Korea's three department store chains all posted double-digit operating profit growth rates in the third quarter (July–September). Revenue rose by around a single digit, but profit grew faster thanks to big-spending foreign tourists. However, with a stronger won and a weak yen, growth slowed markedly in the second half. The fourth quarter, the year-end peak season, is expected to be a test of whether the "foreign tourist boom" continues.
According to Shinsegae(004170) on the 10th, Shinsegae Department Store's third-quarter revenue was 689.2 billion won and operating profit was 103.7 billion won, up 10.7% and 23.5%, respectively, from a year earlier. Lotte Department Store, which released results earlier, logged revenue of 808.1 billion won and operating profit of 112.9 billion won, marking its highest-ever third-quarter revenue. Hyundai Department Store(069960) posted revenue of 614.5 billion won and operating profit of 114.1 billion won. Operating profit at all three companies, which hovered in the 80 billion won range in last year's third quarter, topped 100 billion won after one year.
Foreign shoppers drove the profit gains. At Lotte Department Store's main branch, foreigners accounted for 29% of third-quarter sales, up 10 percentage points in a year. During the same period, Shinsegae Department Store's foreign-customer sales jumped 71%. The Myeong-dong main store in Seoul, a magnet for foreigners, showed the fastest growth among all locations. Demand from foreigners has spread beyond luxury goods into higher-margin fashion, lifting profitability.
But the growth has cooled in the second half. Combined operating profit for the three companies rose 49% year over year in the first half, but only 29% in the third quarter. The deceleration largely reflects slower growth in foreign-customer sales. Shinsegae Department Store's foreign-sales growth rate fell to 71% in the third quarter from 149% in the second, dropping to less than half. Luxury sales, which had powered department store results in the first half, also slowed noticeably.
The slowdown became clearer in the fourth quarter. Industry officials say department stores' sales growth rate, which stayed strong through September, weakened in October. The Chuseok holiday, which fell in early October last year, came in September this year, shifting the holiday boost into the third quarter. It is also a tough comparison against last year's fourth quarter, when early cold weather lifted fashion sales.
◇ On top of a weak yen… exchange rates are the biggest wildcard
The biggest swing factor is the exchange rate. The won-dollar rate, which was 1,549 won at the end of June, fell to the 1,330-won range on the 10th. In the first half, the weak won made some luxury brands' Korea prices among the cheapest in the world, but as the won strengthened, that price appeal faded. Foreign tourists now have less reason to buy luxury goods specifically in Korea.
A weak yen added to the pressure. The won per 100 yen fell to 843 won last month, the lowest in 18 years and nine months. More Koreans are buying luxury goods during trips to Japan, and foreign tourists are weighing Korea against Japan. A stronger won is reducing foreign tourist visits, while a weak yen is prompting Koreans to spend in Japan—creating a double squeeze.
Department stores are going all-in on the Christmas shopping rush. Lotte Department Store decorated its main store's exterior with 20,000 bulbs. In December, it will unveil the district's largest media facade at Myeong-dong Young Plaza and open a Christmas market at its Jamsil store. Shinsegae Department Store screened Christmas videos on the "Shinsegae Square" exterior of its Myeong-dong main store and expanded its "Holiday Market" for seasonal items and gifts from two locations last year to four this year. Hyundai Department Store unveiled "H Village" at The Hyundai Seoul, recreating New York streets from the 1980s–1990s. It enabled foreigners to book in advance on overseas travel platforms and set up a dedicated on-site waiting desk for foreign visitors. Even in the third quarter, when the exchange rate moved down, monthly foreign arrivals topped 2 million. The idea is to capture as much of that demand as possible during the year-end to limit the slowdown.
A department store industry official said, "It's true growth slowed in October. But foreign tourist inflows are continuing and we still have the Christmas boost ahead, so if the current trend holds, we should be able to defend the fourth quarter as much as possible."