Visitors to Lotte Premium Outlets Paju in Gyeonggi Province line up in front of the store of British luxury brand Mulberry on Dec. 1, a day before the outlet officially opens. Lotte’s retail rival Shinsegae has already opened premium outlets just 5.8 kilometers away from Lotte.

Consumers got taste for luxury but they do not want to pay full price. What does it mean to retailers?

By Kim Da-ye

A 30-year-old IT worker, who wished to be identified only by her last name Lee, loves visiting department stores, but most of the time she leaves empty handed.

Back home, Lee combs through the Internet to find things she wanted to buy at the department stores at much lower prices.

Her bargain hunting isn’t limited by geographical boundaries — she visits American, Canadian and British websites to find the best deal, as many of them have begun shipping internationally at low rates.

Lee laments that a Canadian website offered a 70 percent discount on a Theory brand man’s coat she liked at Lotte Department Store but did not have the right size for her brother.

Many Korean shoppers like Lee are increasingly moving away from conventional shopping areas such as department stores, high street shops and traditional markets.

Globalization has raised the bars for choosing goods higher.

The influx of international fast fashion brands such as Zara onto local markets means that consumers here have access to the latest trends at reasonable prices.



Shoppers can now check out what Hollywood celebrities wear and use on the Internet, and little known brands that have just begun to gain popularity among trendsetters abroad.

Koreans’ well-documented obsession with luxury and high quality adds to such trends, resulting in an extremely posh taste for goods ranging from clothing, skincare to cooking tools.

In the meantime, their purses didn’t get as thick as much as their appetite for luxury grew. Average household income rose 6.5 percent to 3.90 million won in the third quarter of 2011 from a year ago. It went up 6.1 percent in 2010 after a 0.8 percent drop in 2009 and 6.8 percent growth in 2008, according to Korea Statistics.

At the end of the day, the top 1 percent of department store customers accounts for 30 percent of the total revenue, meaning those spending money at department stores are the country’s wealthy, according to local media.

Most other consumers prefer goods of high quality and brand value but do not want to pay full price. What does this mean to retailers? The answers can be found in new developments in today’s retail scene.

The fastest growing section of the domestic retail industry consists of “premium outlets” — clusters of stores that sell goods from past seasons at handsomely slashed prices.

Seoul has always had many outlets on the outskirts, but those with that extra word “premium” on the name tags now sell global brands’ products on sale.

Shinsegae was the first to introduce this type of retail space, which is literally named the Yeoju Premium Outlets in Yeoju, Gyeonggi Province, under partnership with Simon Property Group, a U.S. real estate firm specializing in malls and premium outlets.

Shinsegae and Simon set up together a local business called Shinsegae Chelsea, of which Simon holds a 50 percent stake, and Shinsegae and its affiliate Shinsegae International shares the rest equally.

After successfully launching the Yeoju branch in June 2007, Shinsegae Chelsea opened another near to Seoul in Paju, Gyeonggi Province, in March last year, drawing 250,000 visitors in four days.

Consumers’ interest in premium outlets peaked when retail giant Lotte Shopping unveiled its own version of premium outlets less than six kilometers away from Shinsegae’s Paju branch last December.

Lotte, which had already run smaller premium outlets in Gimhae, South Gyeongsang Province, touted that 213 brands including 16 global luxury names would be sold there and 60 percent of them weren’t available at rival.

Shinsegae and Simon also announced last November that they would expand the Yeoju Premium Outlets by enlarging the retail space from 25,800 square meters to 50,550 square meters and add 110 stores to the current 140 by 2014. They will invest a total of 70 billion won in the project.

Other evidence of premium outlets’ popularity is that Korea is the second largest international partner Simon is working with. There are eight Premium Outlets in Japan, two in Korea, one in Mexico and one in Malaysia that just opened last December.

Retail veteran Lotte, in fact, has identified premium outlets as its new business model.

“In developed countries like the U.S. and Japan, growth of department stores have slowed down, but local counterparts recorded an impressive growth — 9 percent in 2009 and 12.6 percent in 2010 — through better customer services, differentiation with other types of retailers and improvement in quality,” Lotte Shopping said in its third quarter report last year.

“We expect the growth to continue because of more investment into comprehensive shopping malls, premium outlets and online operations,” Lotte added, mentioning plans to open more outlets across the country.

Furthermore, Lotte has an important asset in this era of bargain hunting that other retailers lack. Its affiliate Hotel Lotte is the country’s largest duty free seller by sales with a 47.2 percent market share in 2010.

Preference for high quality skincare and cosmetics by luxury brands, limited budget and frequent opportunities to travel all resulted in immense popularity of duty free shopping.

Hotel Lotte, despite its name, generated nearly 80 percent of its total revenue from selling duty free goods in the first half of 2011, the firm’s financial disclosure shows.

The 1.08 trillion won in sales by the duty free unit, which consists of three downtown outlets, two airport operations and an online store, dwarfs by far the 180.9 billion won by the hotel unit with six five-star hotels in Korea and Russia and the 97.3 million won made from the Lotte World theme park.

Another development is shoppers’ going overseas online to find the best deals as Lee does.

For a while, businesses that purchase goods from foreign websites on behalf of customers and deliver them to Korea popped up as some products directly bought from abroad this way were cheaper than those sold by domestic authorized retailers even after handling and delivery fees were added to the bill.

It is not unusual to see these businesses notifying customers during sale seasons in the U.S. that they are flooded with orders, so deliveries will be delayed.

Nowadays, many large online retailers began shipping directly to Korea at low rates and allow foreigners to pay with foreign credit cards. For instance, shopbop.com, which sells affordable clothing by young designers, ships here free for an order of over $100.

Such easier access to quality goods is luring young shoppers whose English language skills are good enough to make international orders.

“Social commerce” websites have also attracted picky bargain hunters’ attention by selling overpriced imported goods at half price over a short period of time.

Some of the highly publicized deals included teenagers’ favorites North Face bomber jackets, Nike LunarGlide running shoes and even designer bags from Prada and Givenchy.

But it turned out that many of those are not directly sold by global brands’ local authorized retailers but by individual importers. Korea allows parallel importing in which goods imported at cheaper prices are sold by non-authorized retailers.

Social commerce sites tend to exaggerate the scale of a discount by setting the original price as the one decided by a local authorized dealer although buyers of parallel imports do not usually enjoy the same after sales rights.

Consumers still remain doubtful of the authenticity of goods sold on social commerce sites, so the growth of this market has been somewhat sluggish.

Lee, the IT worker, said she believes these changes in consumers as well as the retail industry would have positive impacts on the local shopping experience.

“As shoppers find cheaper goods with better quality online and abroad, large retailers will come under pressure to lower their prices. That’s good for consumers,” Lee said.