As Samsung Electronics and SK hynix Struggle, Is the “Solo Boom” of Department Stores Coming to an End?

Base Effect and Weaker Demand for Home Appliances and Luxury Goods
Growth Rates Slow After First-Half Peak
Consumer Sentiment Declines Amid Stock Market Adjustment

The growth momentum of department stores, which led the “solo boom” in the retail industry during the first half of this year, appears to be slowing. While the increasing number of foreign tourists visiting Korea and the wealth effect driven by a bullish stock market propelled department stores to around 20% sales growth in May, this figure peaked and has since dropped rapidly. With consumer sentiment also shifting downward in August, there is growing interest as to whether department stores can maintain high growth rates in the latter half of the year.

Store interior view inside the department store

According to the department store industry and securities market on September 1, the three major department store groups—Lotte, Shinsegae, and Hyundai—experienced a slowdown in their sales growth rates last month compared to recent highs. Lotte Department Store saw its sales growth rate, which was 20% year-on-year in May and June, drop to the 15% range for July and August. Shinsegae Department Store's growth fluctuated, falling from 24.8% in February to 16.5% in May, 14.4% in June, and 14.2% in July. Similarly, Hyundai Department Store recorded growth of 21% in May, 15% in June, 10% in July, and just 8% in August.

Analysts point to a base effect as the cause behind the rapid slowdown in department store sales growth rates. Until the second quarter of last year, comparable store sales growth at Lotte and Hyundai Department Store hovered around 1%, but in the third quarter, these jumped to the 3–5% range. Shinsegae Department Store, buoyed by the reopening of its flagship store, also saw comparable store sales growth hit 6% in the third quarter last year. Since the third quarter this year, the sales baseline for year-on-year comparison has been set much higher.

Another factor was the waning growth momentum of home appliances and luxury goods, which had lifted department store sales through July. In June and July, appliance sales posted the highest growth rates across all three chains thanks to a gift certificate rewards event from Samsung Electronics. However, in August, appliance sales declined year-on-year. For example, Lotte Department Store’s appliance sales surged 65% year-on-year in June, then only increased 15% in July, and merely 5% in August. The luxury goods category, a major contributor to department store sales, also experienced a pre-demand surge for brands like Chanel ahead of price increases in July, and subsequent slowdown. At Hyundai Department Store, luxury sales growth slowed from 36.5% in June to 32% in July and 30.7% in August.

Consumer sentiment, which supports department store spending in the second half of the year, has also begun to weaken. According to the Bank of Korea, the Composite Consumer Sentiment Index (CCSI) was 104.5 in August, down 2.3 points from the previous month. Consumer sentiment, which had risen to 106.8 in July, changed direction within just one month. All detailed indicators showed weakness: the Household Income Outlook CSI dropped by 1 point to 100, the Employment Opportunity Outlook fell 3 points to 86, and the Wage Level Outlook decreased by 1 point to 123. The Housing Price Outlook, which had increased for four consecutive months since March, also reversed, falling from 127 to 125.

As department stores are more sensitive than other retail channels to asset prices and changes in consumer sentiment, analysts believe there is a high likelihood that the growth of department stores will slow in the second half of the year.

Park Jongdae, a researcher at Hana Securities, commented, “Whereas department store growth in the first half of this year was mainly driven by the increase in foreign visitors to Korea and the wealth effect of stock assets, growth from the second half onward will depend on rising real estate asset values and the continued impact of foreign visitors. The stock market’s sharp decline has affected consumer sentiment in August, and the four-month streak of rising housing price expectations has also turned downward. These factors could have a negative impact on the department store channel.”

However, some caution against interpreting the slowdown in growth as the onset of an outright slump in department store spending. Comparable store sales continue to increase year-on-year, and inbound consumption from rising numbers of foreign tourists remains strong.

The timing of Chuseok in September also adds another variable. While large supermarkets see a surge in grocery purchases ahead of the holiday, department stores typically experience a significant consumption effect after the holiday due to the use of gift certificates. Therefore, analysts suggest that it is necessary to monitor post-Chuseok consumer trends, rather than judging department store growth based solely on September’s monthly sales.

Baek Jaeseung, a researcher at Samsung Securities, analyzed, “Concerns are rising over a slowdown in department store sales due to the diminishing wealth effect stemming from the recent sharp stock market correction. However, considering that exports—which have a strong relationship to consumption—remain solid, and demand from foreign tourists visiting Korea continues, we expect the favorable sales trend for department stores to persist.”

This content was produced with the assistance of AI translation services.