[Edaily Reporter Han Jeon-jin ] Although the department store industry posted significant profit growth in the third quarter, concerns about reaching a peak are mounting. The growth rate of luxury goods sales—which drove earnings—has slowed compared to the first half of the year, and signs of a slowdown are already emerging in the fourth quarter. In particular, with price competitiveness potentially weakening compared to duty-free shops—which have been buoyed by a booming stock market and a strong won—the key question now is how much longer foreign consumer spending can sustain this boom.

According to industry sources on the 10th, the third-quarter earnings announcements for the three major department store chains concluded that day with Shinsegae Co.,Ltd’s report. In the department store segment, operating profit growth rates declined: Lotte’s dropped from 84% in the second quarter to 35.7% in the third; Shinsegae Co.,Ltd’s fell from 53.5% to 23.5%; and HYUNDAIDEPARTMENTSTORECO.,LTD’s decreased from 58.6% to 27.8%. Sales growth rates also slowed: Lotte’s dropped from 9.2% to 5.7%, Shinsegae Co.,Ltd’s from 17.5% to 10.7%, and Hyundai’s from 9.1% to 6.5%. While both sales and profits increased compared to the previous year, the pace of growth slowed across the board.

LOTTE SHOPPING CO., LTD.(023530) The department store division posted third-quarter sales of 808.1 billion won and operating profit of 112.9 billion won. Foreign sales at the flagship store surged 95%, accounting for 29% of total sales, as foreign consumer spending at large stores drove the results. Shinsegae Co.,Ltd(004170) The department store business recorded sales of 689.2 billion won and an operating profit of 103.7 billion won. Sales at the flagship store rose 44%, and cumulative foreign sales for the first three quarters reached 850 billion won—more than double the figure for the same period last year. HYUNDAIDEPARTMENTSTORECO.,LTD(069960) The department store division posted sales of 614.5 billion won and an operating profit of 114.1 billion won. Strong sales of fashion, luxury goods, and high-end jewelry were bolstered by an increase in foreign customers.

The problem is that the momentum behind luxury goods consumption—which drove these strong results—is rapidly waning. According to industry sources, the growth rate of luxury goods sales for the three major retailers fell from around 40% in the second quarter to the mid-20% range in the third quarter, and further declined in October to 15% for Lotte, 10.2% for Shinsegae Co.,Ltd., and 11.8% for Hyundai. Jewelry sales, which had driven high growth, also slowed from the 65–80% range in the second quarter to the 15–20% range in October. While sales are still rising, it has become difficult to expect the same growth momentum seen in the first half of the year.

The external environment that had been supporting consumption is also changing. With the KOSPI plunging 11.7% last week alone, the “wealth effect”—where consumers increase spending because they feel their assets have grown—is likely to weaken. The won-dollar exchange rate also fell from the 1,550 won range in early Q3 to the 1,350 won range by the end of September. The strengthening won reduces the exchange rate advantage that made domestic department store products relatively cheaper for foreign shoppers and could also affect the price competitiveness of department stores compared to duty-free shops, which set prices in dollars.

Sales figures for October, the first month of the fourth quarter, also indicate a slowdown in growth. The securities industry estimates that domestic same-store sales growth for department stores in October was in the 0–4% range. While the impact of holiday demand being reflected earlier in September due to the timing difference of Chuseok must be taken into account, the industry must also overcome the high base effect resulting from the strong sales growth seen since the fourth quarter of last year.

Foreign spending remains a mainstay, but it remains to be seen whether the pace of growth can be sustained. According to KIWOOM Securities, the year-over-year growth rate of foreign sales at HYUNDAIDEPARTMENTSTORECO.,LTD declined from 60% in August to 30% in September and 20% in October. According to Korea Investment & Securities, the share of foreign sales at Lotte Department Store in Korea rose from 5.6% in September to 5.8% in October. However, since domestic sales are analyzed to have stagnated during the same period, it is difficult to interpret this increase in share as an acceleration in foreign consumption growth. The year-end peak season is expected to serve as a test of how well foreign demand can offset the slowdown in domestic consumption.

Lee Eun-hee, a professor in the Department of Consumer Studies at Inha University, said, “Since department store and luxury goods consumption primarily occurs among the premium consumer segment, it is influenced by asset prices such as stocks and real estate.” She added, “Due to the stock market correction and the falling exchange rate, the incentive to spend may weaken for both domestic and foreign consumers. With seasonal factors also coming into play, it is time for department stores to explore new avenues rather than relying solely on their past prosperity.”