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ECONOMY | Staff Reporter, Korea
Published: 18 May 12
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Korea's department stores suffer biggest decline in 3 years

Store sales fell by 3.4% as both luxury goods and discount products experience a drop in consumer purchases, by 5.9% and 2.4% respectively.

Growth momentum of luxury goods sales has started to weaken after the previous economic recovery. In 1Q12, luxury goods sales rose only 6.9% and then dropped in April.

The weakening trend in department store saleswas caused by the negative wealth effect and tightened consumer credit. 

Here's more from the research by Morgan Stanley:

Korea's department store sales declined 3.4% YoY in April compared to the gain of 1.6% in March. It was the biggest decline in almost three years if January is to be excluded, which was affected by the Lunar New Year holidays. In particular, luxury goods sales declined 5.9% YoY in April, the first decline in two years. Discount store sales were also weak, down 2.4% YoY in April compared to the gain of 3.2% in March.

Weakening Growth Momentum of Luxury Goods Sales

Luxury goods sales were once a major driver for department store sales. In 2011, luxury goods sales jumped 20.7%, after showing strong growth of 11.3% in 2010 and 16.7% in 2009. It was far higher than the average growth of department store sales at 8.4% in 2009-11.

The strong sales of luxury goods were powered by the solid economic recovery after the global financial crisis, which benefited the higher-income households more than the lower-income households. However, the growth momentum of luxury goods sales has started to weaken. In 1Q12, luxury goods sales rose only 6.9%, and they showed a decline of 5.9% in April.

Negative Wealth Effect and Tightened Credit Affecting Consumption

The weakening trend in department store sales, luxury goods sales in particular, was caused by the negative wealth effect and tightened consumer credit. In March and April, Kospi declined 0.8 % and 1.6% respectively, as inventors again turned bearish over the economic recovery outlook.

Meanwhile, Korea's property market remained stagnant, and the property price in Seoul has been declining for 11 consecutive months. Banks also tightened consumer loans as government was becoming cautious about high household debt in Korea. The average growth of household loans decelerated to 4.7% YoY in 1Q12 compared to 5.9% growth in 2011.  



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Tags: Korea, consumer, department store, sales, luxury, discount, items

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