Imminent slow down in South Korea’s luxury market
Once revered as one of the world’s recession proof luxury market, South Korea is heading, this year, towards its second weak performance after the one in 2013, likely to register a a first significant slow down in luxury sales, especially across the fashion and accessories sectors.
An ebb in the number of overseas wealthy shopppers, especially from China (-12% expected for the full year 2014), a 50% halt in new luxury retail openings and an decline in purchasing power – will amount to a 8% drop in luxury sales in 2014. Exception are luxury cars, which will maintain momentum in 2014 and luxury watches & jewellery which sales will stagnate in 2014.
South Korea’s leading luxury retailers, Samsung Group (The Shilla Duty Free and Shinsegae Department Stores) and Lottte Group (Lotte Duty Free, Galleria, Coex Duty Free) and Hyundai Department Store Group have began taking strategic consolidation steps in 2013, especially renovating existing stores and expanding the luxury brand mix. A critical step which all retailers seems to have coalesced is the immediate need to improve attractivity for South Korea as a premium lifestyle destination, to thus stimulate incoming traffic.
Korea’s luxury retailers are also expanding abroad earlier this month Hyundai Group opening its first Tom Greyhound branded luxury concept store in Paris’s Marais District (feat. AF Vandervorst, Christopher Kane, Damir Doma, Delfina Delettrez, Manish Arora, Jil Sander, JW Anderson, Kenzo, Kris van Assche, Peter Pilotto, René Talmon l’Armée, Sacai and Thakoon). With the occasion of the Parisian opening, Hyundai Group confirmed plans to expand the Tom Greyhound stores in the U.S. too. Samsung’s Boon The Shop fashion concept stores is also reported to be seeking expansion outside Korea.
Luxury sectors such as fine dining and gourmet still present exceptional opportunity for development, the penetration of the major international players being at a fraction of that in Japan. Wealthy Koreans and visitors have been maintaining their appetite for luxury consumption, yet, are more eager to aspire to a luxury lifestyle they can share with piers, whether it is dining or entertainment. Afterall, they need the motivation to put up with luxury branded goods which are at least 40% more expensive on the highstreets in Korea than abroad.
As for the outgoing luxury shopping travel momentum, South Koreans are more enclined to take shorter trips, favorite destination remaining the U.S., to the detriment of Europe and the Middle East. Another important factor to consider is the inherent future establishment of a regulated luxury e-commerce market, which, until now, has been postponed due to many reasons such as pricing, logistics (stocks, delivery, availability) and safety of actual online shopping. The existing offline retailers which will have a sooner implementation will also have an important edge.
Another important notable change in South Korea’s luxury market is the way consumers regard purchasing, private debt having sky-rocketed in the past two years, with luxury shopping as being a main factor which has been weakening purchasing power. That is why, more wealthy South Koreans have been adopting the mix & match trend and have been placing higher importance on the investment factor when making a luxury purchase – durability, quality and finishes of materials, availability etc.
Besides luxury lifetyle (entertainment – day and night, dining, gourmet), other luxury sectors in South Korea which present opportunities for development are: beauty (organic-based high quality), children’s wear (highest growing luxury sector in 2013), ceremonial fashion & accessories, hotels (few of the major international luxury hospitality operators are present in South Korea).
Best represented international luxury fashion & accessories (number of stores, retail concept, locations): Chanel, Louis Vuitton, Dior and Hermes. Upcoming 2014 luxury mono-brand store openings in South Korea include: Brunello Cucinelli (2), Burberry (2), Prada (3) and Loro Piana (1), Tod’s (1) Jimmy Choo (1), Bally (1).
CPP Luxury Industry Management Consultants Ltd has been actively covering South Korea since 2013. A full list of actively covered global luxury markets can be accessed on www.cpp-mc.com
Oliver Petcu in Seoul