Retailers stung by economic slump in Q1
People shop at Shinsegae Department Store's Centum City branch in Busan on Feb. 26. Courtesy of Shinsegae Department Store
By Kim Jae-heun
Department stores and other retailers saw their profitability decline in the first quarter of this year as consumers kept their wallets shut amid soaring inflation and rising interest rates, according to industry officials, Thursday.
Department stores enjoyed surging sales during COVID-19, thanks to high consumer demand for luxury goods, but they began reducing their spending on big-ticket items to cope with a surge in the cost of living amid the economic downturn. Discount store chains and convenience stores have also been suffering from sluggish consumer spending.
Shinsegae Department Store's sales increased 6.1 percent year-on-year to 620.9 billion won ($469.9 million) in the first quarter, but operating profit fell 9.2 percent to 110.3 billion won.
“We paid about 4 million won in bonuses to 3,000 employees earlier this year, which was pretty big. The ongoing inflation and high-interest rates also played their parts in decreasing our operating profit,” a Shinsegae Department Store official said.
Hyundai Department Store's operating profit also declined 7.4 percent to 95.2 billion won in the same period. Sales increased 5.4 percent to 572.7 billion won. The company said its profit decreased due to increased fixed costs such as marketing fees and labor costs.
People shop at Emart's Chang-dong branch in Seoul, on March 3. Korea Times file
Large discount stores also failed to make a profit in the first quarter.
The country's largest discount supermarket chain Emart saw operating profit plunge 60.4 percent year-on-year to 13.7 billion won. Sales improved 1.9 percent to 7.13 trillion won in the same period.
“We renovated our stores in Yeonsu, Incheon and the KINTEX exhibition center, Gyeonggi Province, but this meant that during that time, we had zero sales and operating profit there in the first quarter,” an Emart official said. “Now they are open, and we expect our business performance to increase in the second quarter.”
BGF Retail, an operator of the country's top convenience store brand CU, saw operating profit decrease 2.1 percent year-on-year to 37 billion won.
“Local retailers saw an instant decrease in their operating profit due to the continuous rise in the cost of living in the first quarter. However, from the second quarter, their respective business performance is expected to improve as more people go out to enjoy the spring and summer season and spend money,” a local retail firm official said.