Korea's retail giants struggle as consumers become stingy spenders

Korea's three major retail companies posted disappointing third-quarter earnings, as they grapple with a slump in consumer spending due to high interest rates and soaring inflation.

Shinsegae Department Store's Gangnam branch in southern Seoul [SHINSEGAE DEPARTMENT STORE]

Korea's three major retail companies posted disappointing third-quarter earnings, as they grapple with a slump in consumer spending due to high interest rates and soaring inflation.

Shinsegae Department Store reported a 0.9 percent decline in revenue for the third quarter compared to the same period last year at 604.3 billion won ($460 million). This marked the first decrease in sales following ten consecutive quarters of growth. Operating profit fell by 15.1 percent to 92.8 billion won.

Hyundai Department Store's Pangyo branch in Gyeonggi [HYUNDAI DEPARTMENT STORE GROUP]

Hyundai Department Store reported a 3.5 percent increase in revenue to 580.2 billion won in the third quarter compared to the previous year. However, operating profit decreased by 17.4 percent to 79.8 billion won.

Lotte's department store revenue in the third quarter amounted to 753 billion won, a 2 percent decrease compared to the same period last year. The company's operating profit plummeted by 31.8 percent to 74 billion won.

One of the key factors contributing to the underperformance of department stores is the lackluster performance in luxury goods, which typically constitute a significant portion of revenue.

"The challenging economic environment this year was somewhat expected, following the exceptional performance witnessed in the previous year during the Covid-19 pandemic, driven by a surge in retaliatory consumption," an industry insider said.

Lotte Department Store's main branch in central Seoul [LOTTE DEPARTMENT STORE]

Furthermore, unseasonably warm weather adversely impacted department store sales.

"The lingering heat of summer extending into September led to weak sales for autumn and winter products," an official from Lotte Shopping explained.

"Additionally, the rising prices and increasing fixed costs added to the pressure, causing declines in both sales and operating profits."

The downbeat performance of department stores also prompted significant personnel changes.

Shinsegae Group, for instance, executed a substantial reshuffle of its personnel, replacing 40 percent of its subsidiaries' representatives during an earlier-than-expected personnel announcement in September. This affected both department store and Emart representatives.

Following this move by Shinsegae, the Hyundai Department Store Group also underwent changes, with the replacement of top executives in three subsidiary companies, including its department store.

It is anticipated that the recent performance of Lotte Shopping will influence personnel changes scheduled for the end of this month.

Looking ahead, the fourth quarter holds the promise of potential recovery. Traditionally, this quarter, with the year-end season, represents the peak for department stores in Korea, featuring the nation's largest shopping festival, Korea Sale Festa, in addition to the holiday-driven sales and costly winter outfits.

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]