Domestic department stores succeeded in improving earnings in the fourth quarter last year. Consumer sentiment is gradually reviving and the influx of overseas tourists is increasing. In contrast, hypermarkets and convenience stores saw only limited recovery, and duty-free shops remained sluggish under the impact of a strong dollar.
According to the retail industry on the 18th, the department store industry in the fourth quarter last year expanded sales centered on luxury goods and fashion, improving profitability. In particular, large stores in key commercial districts are seen to have fully benefited from the inflow of foreign tourists, boosting results.
According to FnGuide, Lotte Shopping's fourth-quarter last year sales forecast on a consolidation basis is 3.5958 trillion won, with operating profit of 238.4 billion won. The sales growth rate is around 3.4%, but operating profit is expected to surge more than 60% from a year earlier.
Shinsegae and Hyundai Department Store also show a clear trend of improved profitability. Shinsegae's fourth-quarter last year sales and operating profit are estimated at 1.9367 trillion won and 164.4 billion won, respectively. Those are increases of 6.3% and 58.7% from a year earlier. Hyundai Department Store is expected to post fourth-quarter last year sales of 1.1339 trillion won and operating profit of 129.5 billion won. Sales fell 3.5%, but operating profit is estimated to rise 20.2%.
Heo Jena, an analyst at DB Securities, said in a recent report, "Department stores switched to strong growth in sales centered on luxury goods starting in September last year, and sales are also occurring across other categories such as fashion and accessories." He added, "It is also positive that department stores in core commercial districts are emerging as shopping landmarks for foreign tourists to experience 'K-culture,' with mega-sized stores seeing high sales growth."
This trend is also evident in tallies by the Ministry of Trade, Industry and Energy. In Nov. last year, department store sales rose more than 12% from a year earlier, the highest growth among offline retail channels.
By contrast, hypermarkets appear not to have completely escaped weak same-store sales even in the fourth quarter last year. Although consumer sentiment showed some signs of recovery, the pace of translating it into actual expenditure was slow, so there was no rebound on par with department stores. However, cost savings and restructuring effects suggest an improving trend on the profit-and-loss side.
FnGuide's fourth-quarter last year outlook for E-MART shows sales of 7.4004 trillion won, up 2.1% from a year earlier, and operating profit of 110.7 billion won, swinging to a profit from a loss of 77.1 billion won a year earlier.
The industry is also pinning hopes on a spillover effect from Homeplus Co.'s restructuring. As Homeplus Co. pursues a plan to close about 40 stores over the next six years, demand may shift to nearby hypermarkets, analysts say. An industry official said, "If store closures materialize, nearby competing stores could absorb a certain portion of the demand."
The convenience store sector also received a decent report card in the fourth quarter last year, but assessments say it is hard to conclude that it fully felt the impact of domestic demand recovery.
GS Retail, which operates GS25, is forecast to post fourth-quarter sales of 3.0317 trillion won and operating profit of 59.9 billion won. Sales growth was limited to the 2% range, but operating profit is expected to jump 309% due to a base effect from last year's retirement benefit provision.
BGF Retail, which operates CU, is also estimated to have recorded sales of 2.3003 trillion won and operating profit of 56.3 billion won in the same period. Those are estimated increases in the 3.8% and 9% ranges, respectively, from a year earlier.
As the effect of the consumption coupons that had supported results through the third quarter faded, sales growth slowed, but with year-end seasonality, the trend turned upward again in December, analysts say.
According to the Bank of Korea, the consumer confidence index (CCSI) hit a record high of 112.4 in Nov. last year for the first time in eight years and remained at an optimistic 109.9 in Dec. However, the securities community believes it will take more time for this improved sentiment to spread to convenience store consumption.
The duty-free sector faces even tougher conditions. Despite recovering travel demand, China's economic slowdown, exchange-rate burdens, and changes in sales commission structures are weighing on results.
Hotel Shilla's fourth-quarter last year sales forecast is 1.0331 trillion won, with operating profit of 12.7 billion won. The industry cites the continued strong-dollar environment as the biggest drag, eroding duty-free price competitiveness. Still, some expect room for profitability improvement if the increase in foreign tourists continues and adjustments to Incheon Airport duty-free rents materialize.