Despite high inflation and weakened consumer sentiment, major domestic department stores are expected to keep up solid results in the second quarter. The prolonged weakness of the won has boosted foreign tourists' demand for luxury goods in Korea, and profitability has improved as sales of high‑margin products such as apparel and fashion expanded. Along with growing foreign consumption, a "wealth effect" among high‑income Koreans is seen keeping the department store sector strong for the time being.
According to FnGuide on the 8th, Shinsegae's second‑quarter consensus (average of securities firms' forecasts) calls for sales of 1.796 trillion won and operating profit of 149.4 billion won, up 6% and 98%, respectively, from a year earlier. Lotte Shopping is expected to see sales of 3.5612 trillion won and operating profit of 109.9 billion won, up 6% and 170%, respectively, signaling a sharp improvement in profit.
However, Hyundai Department Store is estimated to log sales of 1.0495 trillion won and operating profit of 85.2 billion won, down 2.9% and 1.8%, respectively. The results reflect weakness at furniture and mattress subsidiary ZINUS. Analysts said the department store business itself showed solid growth on strong apparel sales and expanded sales of high‑margin products.
Rising foreign consumption is cited as a key driver of second‑quarter department store results. According to the Ministry of Culture, Sports and Tourism, inbound tourists totaled 2,028,000 in April and 1,946,000 in May, each up 19% from a year earlier. The Korea Tourism Organization said foreign card spending in Korea was 199.24 billion won in April and 212.22 billion won in May, topping 200 billion won on a monthly basis for the first time.
In particular, the weak won spurred foreign luxury spending, lifting department store results. Luxury brands operate global pricing policies, but exchange rates have made domestic prices relatively more attractive to foreigners. As sales of high‑ticket, high‑margin items such as luxury and fashion increase, operating profit growth is outpacing sales growth.
Foreign luxury spending is rapidly increasing at major flagship stores. At Shinsegae Department Store's main branch, the foreign share of luxury sales rose to 15.8% in January–May this year from 9.2% last year. At Lotte Department Store's main branch, foreign sales in January–May jumped 130% from a year earlier, with the foreign sales share expanding to 30% over the same period. In May, foreign sales in luxury jewelry doubled from a year earlier. At The Hyundai Seoul, May foreign luxury sales rose 140.6% year over year, and high jewelry sales climbed 220.1%.
The securities industry says expanded foreign consumption and a recovery in purchasing power driven by rising asset prices are underpinning department store results. Cho Sang‑hun, a research fellow at Shinhan Investment & Securities, said, "With the government's expansionary fiscal policy, growth in earned income, rising asset prices, and a surge in foreign sales, the department store purchasing‑power super‑boom that began in the third quarter of last year will continue throughout this year."
Joo Young‑hoon, an analyst at NH Investment & Securities, said, "As inbound foreigners continue to increase, growth at key stores such as Myeongdong and Busan remains strong, and a rebound in high‑margin fashion sales is further widening profitability." Baek Jae‑seung, an analyst at Samsung Securities, also said, "Buoyed by the wealth effect and rising foreign sales, department store sales growth will continue in the second quarter."
There are also rising expectations for improvements in non‑department store divisions. For Shinsegae, cost‑saving effects from withdrawing its duty‑free store at Incheon Airport's Terminal 2 are expected to be fully reflected from the second quarter, improving profitability. For Lotte Shopping, in addition to strong department stores, supermarkets are expected to benefit from the closure of some Homeplus Co. stores. Hyundai Department Store continues to face weakness at ZINUS, but base effects and restructuring benefits are expected to show in the second half.
The favorable business environment is also reflected in share prices. Shinsegae's stock rose 194.4% in about six months, from 231,000 won on Jan. 2 to 680,000 won at Monday's close. Over the same period, Lotte Shopping climbed 154.5% from 68,600 won to 174,600 won, and Hyundai Department Store gained 107.7% from 84,900 won to 176,300 won.
In step with the weak won and the rise in inbound foreigners, department stores are ramping up foreigner‑tailored services and experiential content. A department store official said, "As the weak won boosts price competitiveness and K‑culture's popularity adds to the momentum, the inflow of foreign customers is steadily increasing," adding, "We are seeing more customers who view department stores as a tourism course, not only for shopping but also for dining and exhibitions."