Domestic consumption showing signs of slump

While Korea’s outbound shipments continue sustaining the economy, domestic consumption is showing signs of a slump with top retailers reporting falling sales.

According to Bank of Korea, the business survey index of domestic companies stood at 69 in March, far lower than 82 for exporters. Globally competitive exporters are pulling up overall indices, but companies focused on domestic consumers have long been suffering a slump.

Fashion is one of the industries hit by falling sales. Youngone Corp. saw its operating profit in its OEM business dip 11 percent in the first quarter, while Hansae marked a 14 bil- lion won operating loss on sales dipping 5.8 percent.

The Korea Federation of Textile Industries estimates that the country’s fashion market shrank 0.3 percent last year from 2016, which is the first contraction since 2008 when the country was hit by the global financial crisis.

“Consumers don’t seem to have enough money since the young generation is suffering from the tough job market while the older generation is preparing for retirement. As the contraction of consumer sentiment has become a chronic problem, fashion companies are trying to survive by expanding to other items,” an industry analyst said. Major apparel companies have been turning their eyes to items other than garments, such as cosmetics and kitchen utensils.

Department stores also saw their market contract 2 percent to 29.2 trillion won last year as sales of non-durable goods such as food and cosmetics dropped 0.3 percent in March from a year ago. The retail sales index rose 2.7 percent, but it seems that Chinese tourists contributed to this. Sales at duty free shops rose 59.1 percent with the return of Chinese shoppers.

The country’s top furniture company Hanssem saw sales drop 5 percent to 488 billion won in the first quarter from a year ago. Automobile sales also decreased 4.3 percent in the first quarter, as those for medium and large sized cars plummeted despite a 37 percent surge in demand for compact cars. This means consumers are turning to options where they can save money.

SK Telecom also saw sales drop to 2.9 trillion won in the first quarter, failing to achieve the 3 trillion won mark for the first time in 10 years; and TV sales are stagnant despite the World Cup.

Analysts point out that there are further risk factors with consumers.

Hong Joon-pyo, an economist at Hyundai Research Institute, said that sales may contract further following household debt restructuring.

“A key rate hike will be necessary to control household debt, but it could lessen sales.”

The country’s household debt increased to 1,468 trillion won in the first quarter.