As the impeachment motion against President Yoon Suk-yeol was passed, the retail industry, which had been frozen since the emergency martial law on Dec. 3, let out a sigh of relief. The retail sector seems poised to embark on promotional marketing that had been postponed for the remaining two weeks of the year-end special period. However, analysis suggests that a quick rebound in sluggish domestic demand will be difficult.
◇Retailers targeting year-end special period again
According to industry sources on the 17th, following the passage of the presidential impeachment motion in the National Assembly on the 14th, the retail sector has begun targetting the year-end special period once more. December is a crucial month for determining annual sales in the retail industry. Retail companies that had been struggling with poor performance this year due to high exchange rates, sluggish consumption, and abnormal temperatures planned to create a Christmas ambiance in their stores starting in November and conduct large-scale discount events to boost sales.
However, shopping crowds decreased due to the emergency martial law on the 3rd, preventing the planned marketing from being executed properly. Additionally, exchange rates reached a two-year high, causing alarm in the travel and duty-free sectors.
According to a tally by TMAP and Meritz Securities on the vehicle movement trends by major department store locations, the traffic growth rate compared to the previous year for the three major department stores (Shinsegae, Lotte, Hyundai) was negative (-10%, -11%) on the Sundays of Nov. 24 and Dec. 1, before the emergency martial law. However, the traffic growth rate after the martial law on the 8th and 15th shrank to -26% and -18%, respectively. The emergence of the martial law doused the already dwindling number of shoppers.
In the past, during the 2016 National Assembly scandal that led to former President Park Geun-hye's impeachment, department stores also faced temporary consumption contraction. Between Nov. 17 and Dec. 4, before the National Assembly's vote on the impeachment motion (Dec. 9), the department store industry recorded a 6-year low in growth during the regular sale period. Specifically, Lotte Department Store saw a decrease of 0.7% compared to the previous year, while Hyundai Department Store fell by 1.2%.
A department store official noted, "Sales of outerwear have been sluggish due to warmer winter conditions, so sales did not reflect well until November. However, as temperatures began to drop in December, sales in the fashion institutional sector grew by 10-20%. Now that the impeachment motion has passed, we hope the year-end consumption atmosphere will improve further."
A representative from a major supermarket said, "In order for sales to rise, impulse purchases need to occur, but for now, only essential consumer goods are being sold," and added, "We are defending sales with the mindset of not letting them fall any further."
◇More difficult than 2016... Costco's Iksan store land contract also delayed
Industry insiders share a common view that it will take time for consumer sentiment to rebound. In the previous impeachment period under former President Park Geun-hye, the Consumer Confidence Index (CCSI), which was 102.7 in October 2016, fell to 94.3 after the impeachment motion passed in the National Assembly and dipped to 93.3 in January of the following year. The index began showing signs of recovery only after the decision to oust former President Park was made in March 2017 (97.0), surpassing 100 in April 2017 (101.8).
The Consumer Confidence Index is an indicator that assesses consumer attitudes toward the economy; a reading below 100 implies negative expectations regarding the overall economy.
In November, the Consumer Confidence Index was 100.7, down 1.0 points from the previous month. The industry believes that negative consumer sentiment amidst the impeachment situation will last at least through the first quarter of next year.
The issue is that the current retail sector is in weaker shape than during past impeachment periods. According to Statistics Korea, the growth rate of the domestic retail market was 4.8% in 2016, but is projected to remain in the 1% range this year. The two giants of the retail sector, Lotte Shopping and Shinsegae Group, have also entered emergency management due to poor performance. Lotte Shopping has offered voluntary retirement programs aimed at its subsidiaries facing significant losses, such as Lotte On and Lotte Duty Free, while Shinsegae Group has made cuts at Gmarket, SSG.com, and Shinsegae DF.
Investment attraction is also showing signs of tightening. The industry reported that the U.S. warehouse-style discount retailer Costco had planned to sign a land purchase agreement for the opening of its 20th store in Iksan, covering 37,000 square meters, this month. However, due to the effects of the impeachment situation, the contract schedule has been postponed to next month.
Samil Accounting Corporation recently stated in a report, "Post-pandemic declines in private consumption have not returned to previous levels," and indicated that while some recovery in domestic demand is expected next year due to interest rate cuts and the export spillover effect, the intensity of the recovery is likely to fall short of expectations.
Jeong Yeon-seung, a professor at Dankook University, projected that consumer sentiment will be challenging to improve until the ruling on the impeachment trial is completed in the first half of next year. Professor Jeong noted, "If it follows a similar timeline to past impeachment periods, there is a significant possibility of returning to normalcy; however, at present, it is difficult to predict the outcome," adding, "As long as uncertainty persists, a rapid recovery in consumer sentiment will be challenging."