The three major department stores, including Lotte, Shinsegae, and Hyundai Department Store, are also seeing their projected operating profit for this year increase by the day. With foreign tourists pushing and domestic consumption pulling, some say they will achieve results at the level of a "full load for the first time in a while."
On the 22nd, according to FnGuide, this year's operating profit forecast for the three corporations engaged in the department store business—Lotte Shopping, Hyundai Department Store, and Shinsegae—was estimated at 1.7036 trillion won. That is up 21.26% from last year's operating profit of 1.4049 trillion won. As operating profit forecasts steadily rise, stock prices are climbing as well. Since the start of the year, the average share price increase for Shinsegae, Lotte Shopping, and Hyundai Department Store has exceeded 50%.
There are two reasons department store results look strong this year. First is the foreign consumers who have begun visiting Korea. According to the Ministry of Culture, Sports and Tourism, 4.76 million foreign tourists visited Korea in the first quarter of this year. That was up 23% from a year earlier, marking a record high for a first quarter. In March, when BTS held its comeback concert at Gwanghwamun, foreign arrivals neared 2.06 million. A travel industry official said, "More foreigners are choosing Korea as a destination," adding, "we're on the path to tourism powerhouse Korea."
Another major factor is that the won's depreciation against the U.S. dollar has lowered the threshold for department store shopping for foreigners. According to the three department store companies, foreign tourists most often buy luxury goods, K-beauty, and K-fashion, in that order. A department store official said, "Certain products are easy to get domestically, and when you consider duty-free benefits, the prices are quite reasonable, so luxury goods sell best. K-beauty and K-fashion, as the names suggest, are cheapest in Korea and offer good value for money, so they sell well."
There are also projections that domestic consumption will increase further. These forecasts are emerging from within department stores rather than from the securities community. The reason is fuel surcharges, which have become burdensome. As international oil prices continue to soar due to the war involving the United States, Israel, and Iran, airlines are raising fuel surcharges, which is expected to dampen demand for overseas travel.
In May, the round-trip fuel surcharge on Korean Air Lines flights from Incheon Airport to U.S. cities such as New York, Boston, and Washington is 1,128,000 won. That is more than five times the 198,000 won charged in March, before the Middle East war. Asiana Airlines also set its May international round-trip fuel surcharge at 178,000–952,400 won. Compared with March's 29,200–157,200 won, that is up as much as sixfold.
When overseas travel spending falls, domestic demand—particularly department store spending—rises, as confirmed during the COVID-19 crisis. In the early phase of the COVID-19 outbreak, people shunned mass-gathering facilities like department stores and sales declined, but department store revenue surged from 2021. In 2021, the number of Korea residents traveling abroad was 1.22 million, one-tenth of 2019's 26.92 million. At that time, Lotte Department Store's operating profit rose 6.4% from the previous year, Shinsegae Department Store's rose 101.6%, and Hyundai Department Store's rose 51.2%.
A department store official said, "With the burden of fuel surcharges, people planning long-haul trips to Europe or the United States are turning to domestic travel, and that money is likely to be spent at department stores."
An increase in bonuses driven by the semiconductor boom is another reason expectations for department store results are rising. A debate is underway in Korean society over the principles for distributing excess profits earned by corporations. In this context, the Samsung Electronics union demanded 15% of total operating profit as a performance bonus, the SK hynix union asked for 10%, and the Hyundai Motor union demanded 30% of net profit. Some predict individual bonuses will reach the billions of won.
A Hyundai Department Store official said, "When Samsung Group employees receive bonuses, sales at nearby department stores go up," adding, "we expect record-breaking bonuses to bear fruit for department stores as well."
The securities community has a similar outlook. Yoo Jeong-hyun, an analyst at Daishin Securities, said, "Increased bonuses driven by strong results at major domestic corporations have boosted spending power, and a surge in inbound tourist sales has ushered in a new growth phase," adding, "even as concerns about a consumption slowdown grow with a prolonged war in the Middle East, the department store industry is likely to post solid growth this year."
Some talk about economic polarization and a war is raging abroad, but either way, assessments inside and outside the industry say department stores are surrounded by positive factors these days.