SPA market to continue booming in 2013

By Dan Kim

The domestic economic slowdown has resulted in a decrease in the revenues of luxury brands, but SPA (specialty retailer of private label apparel) brands are enjoying a recent boom. While global SPA brands like Zara, H&M, Forever 21 and Uniqlo are competing to expand their retail stores; domestic counterparts such as E-land’s Mixxo and Cheil Industries’ 8 Seconds are also doing so around major shopping areas like Myeong-dong, Gangnam Station and Garosu-gil.

The SPA brands’ market share was worth 500 billion won in 2008, 800 billion won in 2009, and 1.2 trillion won in 2010. Last year, out of the 29.5-trillion-won fashion market, SPA brands’ accounted for market share was 6.4 percent or 1.9 trillion won. Since 2008, the overall fashion industry market grew 3.9 percent steadily year on year, but the SPA brand rose exponentially by 58 percent per year.

It is forecast that the SPA market share will grow to be worth around 20 trillion won by 2015. This growth is driven by fast fashion becoming more popular and the increasing number of brands out there. For example, more and more domestic SPA brands have made an entry since the first domestic brand opened about 4 years ago.

Today, the domestic SPA market is dominated by foreign brands such as Zara and Mango from Spain, H&M from Sweden, GAP from the U.S. and Uniqlo from Japan. These brands comprise 80 to 90 percent of the SPA brand market in Korea. The top SPA brand in Korea, Uniqlo, opened its first store in 2005 and now has 70 stores in Korea. Uniqlo’s rapid expansion has made them the leading SPA market brand in Korea.

With the recent entries of big domestic fashion brands, we expect the SPA market to enjoy strong growth in the coming years. Last August, LG Fashion’s new SPA brand, Zeden, opened 20 stores and announced plans to open a total of 50 stores later this year. In 2009, E-Land entered the SPA brand market with the brand SPAO. They opened 18 stores last year and have plans to increase this up to 50 stores by the end of the year. In addition, Cheil Industries has introduced a new SPA brand, 8 Seconds’, last February. The company set an aggressive goal to make 1.6 trillion won in revenue by 2020.

Myeong-dong

As one of the most popular shopping districts among foreign tourists, with a majority coming from Japan and China, Myeong-dong is known as a must-be destination for all the SPA brands. In 2011, Uniqlo opened their largest flagship store in Asia, with a size of 3,966 square meters, in Myeong-dong. Moreover, other SPA brands like H&M and Zara also have their presence. H&M currently has two and Zara has three stores in Myeong-dong. Other players like Mango, Forever 21, Mixxo, Top10 and 8 Seconds also opened stores in Myeong-dong.

Gangnam Station

The vicinity of Gangnam Station has recently also become a battlefield amongst SPA brands. The most expensive area in Gangnam is where 8 Seconds currently has its Gangnam store, which is right next to the station’s exit 10.

The most popular type of retail real estate in Gangnam is a building which has four floors and has typically a total retail area of about 1,455 square meters. There are few buildings that have a single floor this size. Therefore they would need to occupy several floors to ensure they have enough retail area to display their wide collections. Using several floors also means they control the façade and, consequently, create better brand exposure. This size is particular popular with global brands like Zara and Uniqlo.

Garosu-gil

Garosu-gil used to have many coffee shops along the street, but in the last 24 months has seen an explosion of SPA brands opening flagship stores and controlling the entire building on the street. As a result, Garosu-gil has seen its image change into a more young and trendy area attracting shoppers in their 20’s and 30’s.

Spanish brand Zara, American brand Forever 21, Massimo Dutti _ owned by Inditex Group which also owns Zara _ and local SPA brand, Smile Market, are thriving in Garosu-gil. Other big players like 8 Seconds and Spicy Color are seeing rapid growth in revenue from their Garosu-gil stores. Diesel, which is operated in Korea by Shinsegae International, Hollister and Giordano decided to follow and also open their store in Garosu-gil.

While Uniqlo, H&M and other global SPA brands are already competing fiercely, new brands also are entering the market, which, we expect, will result in an even tougher struggle for survival. Domestic SPA brands are trying even harder to compete against the international SPA brands by expanding their footprint. The influx of new SPA brands stored has caused a shortage of suitable locations in the main retail areas forcing some brands to look at other areas for their expansion.

The outlook for SPA is bright, however, domestic economy slowdown could possibly affect the SPA brands’ prosperity. On the other hand, mass market brands do well in this economical situation as some people would switch from more luxury brands to these type of brands.

Dan Kim is the head of retail transaction at Cushman & Wakefield Korea.