As South Korean shoppers shun public places over the spread of Middle East respiratory syndrome (MERS), Shinsegae Co has a proposition: Online discounts of as much as 80 percent on brands, including Armani Exchange and Vivienne Westwood.
In-store sales at large department stores — such as Shinsegae’s Centum City, the world’s largest — fell as much as 20 percent from a year earlier two weekends ago, according to Samsung Securities Co, while cinema visits were down 52 percent this month through Thursday last week.
Lotte Shopping Co’s department-store unit expects customers to avoid public places throughout this month and instead is chasing demand online with discounts of as much as 70 percent.
Photo: Bloomberg
“Since end-May we’ve seen a steep increase in online sales as customers refrain from outdoor activities,” Lee Wan Shin, head of Lotte Department Store’s marketing, said in an e-mailed statement. “We expect this mood to continue in June.”
Preventing a stall in the country’s 360 trillion won (US$322 billion) retail sector is essential to sustaining growth in a country whose exports fell last month at the fastest rate since 2009.
“The [South] Korean economy could tumble into recession” if MERS cases spread and poor handling of the outbreak dents consumer confidence, Sharon Lam, an analyst at Morgan Stanley in Hong Kong, wrote in a note on Monday last week. “We are worried that it could kill the recovery momentum and that the economy could get into a vicious downward cycle.”
Department store sales fell 17 percent in the first week of this month from a year earlier, the South Korean Ministry of Strategy and Finance yesterday said by e-mail.
Sales at large retail stores fell 3.4 percent.
It is also putting off foreign visitors: 108,085 tourists have canceled trips to South Korea due to MERS as of Saturday, the South Korean Ministry of Culture, Sports and Tourism said in a media briefing yesterday.
The Bank of Korea cut its key interest rate to a record-low 1.5 percent on Thursday last week and said that MERS poses an imminent threat to consumer spending.
“Consumer-related businesses are likely to experience an impact from MERS first,” Bloomberg Intelligence analyst Tim Craighead said by e-mail. “Airlines and hotels may see booking cancellations, while retail shops and casinos could get hit due to fewer visitors.”
People’s caution about venturing out may be running ahead of the risks. Unlike SARS, which infected more than 8,000 people mainly in China and Hong Kong in 2002 and 2003, MERS does not appear to spread easily.
However, the fatality rate from MERS is about 37 percent — much higher than the 10 percent rate for SARS — and the disease has killed about 449 people in nearly three years since it was first identified in Saudi Arabia. That compares to 774 killed in eight months during the SARS crisis.
That is not stopping retailers from adapting as people avoid city centers. Online retailers and convenience stores have seen increased sales thanks to “citizens avoiding public places” and “more shoppers making smaller purchases at neighborhood markets,” Oj Nam, a retail analyst at Samsung Securities in Seoul, wrote in a note on Monday last week.
Online sales at Lotte Department Store rose 45 percent June 1 to Tuesday last week compared with a year earlier, with sales of health foods up 81 percent, the company said in an e-mailed statement.
Its online promotions are being matched by Hyundai Department Store Co, which said it would offer online discounts of as much as 70 percent on about 200 products yesterday and today.
Falls in retail sales and tourism alone could cut GDP growth this year by 0.15 to 0.8 percentage point, Lam said.
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