Luxury Spending "Cools" Amid Stock Market Volatility; Retailers Fear a "Strong First Half, Weak Second Half"

Luxury and fashion sales growth slowed at the three major department store chains in October
The stock market boom's impact: First-half growth loses steam
Discount retailers set to benefit, while convenience stores focus on improving profitability

Fueled by a booming stock market in the first half of 2026, the retail industry posted rapid growth. But as the second half began, retailers became increasingly concerned about the possibility of slowing consumption. The stock market rally boosted the wealth effect, driving a sharp increase in high-end spending on luxury goods and fashion. However, with stock market volatility picking up in the second half, there are concerns that consumer sentiment could weaken again. Some analysts expect retailers' results to follow a pattern of stronger performance in the first half and weaker performance in the second.

According to the department store industry on October 29, sales growth in the luxury and fashion categories at the three major department store chains - Lotte, Shinsegae and Hyundai - slowed somewhat in October compared with the first half. At Lotte Department Store, sales in both the luxury and fashion categories grew 15% from October 1 to 25. Over the same period, luxury sales at Shinsegae grew 10.4% and fashion sales rose 9%. At Hyundai Department Store, luxury sales increased 11.8% year over year, while fashion sales grew 13.5%. While growth from the first half continued, the pace had slowed somewhat.

Indeed, according to the Ministry of Trade, Industry and Energy, growth in luxury spending, which had driven department store performance in the first half, is showing signs of slowing. Sales growth for high-end foreign brands reached 38.1% in April, then fell to 37.3% in May, 34.3% in June, 28.9% in July and 15.6% in August. Luxury sales have not begun to decline, but analysts say it will be difficult to sustain the high growth seen in the first half.

The stock market rally is believed to have contributed significantly to department stores' strong performance in the first half of 2026 through the wealth effect. As the value of financial assets, including stock holdings, rose, consumers became more willing to spend on luxury goods and fashion, among the leading categories of high-end purchases. But as stock market volatility increased in the second half, concerns emerged that spending, particularly on high-end goods, could weaken.

This uncertainty is also reflected in the outlook for retail companies' results. According to financial data provider FnGuide, Lotte Shopping is forecast to post consolidated revenue of KRW 3.6094 trillion and operating profit of KRW 175.1 billion in the third quarter of 2026. Shinsegae is expected to report revenue of KRW 1.6845 trillion and operating profit of KRW 171.2 billion, while Hyundai Department Store is forecast to post revenue of KRW 1.0882 trillion and operating profit of KRW 86 billion. The companies are expected to maintain the strong performance seen since the first half, but analysts say growth will slow somewhat.

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Baek Jaeseung, an analyst at Samsung Securities, said, "Growth at existing department stores has slowed compared with the second quarter of 2026 due to a reduced wealth effect amid a stock market correction and a decline in the won-dollar exchange rate." He added, "Department stores will face a high comparison base starting in the fourth quarter, and there is also the possibility of one-off labor costs being recorded, so expectations for growth will inevitably need to be adjusted downward."

Nam Seonghyeon, an analyst at IBK Investment & Securities, also said, "It is somewhat early to forecast the fourth quarter, but growth in profits from the department store business is likely to slow." He cited three reasons: a high comparison base from last year; the effect of higher profit margins following strong apparel sales in the fourth quarter of 2025; and reduced consumer spending capacity due to limited increases in interest rates and asset values.

By contrast, large discount retailers are expected to post solid results in the third quarter, benefiting from increased sales as Homeplus restructures and a low comparison base from last year. According to FnGuide, same-store sales at Lotte Shopping's domestic discount stores are estimated to have risen by around 20% year over year, while sales at E-Mart's discount stores and Traders are each estimated to have increased by around 10%.

Convenience store operators are focusing on improving profitability as sales growth loses momentum. Same-store sales in the third quarter are expected to rise by just 1% to 2%. The decline in customer traffic due to summer heatwaves and frequent rain, as well as the comparison burden from consumer vouchers distributed last year, contributed to the slowdown. However, sales growth is understood to have partly recovered in September as people spent more time outdoors. Analysts expect third-quarter operating profit at BGF Retail and GS Retail to increase by 5.7% and 4%, respectively, year over year.

Yoo Jeonghyun, an analyst at Daishin Securities, said, "Despite the comparison burden, convenience store sales are growing, suggesting that market conditions for the sector are very strong." She added, "Sales to foreign customers currently account for only around 3%, but that share is expected to exceed 4% to 5% by the end of 2026, which should further strengthen sales growth and margin improvement."

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