March 10, 2020 13:25
Almost the only part of the economy that seems resistant to any catastrophe is Koreans' insatiable appetite for luxury labels.
Luxury goods have maintained double-digit growth even as nearly all other retail goods have suffered from the coronavirus epidemic.
At Lotte Department Store, overall sales declined 22 percent in February compared to the same month last year, at Shinsegae Department Store 15.8 percent and at Hyundai Department Store 12.1 percent. But luxury goods sales increased over the same period, growing 16.7, 16.4 and 15.3 percent. Galleria also saw luxury product sales surge 17 percent.
Louis Vuitton was quick to seize the opportunity to raise prices again by three to four percent last week.
Elsewhere the situation is dire. Lotte Shopping, the biggest domestic retailer, announced last month that it plans to close 30 percent or around 200 of its offline stores. The main reason is a polarization of shopping patterns at the top and bottom ends of the market, followed by an ongoing Chinese boycott of Lotte and burgeoning online shopping.
A Lotte staffer said, "People are cutting back on spending at supermarkets but lining up to shell out money at luxury goods outlets."
Lotte Mart and Lotte Super suffered operating losses of W25 billion and W104 billion last year, but luxury goods sales powered Lotte Department Store to a W519 billion profit (US$1=W1,202). Sales of mid-priced products have either stalled or declined, while only high-priced or ultra-cheap products are drawing customers.
Offline retailers are less flexible than online stores when it comes to slashing prices, so the growing polarization in consumer spending poses a bigger risk than the coronavirus epidemic.
Another retail sector that is feeling the brunt of polarization is restaurants. "Family" restaurants such American chain Sizzler, which became hugely popular in the early 2000s with mid-priced meals costing W20,000-30,000, have been faring poorly over the last few years. In contrast, high-end restaurants are thriving.
According to Daily Hotel, an app for booking upscale eateries, reservation rates grew 10 percentage points last year to 35 percent. More recently customers opt for private rooms so they can be shielded from the risk of infection from other patrons.
The trend appears to reflect a similar polarization in wealth. According to Statistics Korea, the income disparity in Korea in 2019 reached the highest level in 16 years. Experts fear that further polarization could aggravate the slump in private consumption and cause the economy to sputter.
Sung Tae-yoon at Yonsei University said, "The polarization in spending leads to a decline in domestic consumption over the short term and weakens economic vitality over the long term."
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