Home of the third largest retail market in Asia Pacific (APAC-region), South Korea continues to maintain its momentum, driven by robust economic growth, rising population, increasing purchasing power and deeper penetration of international players. The previous year registered strong growth in retailing, with consumer sentiments recovering and the Government emphasizing on consumption. South Korea is definitely a market with huge potential for business opportunities in fashion clothing.
With the Government encouraging consumption and consumers returning to physical outlets, sales for retailers have also gone up. According to experts, the retail industry in South Korea region will expand at CAGR of 6.13 per cent over 2013-2018 and the overall size of South Korea retail market is expected to reach US $ 524.91 billion by 2018. Ever since a period of sluggish spending and sliding consumer sentiment, Korea has seen a slow but steady improvement in the retail sector. PwC reports that Korean retail volumes were at US $ 307 billion in 2014 and US $ 331 billion in 2015, while the firm is projecting US $ 378 billion for 2017.
The retail scenario in South Korea is continuously changing with various new international players entering the market. This is further noticed through Starfield Hanam, the western style mall that is performing above expectations. It is a 4,56,000 sq. metres (4.9 million sq. feet) retail location with a gross leasable area of 1,58,000 sq. metres (1.7 million sq. feet), jointly developed by the Shinsegae Group and Taubman Asia. It opened in September 2016 as South Korea’s largest Western-style shopping mall, the nation’s second-largest retail destination (the largest being Lotte World Mall, which measures 8,26,000 sq. metres). In October 2016, Prada, the Italian luxury fashion house, specializing in leather handbags, travel accessories, shoes, ready-to-wear, perfumes and other fashion accessories, has expanded in Korea with the opening of a new store in Shinsegae Starfield Hanam mall.
Being one of the fastest growing markets in the world for luxury goods over the last five years, fuelled by Seoul’s sophisticated shopping culture and its competitive prices for prestigious international brands, South Korea is still on an upward trajectory. From brands such as Gucci, Ferragamo, Louis Vuitton, Bally, etc. South Korea is being favoured amongst the best luxury brands. Apart from international brands opening shop in Seoul, the tourism industry is further helping the South Korea retail industry to grow. With Tokyo only two hours from Seoul, there is strong tourism flow between the two cities. Many Chinese are now buying their luxury products in the country and it is expected that by 2020, Chinese luxury consumers will spend US $ 29 billion at South Korea luxury retailers.
Enabling the retail market further are high disposable incomes that are supporting stable growth for luxury goods. Of the South Korean population having an annual gross income of US $ 1,50,000+, 23.7 per cent belonged to the 45-49 age band, with another 22.7 per cent in the 40-44 cohort. With the country’s 40-somethings making up 16.9 per cent of the total population in 2014, demographics play a critical role in the retail industry. Through to 2030, South Korea’s rapidly ageing population will inflate the share of seniors in the uppermost income band. In 2030, while the 45-49 cohort will comprise the largest slice of the population in receipt of an annual gross income of US $ 1,50,000, at 16.3 per cent, the 65+ demographic – which will encompass 24.2 per cent of the total population that year, will surge to account for 15.2 per cent.
Key information on the South Korea e-commerce market:
• South Korea is home to the third largest Asia-Pacific retail e-commerce market.
• Mobile sales have increased 64 per cent over the past two years.
• 82.5 per cent of the population is urban, with Korean (97 per cent) the most popular language.
• The country has the second highest digital buyer percentage in the Asia-Pacific region, with 65 per cent of internet users shopping online.
• Major holidays like White Day and Thanksgiving bolster e-commerce sales.
• Because of the small country size and high population density, South Korea has exceptionally fast fulfilment rates.
Furthermore, the country’s 2016 e-commerce Market totalled nearly US $ 38 billion last year and is expected to surpass US $ 50 billion by 2018. As the most popular mobile country in the world, 90 per cent of South Koreans own a smartphone, with mobile sales increasing at an impressive rate. Government stats are projecting that e-commerce in the country reached 9.8 per cent of total retail sales for 2016, making South Korea the third-largest e-commerce market in the Asia-Pacific, after China and Japan.
Although consumer sentiment was better in 2016 than in 2015, the South Korean economy continued to experience uncertainty. This has led to consumers being more price-conscious and therefore buying cheaper products. And while luxury is still a major draw, local manufacturers have been motivated to launch products at reasonable prices and market them as “cost-effective”, which is the buzz word today. The trend has also influenced retailers to develop and market their own private label products at cheap prices. In fact, the designer scene in the country is very active and many home-grown labels stand tall among international brands.
While the country’s retail sector gets a thrust through higher disposable income, tourism and e-commerce, South Korea is still a retail destination less explored. Though Seoul’s retail sector continues to grow, but other Korean cities with equally high living standards and disposable income are now providing more room for international retailers. As the Korean Government pushing for higher consumption and consumer confidence seems to be slowly improving, there are significant opportunities in the Korean retail market still to be explored.