The won-dollar exchange rate stayed in the 1,300-won range for a second day, sliding to the lowest level in about 11 months. Department stores, which threw a "record-breaking" earnings party in the first half, are closely watching how consumer trends might shift. The biggest force propping up the department store boom has been a windfall from foreign tourists taking advantage of a high exchange rate, but that premise has begun to show signs of wobbling.
According to the Seoul foreign exchange market on the 21st, the won closed at 1,392.6 per U.S. dollar the previous day, down 5.1 won from the prior trading day. On a weekly closing basis, it was the lowest since Sept. 23 last year (1,392.6 won), about 11 months.
The exchange rate is a variable directly tied to department store earnings. In a high-rate phase, department stores, where customers pay in won, can actually become cheaper than duty-free shops that price in dollars, creating a "price inversion." That is why foreign tourists have flocked to luxury halls at department stores instead of duty-free shops. In fact, in the first half, foreign sales reached 640 billion won at Lotte Department Store, 580 billion won at Shinsegae Department Store, and about 500 billion won at Hyundai Department Store, with all three posting all-time highs. During the same period, the number of inbound foreign tourists was 10.7 million, up 21.3%, and foreign credit card tourism spending was 1.00389 trillion won, up 50.8%.
Accordingly, results were strong across the board. Lotte Department Store's cumulative first-half sales rose 8.7% year over year to 1.7635 trillion won, and operating profit jumped 59.4% to 310.9 billion won. Shinsegae Department Store posted sales of 1.4794 trillion won (14.9%) and operating profit of 249.9 billion won (39.7%). Hyundai Department Store also delivered record results, with net sales of 1.2764 trillion won (8.3%) and operating profit of 246 billion won (47.7%). According to the Ministry of Trade, Industry and Resources, department store sales in the first half increased 20.1%.
The three companies, which maintained growth through July, now face more complicated math as an external variable shifts while they pass through August, a vacation-season off-month. The period of particular concern is September to November. During this stretch, which overlaps with the fall/winter (F/W) season and regular sales, high-ticket items like outerwear and padded jackets sell in volume and determine annual results. A department store official said, "Spending concentrates on fall fashion in September to October and on winter coats like padded jackets in November," adding, "Because the unit prices are different compared with July to August, when short-sleeved items sell, the second-half share of sales is larger."
There are two channels through which a weaker exchange rate affects department stores. In the short term, there is the possibility of a slowdown in foreign sales. However, the industry sees the immediate impact as limited. While foreign sales did surge, the base effect was significant, and the share of total sales is still under 10%. In the mid to long term, if this stability in exchange rates continues, pent-up overseas travel demand among domestic customers who have driven core sales could revive, shifting money they spent at domestic department stores to duty-free and overseas spending.
Another pillar, the asset effect, has also turned shaky in the second half, some note. The KOSPI hit a record high of 9,114.55 on the close on June 22, then fell nearly 25% in two months. It rebounded to close at 6,852.58 on the 20th, up 381.41 points (5.89%), but volatility with daily swings over 5% has continued, leaving little room for complacency. Even if the index itself remains higher than last year, the industry says that as turbulence grows, the psychological cushion that has supported high-end spending could shrink.
A department store official said, "The exchange rate, the stock market, and things like the semiconductor rally were not internal department store variables like new store openings but changes in the external environment," adding, "As those have shifted, we are watching to see how consumption trends will appear in the second half." Another official said, "The key is whether the exchange rate and stock market adjustments are temporary fluctuations or a trend reversal."