Consumption collapses amid prolonged downturn

By Kim Jae-won

Alarm bells are sounding over the collapse in consumption, according to official figures that show high-income earners tightening their purse strings.

Sales at discount chains like E-Mart, Lotte Mart and Home plus plunged 7.4 percent year-on-year in June, the sharpest drop in 16 months, after being hit with a double-whammy of less spending and business-hour restrictions imposed by the government. It was the third consecutive month of revenue decline for the retailers, following a 5.7 percent drop in May and a 2.4 percent fall in April.

The Strategy and Finance Ministry data also showed that sales at department stores slipped 1.2 percent last month from a year earlier, indicating wealthy individuals and the normally spend-happy people in their 30s are reining in their budgets.

A separate report by the Bank of Korea (BOK) showed that the consumer sentiment of those in the high-income bracket ― earning more than 5 million won per month ― is at its lowest in 27 months.

Discount chains have been complaining that the government forcing them to close on two Sundays a month, a measure aimed at protecting traditional markets and small merchants, has accelerated the decline in revenue.

As brick and mortar shops struggle, online shopping malls have thrived as a destination for bargain hunters. But an official from Gmarket, the nation’s leading electronic commerce service, said that the drop in consumption has been significant enough to drag down online activity as well.

``Our sales have been uninspiring this year. We are basically seeing the same numbers we had last year,’’ he said.

Experts say that it will take time before domestic demand recovers. “Private consumption will not increase by a big portion this year, either. Consumers’ income levels will not rise much as the real economy worsens due to stagnant exports,” the LG Economic Research Institute said in a report last month.

The think tank said it can find no sign that household purchasing power will strengthen as most new jobs are being created in the traditional service sector, adding little value to the economy. The private research center added that lingering household debt also will dampen consumption, painting a gloomy outlook for the domestic market.