a year ago, Shinsegae Department Store 37.2 percent, and Hyundai Department Store 30.6 percent.

The slowdown in growth comes as spending by luxury-savvy consumers has been hit by the weak economy. There was also a base effect from last year when luxury spending rose sharply amid a revenge spending during the pandemic.

Consumers can also buy luxury goods elsewhere, such as at overseas and duty free stores.

“Sales growth of the luxury goods category has slowed at the beginning of the year due to various reasons such as a diversified purchase channel,” said an unnamed official from a department store.

Industry insiders, in the meantime, note how the secondhand luxury market is gaining traction among Korean consumers that wish to buy luxury goods but at lower prices.

[Photo by Han Joo-hyung]

French luxury fashion house Chanel raised the price of its items four times last year in Korea. In March, the brand raised the price of its Small Flap Bag by 5.9 percent to 13.11 million won ($9,922). Italian luxury fashion house Prada also raised its price six times in 2021 and four times in 2022.

Slow sales of luxury goods at department stores are affecting their entire sales.

According to data from the Financial Supervisory Service, Shinsegae Department Store’s cumulated sales reached 462.2 billion won in the first quarter, up 4.33 percent from the same period a year ago. The figure is not even half of the 10.9 percent growth seen in the first quarter of last year.

Industry insiders expected this trend to continue as consumer sentiment remains sluggish.

The composite consumer sentiment index (CCSI) for March stood at 92 in March, below the 100 benchmark, despite growing expectations for recovery in the daily lives from the pandemic. A reading above 100 means people are more optimistic than pessimistic about the economy and vice versa for a reading below 100.

Some insiders expected that the luxury goods market in Korea will recover its growth in the second half of this year as VIPs at department stores that account for up to 40 percent of the entire sales are less affected by the economy.

“Once luxury demand increases, it does not shrink easily,” said an industry official who asked to be unnamed. “During an economic slowdown, consumers opt for secondhand luxury goods so it seems as if the overall demand has fallen.”