According to the Statistics Korea, last year, the domestic retail market size was estimated to be about 514 trillion won, with growth of about 1% compared to the previous year. This year, it is expected that low growth due to compounded crises, including the impeachment political climate, the second term of the U.S. Trump administration, entry into a super-aged society, abnormal weather, and minimum wage increases will be unavoidable. The Korea Chamber of Commerce and Industry forecasted the retail market growth rate at 0.4% for this year. CHOSUNBIZ examines what type of distribution is suitable for the low-growth era and what opportunities our retail industry should seize. [Editor’s note]
The Starfield COEX Branch’s Libraries are always bustling with tourists and shoppers. When this shopping mall displayed 50,000 books that it did not sell, pushing out the food court in 2018, it was considered a bold attempt. However, years later, creating experience and relaxation spaces in shopping malls has become a natural strategy.
The model that Starfield benchmarked when creating the Libraries is known to be Japan's Tsutaya bookstore. Tsutaya is a bookstore that started as a CD and DVD lending service in the 1980s. As the reading population decreased and the lending market shrank due to the growth of YouTube and Netflix, it transformed into a multi-cultural space that combined bookstores, cafes, restaurants, and grocery stores.
Tsutaya, which has spread the concept of 'selling a lifestyle rather than products' even across the sea to the Korean retail industry, has recently garnered attention by introducing a new format store. The 'Shibuya Tsutaya,' which reopened last April, completely discarded the remaining bookstore function and transformed into a mecca of intellectual property (IP) content.
◇ Tsutaya, which used to sell lifestyles, evolves into a store selling IP culture
When visited on 19th of last month, Shibuya Tsutaya had various experiential spaces established from the basement level 2 to the 7th floor. A pop-up store and exhibition space for experiencing animation content were set up on the basement level 1 and the 1st floor. The 5th floor featured a 'Pokémon Card Lounge' where guests could play trading card games. The usage fee is 1,650 yen (about 15,000 won) per hour.
There was also a space themed around pop artists. On basement level 2, there was entertainment space with idol content, and the 1st floor featured a pop-up store for the K-pop idol Stray Kids. A collaboration café with BLACKPINK's Rosé, who released the new song 'Apartment' with Bruno Mars, was temporarily operating on the 7th floor.
Levels 3 and 4 hosted a share lounge. From windows overlooking the Shibuya scramble crossing to personal spaces hidden among the bookshelves, there were spacious tables displaying design books and meeting rooms available. For an hourly fee of 1,650 yen, patrons could utilize seats, beverages, and snacks. Although it was puzzling to have a shared office in a space for enthusiasts, the figures placed throughout made sense. To working enthusiasts, this place seemed like the best workplace.
On the 6th floor, there is an IP bookstore that sells comic books, figures, and goods. It is said that 80% of the products sold here are limited editions that are not available elsewhere. The operating company Tsutaya, Culture Convenience Club (CCC), has collaboratively developed products with corporations holding IP.
The reason Tsutaya has undergone such changes is that the 'lifestyle suggestion' format does not work everywhere. While it works in upscale neighborhoods like Daikanyama, it requires something stronger to attract customers in the heart of Shibuya, where global travelers, shoppers, and office workers flood in. This strong content must be something that many people can immerse themselves in, regardless of nationality, age, or generation.
Tsutaya is currently experiencing a decline in performance due to a decrease in book sales. According to the Nihon Keizai Shimbun (Nikkei), the number of Tsutaya stores, which reached almost 1,000 in the mid-2010s, has now decreased to about 800. As of March 2023, CCC's annual sales were 108.6 billion yen (about 1.08 trillion won), less than a third of 2019 figures.
The CCC side expects that the daily visitor count for the new cultural facility, Shibuya Tsutaya, will increase from the previous 20,000 to 30,000. Additionally, it is estimated that 40% of total revenue will come from the events business, and 30% will come from the shared office. However, there are no plans to build another store of this concept elsewhere, as the values that consumers seek differ by region. Takahashi Hidenori, president of CCC, noted to Nikkei that, 'This place is a symbolic location like Tsutaya's transmission tower' and added, 'I want to pave the way for the future of retail business.'
