Brokerages are picking Shinsegae and Hyundai Department Store as the most preferred retail stocks this year. Analysts cited expectations that, on top of a strong dollar weakening the won, tensions between Japan and China will drive more Chinese consumers to turn to Korea.
According to the industry on the 11th, on the 9th, Shinhan Investment & Securities suggested overweighting department store stocks. Cho Sang-hun, an analyst at Shinhan Investment & Securities who wrote the report, said, "Department store purchasing power appears to have rebounded since the third quarter, and this trend will continue through 2026." NH Investment & Securities and Sangsangin Investment & Securities also issued similar outlook reports.
The biggest reason is that the strong-dollar trend continues. The won-dollar exchange rate has recently been in the 1,450–1,460 won range. Last year's annual average exchange rate was about 1,422 won, and there is growing expectation that this year's average will be higher. In this context, brokerages expect overseas travel demand to decline due to the weaker won. Kim Hye-mi, an analyst at Sangsangin Investment & Securities, said, "The exchange rate's rise will limit domestic residents' overseas spending." In other words, people are expected to spend more at home than abroad due to exchange rate burdens.
Another reason for expecting improved department store sentiment is that the domestic stock market's tone is not bad. The Korea Composite Stock Price Index (KOSPI) has recently approached the 5,000 level. It is up about 80% from a year earlier. A year ago, the KOSPI was around 2,500. A surge in Samsung Electronics and SK hynix, once called Korea's "national stocks," is also a factor. Over the past year, Samsung Electronics climbed from the 50,000 won range to the 130,000 won range. SK hynix also jumped from the 160,000 won range to the 700,000 won range, more than quadrupling. Analyst Kim Hye-mi said, "With rising values of stocks and real estate, an improvement in domestic consumers' sentiment is also expected."
Expectations are also building that Chinese travelers will choose Korea over Japan. President Lee Jae-myung, who wrapped up a visit to China through the 7th, received a warmer welcome there than in Japan earlier, raising the likelihood of friendlier China-Korea ties. Tensions between China and Japan have recently intensified.
Meanwhile, sales at Japanese department stores are falling noticeably. A prime example is Matsuya Department Store in Tokyo's Ginza, one of the destinations foreign tourists visit to buy luxury goods. According to Reuters on the 8th, sales at Matsuya's Ginza flagship in December last year fell 10.8% from a year earlier. The main reason cited was a sharp drop in duty-free sales due to the Chinese government's request to refrain from travel to Japan.
By contrast, foreign tourist spending at domestic department stores has been steadily increasing. Foreign tourists are estimated to have accounted for around 4%–5% of last year's sales at Hyundai Department Store, Shinsegae Department Store and Lotte Department Store. The share is expected to rise to around 6% this year. Cho Sang-hun, an analyst at Shinhan Investment & Securities, said, "Foreign spending is growing rapidly at key stores such as Myeong-dong and Gangnam," adding, "Department stores are emerging as a new consumption channel for foreign tourists visiting Korea in terms of 'experience-centric spending' and 'purchasing diversity.'"