As the number of foreign tourists visiting Korea rises and spending on luxury goods and fashion stays strong, department stores are seeing a record boom, but concerns are deepening internally. This year's steep growth could become a high base next year, and it is hard to say how long the foreigner-driven boom, sensitive to external variables such as exchange rates, will last. The three major department store groups plan to increase investment while they have cash on hand to prepare for the period after the boom and secure their next growth engines.
According to the retail industry on the 11th, the three major department store groups—Lotte, Shinsegae, and Hyundai Department Store—each posted strong results in the second quarter. Lotte Shopping's second-quarter department store business sales rose 9.2% on-year to 891.2 billion won, the highest for any second quarter. Operating profit jumped 77.6% to 119.7 billion won. Hyundai Department Store(069960)'s department store institutional sector sales also increased 9.1% to 643.8 billion won, the highest for a second quarter. Over the same period, operating profit surged 58.6% to 110.1 billion won.
Shinsegae Department Store posted second-quarter sales of 2.017 trillion won, up 15.5% on-year, and operating profit of 108.8 billion won, up 53.5%. In particular, first-half sales to foreigners reached 580 billion won, up 120% from a year earlier, while luxury sales rose 35%. The rise in foreign visitors and strong luxury and fashion spending drove growth at all three companies.
Even amid the boom, the three department store groups are accelerating investment in store renovations, new developments, and overseas business. Shinsegae is pushing large-scale projects such as the Gwangju terminal complex project, the Seoul Suseo store, and the Incheon Songdo store. In particular, about 3 trillion won is set to be invested in the Gwangju project by 2033. The move to sell Shinsegae International(031430)'s Cheongdam-dong headquarters building, considered a prime asset, is also seen as a step to secure liquidity needed for large-scale investments ahead.
Lotte is streamlining inefficient stores and assets while concentrating investment in core locations. After closing the Masan store in 2024, it shut the Bundang store in March and is also pursuing the sale of the Centum City store in Busan. It is essentially a selection-and-focus strategy of shedding low-profitability stores and spending on competitive hubs.
This year, Lotte Department Store's Incheon and Nowon stores completed major renovations and reopened. The Yeongdeungpo store is also pushing additional renovations contingent on securing a long-term operating right, and the Busan main store, the main store, and the Jamsil store plan phased refurbishments through 2032. It is also reviewing openings of five new complex malls, including the Cheongnyangni store.
Hyundai Department Store has also moved to strengthen competitiveness at key stores. After overhauling The Hyundai Seoul's food hall, it is preparing to renovate the Trade Center store's food hall, with work targeted to start next year. Hyundai Outlet Dongdaemun is undergoing its first renovation since opening in 2016. With foreign tourist demand in mind, it plans to revamp the food hall and fashion and beauty stores in stages.
They are also expanding new openings and overseas business. Hyundai Department Store has flagged openings for The Hyundai Busan in 2027, the Gyeongsan Premium Outlet in 2028, and The Hyundai Gwangju in 2029. It is also expanding overseas online and offline operations, centered on Japan, to diversify growth that had been concentrated in domestic stores.
Some say this is a good time for the department store industry to invest. According to Hana Securities, Hyundai Department Store's depreciation expense this year is estimated at 385 billion won, down 6% from a year earlier. It is the first decline in depreciation since 2012. Lotte Shopping is also seeing the amortization burden from existing stores ease. As the cost burden from past large-scale openings and renovations declines and results improve, their capacity to invest has grown.
The three department store groups have already experienced a sharp consumer slowdown right after a boom. After posting record results on the back of post-COVID revenge spending and luxury demand, growth fell off sharply in 2023 as high inflation and high interest rates combined with a consumption slump. Back then, they tried to rebound after results worsened by renovating key stores and strengthening luxury. This time, with strong results and cash on hand during a boom, they are investing preemptively to secure future growth engines.
As strong results continue this year, a high base could become a burden starting next year. Some say it may be hard to maintain today's growth rates if the increase in foreign tourists slows or if external conditions such as exchange rates change. Rather than relying on the foreigner-driven boom, the key will be to retain newly acquired customers and drive steady foot traffic through investment.
The annual outlook for the three companies this year is positive. According to financial information provider FnGuide, this year's sales are projected to rise 6% for Shinsegae and 3.9% and 1.3% for Lotte Shopping and Hyundai Department Store, respectively. Operating profit is expected to reach 774.6 billion won for Shinsegae, up 61.4%; 801.9 billion won for Lotte Shopping, up 46.6%; and 419.2 billion won for Hyundai Department Store, up 10.9%.