[E-Daily Reporter KYUNG GYEYOUNG ] As the weak won—which had fueled the “Korea Bargain Sale”—has reversed course and strengthened, a shadow has fallen over department stores that had been benefiting from a surge in foreign visitors to Korea. With the domestic stock market’s upward trend also stalling, it has become difficult to expect a “wealth effect.” However, some analysts predict that earnings growth will continue steadily, particularly in the fashion sector, as winter approaches.

According to the Ministry of Trade, Industry and Energy and industry sources on the 6th, sales at Lotte, Shinsegae Co.,Ltd., and HYUNDAIDEPARTMENTSTORECO.,LTD. in July rose 17.9% compared to the same month last year. While this is three times the 5.1% growth rate recorded in July of last year, it marks a decline from the double-digit growth rates in the 20% range seen from April through June. The sales growth rate for August also remained in the 15% range, similar to July, based on figures from Lotte Department Store.

The growth rate of luxury goods sales, which had been driving the department store boom, also slowed slightly. At Lotte Department Store, the growth rate fell from 40% in June to 35% in July and 30% in August, while at HYUNDAIDEPARTMENTSTORECO.,LTD(069960), it dropped from 37% to 32% to 31% over the same period, indicating a downward trend in luxury goods sales growth. #Shinsegae Co.,Ltd recorded growth rates of 36% in June and 33% in July. This slowdown was partly due to the waning of demand from customers who had purchased items in advance ahead of price hikes by luxury brands concentrated in June and July.

The environment surrounding department stores is not entirely favorable either. The weakening of the won—which had driven Lotte, Shinsegae Co.,Ltd., and HYUNDAIDEPARTMENTSTORECO.,LTD. to set new records with foreign sales of around 600 billion won each in the first half of the year—has reversed. The won-dollar exchange rate, which had risen to the 1,560 won range, has recently fallen to the 1,350 won range, indicating a strengthening won. This has raised concerns that foreign tourists, who had been enjoying “Korea’s bargain sale” thanks to the weak won, may once again tighten their purse strings.

Shares of “Samjeon Nix” (SamsungElectronics and SK hynix), which had been driving the domestic stock market’s rally, have also stalled, making it difficult to expect a “wealth effect” from the stock market. According to the Bank of Korea, the Consumer Confidence Index (CCSI) for August turned downward, falling 2.3 points from the previous month to 104.5. Park Jong-dae, an analyst at Hana Securities, noted, “The sharp decline in the stock market has also affected the future economic outlook,” adding, “The housing price outlook index has also turned downward, which is negative for department stores.”

However, some analysts argue that it is difficult to conclude that a full-scale consumption slump has set in, given that department store sales growth rates are still maintaining double-digit figures. An industry official stated, “Demand for luxury brands and fashion items remains steady, driven in part by the recent increase in foreign visitors to Korea,” adding, “In particular, the luxury and fashion sectors are continuing their robust growth trend, recording double-digit year-over-year growth.”

In fact, looking at the sales growth rates of the fashion sector—which is relatively profitable within department stores—Lotte Department Store maintained similar levels at 15% in June, 20% in July, and 25% in August, while HYUNDAIDEPARTMENTSTORECO.,LTD saw 10% in June, 13% in July, and 12% in August. Shinsegae Co.,Ltd also saw fashion sales increase, with 9% in June and 7% in July. The fact that high-priced winter clothing is beginning to sell is also positive for fashion sector sales.

Seo Jeong-yeon, an analyst at ShinyoungSecurities, emphasized, “While the reversal of the weak won trend is a burden, department stores have demonstrated the potential to absorb demand from foreign tourists visiting Korea in the medium to long term, given their solid base of domestic customers who consistently purchase high-end goods.” Kim Myung-ju, an analyst at Korea Investment & Securities, also noted, “Although same-store sales growth for the three major department store chains slowed in August compared to July, it is not a cause for concern, and foreign tourist sales are estimated to remain largely unchanged from July.”