Investor confidence rests on two pillars: chip boom-driven wealth, rising foreign spending
South Korea’s department store operators have become some of the market’s standout performers, as luxury shoppers and foreign tourists return in force, turning the once-stagnant sector into an investor favorite.
Over the past six months, shares of Shinsegae, Lotte Shopping and Hyundai Department Store have surged 166.5 percent, 146.1 percent and 97.2 percent, respectively, as of Monday’s close. Shinsegae stands apart, up more than 300 percent over the past year, far outpacing its peers.
Industry officials point to the twin tailwinds of a chip-driven wealth effect at home and a tourism boom fueled by a weaker won and the global popularity of Korean culture.
“Korea’s department store sector has entered a new phase of growth, driven by both a recovery in domestic demand and a sharp increase in spending by inbound tourists,” an industry official said.
Visitor arrivals hit a record 4.74 million in the first quarter, according to the Korea Culture and Tourism Institute, while card spending by foreign visitors in Seoul rose 50.5 percent from a year earlier in April, reaching 1.15 trillion won ($760 million). Earlier this month, the Korean won slid to its weakest level against the dollar since early 2009.
Company disclosures point to robust luxury demand across the board, with all three operators posting roughly 30 percent growth in luxury goods sales in the first quarter.
Shinsegae reported record first-quarter operating profit of 141 billion won, up 30.7 percent from a year earlier, while Lotte Department Store and Hyundai Department Store posted operating-profit growth of 47.1 percent and 39.7 percent, respectively.
While Shinsegae is viewed as the sector’s leading luxury play, Lotte Shopping is leveraged to tourism growth in Busan and Hyundai Department Store is benefiting from strong sales at flagship stores such as The Hyundai Seoul.
Shinsegae has also won credit for its duty-free restructuring.
In April, the company exited a loss-making concession at Incheon Airport’s Terminal 2, taking a one-off charge of about 190 billion won to remove a long-standing drag on earnings. Analysts estimate the move could lift duty-free operating profit by nearly 10 billion won from first-quarter levels.
As for its duty-free business, Shinsegae is shifting its focus from market share growth to curated offerings, luxury brand partnerships and exclusive merchandise, the company explained.
Brokerages have become increasingly upbeat about Shinsegae’s prospects.
Daishin Securities recently raised its target price to 1 million won from a current share price of about 760,000 won. It cited expectations for 26 percent same-store sales growth in the department store division in the second quarter and improving profitability across its businesses. The brokerage expects the company to post record earnings this year.
“Just as Japan’s department store sector underwent a valuation rerating in 2023 and 2024 on the back of rising foreign visitor spending, Korea’s operators are likely to see further rerating alongside continued earnings growth,” an analyst from Daishin Securities said.
Shareholder returns have added to the appeal. Shinsegae retired 200,000 treasury shares earlier this year and raised its annual cash dividend to 5,200 won per share from 4,500 won. In 2025, it pledged to retire at least 2 percent of its outstanding shares annually over the next three years.
minmin@heraldcorp.com
