Retailers target luxury sales, expand overseas for growth

After a year of record revenues, Korean retailers are aggressively expanding at home and abroad, pinning hopes on booming luxury goods sales and the rise of deep-pocketed Asian consumers.

Top department store chains, Lotte, Shinsegae and Hyundai, are sizing up their existing downtown branches and opening new stores in suburban centers, setting their sights on consumers of high-end products.

Large discounters, in the face of new regulations limiting their domestic expansion, are increasingly looking to overseas markets such as China, India and Vietnam where burgeoning middle class populations drive demand for consumer goods.

Rebounding from the global slump, the Korean retail industry posted a 10.4 percent on-year growth in the first half of 2010, according to Statistics Korea. Experts put its full-year growth at 7-8 percent.

The industry’s growth is likely to be slower this year as lingering global uncertainties and inflation jitters may dampen consumer sentiment. But combined sales in the sector are forecast to reach a record high of greater than 200 trillion won ($179.2 billion).

A think tank affiliated with Lotte Shopping estimates the department store sector’s turnover to reach 26.8 trillion won this year, up nearly 11 percent from an all-time high recorded in 2010.

The popularity of luxury goods is expected to be a key driver of their growth. Luxury sales weathered the economic downturn posting a 16.7 percent rise between 2008 and 2009, making the country the second fastest growing market after China, according to the McKinsey Global Institute.

Korea’s luxury market, estimated at $40 billion, accounts for 4 percent of global sales. Spending on luxury goods makes up more than 15 percent of Korean’s fashion-related expenditures, the research firm added.

Department stores are racing to upgrade their outlets and add new upscale stores. New facilities are more than conventional branches, integrating a department store, discount store, theater and other shops that provide one-stop shopping experiences.

Lotte Department Store, the nation’s top retail chain with 29 branches, is leading the trend. The company, which registered a record 10 trillion won in revenue last year, aims at 12.1 trillion won this year, up almost 20 percent.

The company expects its flagship Jamsil branch in southeastern Seoul to post 1 trillion won in sales this year, up from last year’s 940 billion won.

Lotte plans to open a mega shopping complex in Pangyo, Gyeonggi Province in 2013 along with affiliate Lotte Mart and Lotte Cinema. It will feature an extensive lineup of luxury and premium imported brands for middle and upper class customers in the new residential center.

Lotte also plans to scale up the first basement floor at its headquarter store in central Seoul, which is linked with Lotte Hotel, to accommodate more shops.

Lotte will open a large-scale premium outlet in Paju, Gyeonggi Province in November to compete with Shinsegae’s mega-outlet to be launched in March.

Hyundai, the No.2 player with 5.8 trillion won in sales last year, is setting up new stores in southern parts of the country and carrying out major renovation and expansion of existing ones.

Its 13th branch coming up in August in Daegu, some 300 kilometers south of Seoul, will be the largest shopping place in the region.

The store will furnish luxury brand shops and a variety of domestic and global labels in a 10-story building to lure customers from not just Daegu but from surrounding North Gyeongsang Province, the firm said.

Hyundai said last week it began expanding branches near the World Trade Center in southern Seoul and in Ulsan, southeastern part of the country, by 50 percent and 30 percent, respectively.

The World Trade Center store will get another floor for luxury and imported goods when the project finishes around Sept. 2012, the operator said.

The branch will be able to see revenue top 1 trillion won in 2013, Hyundai forecasts, given constant demand and strong consumption in the area as shown in performances of nearby department stores. It fetched 770 billion won in sales last year.

As for the Ulsan store, the company plans to reinforce its lineup of luxury and imported labels as well as products for young generations.

Estimated costs for the two renewal projects exceed 100 billion won, officials said.

Hyundai also expanded the size of its Shinchon branch in central Seoul in August 2009 and its Bucheon branch in Gyeonggi Province in September.

These aggressive expansion is part of the Hyundai Department Store Group’s 2020 vision unveiled last year at its 39th foundation anniversary by chairman Chung Ji-sun.

Under the plan, the retailer aims to raise the number of stores to 23 by 2020 from the current 12 and double sales over the next five years.

“We need a strong will to accomplish this vision,” Chung said at a ceremony in June. “Both management and employees should have confidence in the vision and take part in the effort.”

Shinsegae, the third largest department store operator with 5.4 trillion won in revenue last year, made a major achievement in its industry. In 2010, its Gangnam branch became Korea’s second single retail outlet that surpassed the threshold of 1 trillion won in sales.

The store in southern Seoul registered 1.09 trillion won in revenue, about 18 percent up from 920 billion won in 2009, the company said.

According to an industry survey, there are only a dozen department store branches worldwide that earn more than 1 trillion won a year, mostly in Japan.

In Korea, Lotte’s main branch joined the top-seller club for the first time in 1999.

Shinsegae has no plan for a new store this year, but is gearing up for ambitious makeover projects.

It plans to reopen its Incheon branch in May or June after transforming it into a high-class shopping place equipped with more luxurious and hot-selling global brands.

Its ninth store in South Chungcheong Province, part of which opened last December, will be fully available to local shoppers before summer.

The newest mall sits in a 66,000 square-meter site ― the largest in the region ― and has a movie theater, bookstore, art center and sculpture park around it, the company said.

As for major discount stores, China would be a key growth engine for major retailers over the next few years as they face tough regulations and mounting protests for their rapid expansion at home, industry sources said.

Though China sales account for mere 1-2 percent of total sales for now, the growth rate doubles each year, according to Samsung Economic Research Institute.

Lotte Mart runs 79 branches in China, 21 in Indonesia and two in Vietnam.

It plans to set up more stores in central and southern China, Indonesia and Vietnam this year.

Lotte aims to join China’s top 10 discount chains by 2012. It currently stands at about No.14 by sales, the company said.

Affiliate Lotte Department Store also has a branch in Russia and Beijing each. It aims to add two more in China this year, while expanding to Vietnam and India by 2013, it said.

Shinsegae E-Mart, the local top discount store chain, said it will launch at least 60 more branches by 2014. It has set up 23 stores in China since 1997, compared to 123 here.

China’s retail industry has posted greater than 10 percent annual growth for the last decade, industry officials said.

“Looking at the scale of Chinese economy, it seems possible to have 1,000 stores there, almost 10-fold compared to the Korean market,” a Shinsegae official said.

In Korea, strain between small neighborhood stores and conglomerate-run retail chains has become intense.

Public criticism has been stoked that large convenience stores run by major retailers, so-called super-supermarkets, are eroding businesses of smaller local shops and traditional markets.

In response, the government in November approved a bill restricting the launch of large discount stores near traditional markets in an effort to protect small business owners. 

It also endorsed another bill aimed at banning giant retailers from opening new super supermarkets within a 500-meter radius of traditional markets that month. 

Nevertheless, discount chains would continue to grow strongly, experts forecast.

A think tank affiliated with Shinsegae estimates the industry’s 2011 sales at 36 billion won, up about 6 percent year-on-year.

SERI also projects a 5.8-percent rise in sales to 35.2 billion won. The sector grew about 6.5 percent in 2010, it noted.

By Shin Hyon-hee (heeshin@heraldcorp.com)