"Luxury Sales Soar and Foreign Tourists Flock, Yet Stock Prices Halve for Three Major Department Store Chains — Why?"

Lotte, Shinsegae, and Hyundai Record Double-Digit Operating Profit Growth in First Half
Stock Prices Drop up to 50% from Peak
Concerns Mount Over Possible "Peak-Out"

After experiencing an unprecedented boom in the first half of this year, the department store industry has seen its valuations drop significantly in the second half. While overall performance remains strong this year, driven by the increase in foreign tourists and robust luxury goods consumption,analysts point out that the possibility of slowing growth next year has raised concerns about a 'decoupling' between performance and stock prices.

According to the department store industry on September 11, the stock prices of the three major department store chains—Lotte, Shinsegae, and Hyundai—underwent a sharp correction starting in mid-June. Lotte Shopping reached an intraday high of 211,000 won on June 17, marking its 52-week record, but has since fallen to the 110,000 won range. Shinsegae also peaked at 798,000 won on June 17 and is now trading at around 390,000 won, nearly a 50 percent drop. Hyundai Department Store reached an intraday high of 222,000 won on June 18 but recently fell below 100,000 won. Compared to their peaks, the share prices have dropped by about 50 percent.

The three department store chains recorded double-digit profit growth in the first half of this year. Lotte Department Store posted an operating profit of 310.9 billion won in the first half, up 59.4 percent year-on-year. During the same period, Shinsegae Department Store recorded an operating profit of 249.9 billion won, a 39.7 percent increase, while Hyundai Department Store's operating profit reached 246 billion won, up 47.7 percent. The combined operating profit of the three department store companies stands at 806.8 billion won.

The reason share prices have moved in the opposite direction from operating results is that the market has adjusted its expectations for next year's performance downward. While luxury goods and foreign consumer spending—drivers of higher department store sales in the first half—are still showing strong growth, the overall sales growth rate has been gradually declining since peaking in May. In fact, Lotte Department Store posted a year-on-year sales growth rate of 20 percent in May, but this dropped to 15 percent in August. Shinsegae Department Store and Hyundai Department Store also saw their sales growth rates fall from 16.5 percent and 21 percent, respectively, to 15.5 percent and 8 percent. Analysts note that the base effect from last year has faded, and the early purchasing demand that was spurred by anticipated luxury price hikes earlier this year is normalizing as well.

Consumer sentiment, which has supported department store demand in the second half, has also started to lose steam. According to the Bank of Korea, the Consumer Composite Sentiment Index (CCSI) for August was 104.5, down 2.3 points from the previous month. Consumer sentiment, which had risen to 106.8 in July, reversed course within just a month.

The potential for a stronger won is another variable. This year's high department store growth rate was significantly influenced by increased foreign consumption, but if the won appreciates, the appeal of purchasing luxury goods in Korea may decrease for foreign visitors. In addition, the so-called 'wealth effect' generated by rising stock markets may not repeat with the same intensity as it did this year, adding another element of uncertainty.

Baek Jae-seung, a researcher at Samsung Securities, stated, "Even taking into account the base effect from the substantial growth in the second half of last year, the sales growth rate for department stores in the latter half of this year will likely be lower than in the second quarter. The recent market correction may also weaken the wealth effect related to department stores."

However, some argue that the recent sharp correction in stock prices is excessive. The fundamental performance of the three department store chains has not deteriorated—they are still growing—and the drop in stock prices has also significantly relieved valuation pressure. Joo Younghoon, a researcher at NH Investment & Securities, commented, "Department store share prices appear to have adjusted on concerns that the wealth effect will weaken due to the recent market downturn. However, there has been no substantial change in fundamentals, so the magnitude of the decline may be excessive."

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