Consumer spending typically increases during the Chuseok holiday, but retail stocks are struggling. If the won continues to strengthen and the Bank of Korea implements an interest rate hike, the poor performance of retail stocks is expected to persist.
According to the Korea Exchange, from September 7 to today, Shinsegae's stock price has fallen by 5.38%, while Hyundai Department Store has dropped by 5.55%. Major retail representatives, E-Mart and GS Retail, have also seen declines of 6.76% and 4.91%, respectively. This contrasts with the KOSPI, which rose by 10.45% during the same period.
By sector, the KRX300 Consumer Staples and Discretionary indices have decreased by 1.41% and 3.76%, respectively, compared to a month ago. This is in stark contrast to the 15.44% and 5.25% increases seen in the KRX300 Information Technology and Industrials sectors. While large tech stocks are gradually trending upward, consumer discretionary and retail stocks are stuck at the lower end of their trading range.
The sluggishness in retail stocks is attributed to concerns over weak consumer spending. Although exports, particularly in semiconductors, have increased in the South Korean economy, domestic consumption remains subdued. According to the Korea Development Institute (KDI), the retail sales index in July decreased by 0.8% compared to the same month last year.
Profit-taking following a surge in the first half of the year is also cited as a reason for the decline. Retail stocks, including department stores, saw significant gains earlier this year due to heightened market expectations following performance bonuses paid to large corporations. Shinsegae and Hyundai Department Store's stock prices rose by 200% and 118%, respectively, during the first half, while Lotte Shopping increased by 134%. As a result, ongoing sell-offs have led to stagnant stock prices.
The outlook for the second half of the year is not promising. While there may be a temporary increase in sales due to the Chuseok holiday, concerns about the strong won persist. The won-dollar exchange rate, which rose to around 1550 won in early July, has recently dropped to the 1330 won range. A stronger won diminishes the purchasing power of foreign tourists, potentially leading to decreased sales at department stores and duty-free shops.
The possibility of an interest rate hike by the Bank of Korea adds to the burden. The Bank has indicated that it may raise the benchmark interest rate again within the next six months. An increase in the benchmark rate could lead to a slowdown in consumer spending, hindering growth in the retail sector. If the rate hike materializes, it is expected to further chill an already sluggish domestic economy, with discretionary sectors like department stores likely to be hit harder than essential consumer goods like supermarkets and convenience stores.
Concerns about stagnant growth rates have also been raised. Department store sales have seen double-digit growth compared to the same period last year from the fourth quarter of last year through the second quarter of this year, raising fears that growth rates may slow in the second half. There are also analyses suggesting that the performance bonuses from large corporations have not translated into increased sales for department stores and retailers as initially expected.
Hana Securities stated, "The recent drop in the exchange rate is a factor heightening anxiety in the department store sector," adding, "If the sales growth rate for department stores falls below 5% compared to the same period last year, skepticism may spread across the market, potentially leading to another decline in related stock prices."
* This article has been translated by AI.
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