As high inflation and an economic slowdown drag on, the retail industry is responding to weaker consumer spending by focusing on ultra-low-priced, large-volume products and private brands (PB). Strategies centered on price competition are extending beyond food and household goods to fashion.
According to related industries on Jan. 15, E-MART recently unveiled Wow Shop, an ultra-low-price household goods select shop. Wow Shop adopts a business model with a uniform price policy of 5,000 won or less and is characterized by offering lower prices than the existing PB brand No Brand.
In Aug. last year, it introduced a new PB, Ok Price (5K Price), for the first time in 10 years after No Brand. Ok Price is a brand focused on fresh and grocery items, setting all items between 880 won and 4,980 won to lower the price entry barrier.
Lotte Mart is strengthening price cuts and uniform pricing strategies through its PB brands Oneul Joeun and Yori Hada. Sales are increasing mainly for essential consumer goods such as milk, wet wipes, and sauces. Homeplus Co. is also pushing its PB brand Simplus to introduce snacks, frozen foods, and beverages in the 1,000-won range, while expanding into the hygiene products category.
Convenience store chains are also speeding up efforts to strengthen ultra-low-price PBs. GS25, operated by GS Retail, has expanded its ultra-low-price Real Price lineup to about 120 items, and last year's annual sales surged 193.7% from a year earlier. CU's 990-won items and other PB products under the Deuktem Series by BGF Retail surpassed 100 million in cumulative sales about five years after launch.
Warehouse clubs that sell large-volume products in bundle units also remain popular. Thanks to bulk purchases that lower unit costs, shoppers can buy food and daily necessities relatively cheaply. Last year, Costco Korea's sales rose about 12.1% from a year earlier to roughly 7 trillion won, overtaking Homeplus Co., which had been the No. 2 big-box retailer.
E-MART Traders is also showing strong growth. In the first through third quarters last year, Traders' cumulative gross sales rose 5.7% on-year to 2.8647 trillion won, and operating profit jumped 26.9% to 112.7 billion won. In the third quarter, its quarterly sales topped 1 trillion won for the first time.
In fashion, as more consumers prefer reasonable price points, price cuts and product enhancements are continuing, led by SPA (fast fashion; vertically integrated manufacturing and retail). Global SPA brand Uniqlo surpassed 1 trillion won in annual sales in the Korean market for two consecutive years. Homegrown SPA brand Topten, run by SHINSUNG TONGSANG, is also expected to have exceeded 1 trillion won in sales last year, according to some estimates.
Consumers are also flocking to off-price stores operated by fashion retailers. Off-price stores directly purchase brand inventory and sell it at higher discount rates than outlets, characterized by direct buyouts of past-season stock and warehouse-style operations to reduce expense.
Most of last year's sales at NC Fix, run by E-Land Retail, as well as Shinsegae Department Store's Factory Store and Hyundai Department Store's Offworks, recorded double-digit growth. Stores by Shinsegae and Hyundai Department Store mainly handle luxury or contemporary (premium) brands and have gained traction through word of mouth.
Consumer burdens amid high inflation are expected to persist for the time being. According to the Korean Statistical Information Service (KOSIS), last year's living cost index rose 2.4% from a year earlier, outpacing the consumer price index increase of 2.1%. With the living cost inflation rate exceeding consumer inflation for five straight years, analysts say consumers are feeling a greater burden from prices in their daily lives.