Shopping Booms as Tourist Numbers Rise… Retail Sector’s Q3 “Expectations”

Driven by the increase in foreign tourists visiting Korea and the recovery in shopping demand, major domestic retail companies are expected to continue improving their earnings in the third quarter of this year. In particular, as operating profit is projected to record double-digit growth rates, expectations for a recovery in profitability within the retail industry are growing.

According to financial information provider FnGuide on the 8th, Lotte Shopping’s Q3 revenue is forecast at 3.5991 trillion won, up 5.5% year-on-year, while operating profit is expected to reach 181 billion won, a 38.7% increase. Shinsegae is estimated to post revenue of 1.7068 trillion won and operating profit of 179.8 billion won, representing increases of 4.3% and 80.2%, respectively. Hyundai Department Store’s projected results are revenue of 1.0941 trillion won and operating profit of 92.2 billion won, figures that reflect increases of 8.3% and 26.8%, respectively.

The securities industry analyzed that the improvement in department store earnings was driven by the rise in foreign tourists and strong sales of high-margin product categories such as fashion and luxury goods. With more tourists driving foreign customer revenue, and high-profitability categories selling well, it is assessed that both top-line growth and profitability improvements will occur simultaneously.

In particular, the increase in foreign consumer spending is notable. Lotte Department Store surpassed 1 trillion won in cumulative foreign customer revenue earlier this month, becoming the first in the industry to do so. It broke through 734.7 billion won, which had been its highest annual foreign customer revenue last year, in July. Shinsegae and Hyundai Department Store are also expected to exceed 1 trillion won in foreign customer revenue this year. As of this month, Hyundai Department Store’s cumulative foreign customer revenue for the year stands at 805 billion won. It is also projected that the duty-free sector will contribute to earnings improvement as tourist numbers increase due to factors such as the implementation of visa-free entry for Chinese group tourists.

Earnings improvement is also expected in the large supermarket industry. E-Mart’s projected Q3 revenue is 7.5819 trillion won, with operating profit of 173.2 billion won. These figures represent year-on-year increases of 2.4% and 14.3%, respectively. The company is securing growth drivers by enhancing the sourcing competitiveness of fresh food in its core large supermarket business and fostering Starfield Market as a regional community hub, as well as developing its warehouse-style discount store, Trader’s.

In addition, it is analyzed that spillover benefits from Homeplus store closures have also impacted large supermarket earnings. Consumer demand shifting due to Homeplus’s business contraction appears to have partially flowed into competing large supermarkets and corporate-run supermarkets, leading to increased store sales.

The convenience store industry is expected to see profitability improvements through cost efficiency measures and the expansion of differentiated products. BGF Retail’s Q3 revenue is estimated at 2.5652 trillion won, a 4.2% increase, while operating profit is projected to reach 108.5 billion won, up 11.2%. GS Retail is expected to post revenue of 3.3383 trillion won and operating profit of 122.5 billion won, representing increases of 4.1% and 10.3%, respectively. Convenience stores are working to improve profitability by enhancing customer attraction through the expansion of differentiated products and items utilizing intellectual property (IP) such as characters, while simultaneously pursuing cost efficiency.

A retail industry official stated, “The increase in foreign tourists visiting Korea has revived consumption at department stores and duty-free shops, and continued sales of high-margin products such as fashion and luxury goods appear to have had a positive impact on profitability improvements.” The official added, “Large supermarkets and convenience stores are also expected to continue the improvement trend in the second half by strengthening differentiated products and new businesses suited to their respective formats and through cost efficiency measures.”