◇ Department store = luxury goods? Not everyone can sell the same value
The fact that past success formulas do not apply universally applies equally to the Korean retail industry. In the case of department stores that were responsible for luxury consumption in the region, the ease of intercity movement has allowed some super-large stores in big cities housing luxury and renowned brands to share the market pie. Last year, 12 department stores surpassed an annual transaction amount of over 1 trillion won, including Shinsegae Gangnam and Lotte Jamsil, which surpassed 3 trillion won in transactions. However, there were 18 department stores in rural and suburban areas with annual transaction amounts below 200 billion won.
As a result, the number of small-scale department stores closing down in rural areas has been increasing recently. Lotte Department Store decided to restructure 10 of its lower-performing stores with smaller retail spaces and closed the Masan branch last June. Local department stores such as Grand Department Store and Seibu Department Store have also disappeared. Large discount stores are following a similar course.
Behind the decline of offline stores lies the undeniable trends of growing online shopping and economic downturns. However, some analyses suggest that all stores adhering to only one format is the problem. By aligning only with the success formula of 'department store = luxury goods', small stores that find it difficult to attract famous brands have lost competitiveness.
The industry is experimenting with new formats. Hyundai Department Store introduced the 'Connect' format, focusing on small to mid-sized regional stores, following the 'The Hyundai' in Yeouido, Seoul, which combines traditional department store and complex shopping mall features. The Connect Hyundai, which was renovated and reopened last September in Busan, a store that had the lowest sales, incorporated K-fashion brands and popular restaurants favored by younger generations instead of the luxury goods that symbolize department stores. It also attracted the first domestic cafe of Belgian luxury chocolate brand Godiva.
As a result, the sales of Connect Hyundai increased by 42% compared to the previous year in the month following its opening. The proportion of MZ generation (Millennials + Generation Z, born from 1980 to 2004) customers, previously in the 7% range, increased more than sixfold. With this boost, Hyundai Department Store plans to renovate the Chungcheong branch, which is the only department store in North Chungcheong and also among the lower-performing stores, into a Connect Hyundai this year.
There are places that have differentiated themselves by targeting niche markets similar to Shibuya Tsutaya. I-Park Mall in Yongsan, Seoul, attracted enthusiasts and 'kidults' (adults with children's tastes) with a strategy that utilizes the local characteristics of being a haven for electronics and games. Gundam, Teenieping, Pokémon, Nintendo, Cookie Run, Myungjo, and Nagano Market introduced their first character pop-up stores in Korea through this mall. For instance, the pop-up store of Nagano Market, which operated last September, saw 180,000 people trying to access the reservation server at once, causing it to crash. Some customers even purchased goods worth 2 million won.
Additionally, the shopping mall's rooftop area was equipped with a futsal field and the first Padel court in Korea. Padel, a sport that blends tennis and squash, is gaining popularity, especially in Europe. Thanks to these efforts, transactions at I-Park Mall rose from approximately 350 billion won in 2021 to about 540 billion won last year. Sixty percent of the membership customers are in their 20s and 30s.
An official at HDC I-Park Mall stated, 'When we first introduced the content, we had many character fan customers, but with the strengthening of food and beverage (F&B) establishments alongside pop-up content, we are attracting customers of various generations, including families,' and noted that 'in February, we will hold a 'Keyboard Festival', and later this year, we plan to complete the renovation of the living space on the 3rd floor.'
Kim In-ho, vice president of Business Insight, stated, 'In an era of hyper-competition, different strategies must be employed for each location and format,' citing the example of Takashimaya Department Store in Kyoto, which opened a 'Mario Museum' in collaboration with Nintendo, a representative corporation in Kyoto. He advised that smaller department stores should obtain customer loyalty through unique content.