Private spending polarized amid downturn

Sales of luxury goods, cheap necessities soar simultaneously

A man in his early 30s surnamed Lee has yet to decide which designer store he wants to shop at.

Judging from the latest updates from an email alert, the fall-winter season clothing line from Gucci does not seem to be too bad a choice.

Paul Smith, a popular British brand among young male “hipsters,” is his next choice for a dress shirt and a pair of brogues.

“I know fashion trends are only good for about a season, and feeling good about buying new items is gone a couple of minutes or hours after you make payments. But it doesn’t mean that I’m not happy when I buy them.”

The recent economic slowdown is something he has heard about on the news but as someone from a wealthy background he’s not feeling the pinch.

“The central bank is likely to further lower the key rate, which will make loans cheaper. I don’t want anything in particular at the moment, but it doesn’t sound too bad if I decide to take out a loan to buy something.”

By contrast, a mother of a twoyear-old, surnamed Kim, has been meaning to stay up until midnight to buy toilet paper, baby wipes and boxes of bottled water so she can take advantage of e-commerce flash sales that only last for a couple of minutes.

“New e-commerce sites have limited-time, flash deals on daily necessities. I try to click fast to get them otherwise I end up paying more for items that aren’t worth that much,” she said.

These are two examples showing how consumption patterns vary between the haves and the have-nots amid the current economic slowdown, according to Yun Changhyun, an economist at the University of Seoul.

“Rich people unaffected by the current economic conditions have seen the value of their assets boom and their income grow over the past few years, and their spending power has increased. Low-income earners including minimum wage workers, by contrast, are pushed to find cheaper goods,” Yun said.

Polarizing figures

Retailers, especially those run by large conglomerates — long considered the shopping venue for the country’s lower- to middle class — have seen their sales plummeting over the past few months, while department stores are enjoying an unexpected sales boom. Many retailers including E-mart and Lotte Mart are struggling to keep up with e-commerce sites, unable to slash prices due to the cost of retaining minimum wage workers.

According to a quarterly business survey conducted by Korea Chamber of Commerce and Industry (KCCI), the retail business survey index (RBSI) stood at 91 in the third quarter, a 1 point drop from the quarter before.

A reading below the benchmark 100 means pessimists outnumber optimists.

Of them, the index for large retailers hit a five-year low at 81, down 13 points from the second quarter.

By contrast, the index for department stores was 103, up 17 points from the previous quarter, while that of e-commerce-based and TV-based home shopping sites rose two points to 105. These were the only two out of five sectors that had readings above 100.

Data from the Ministry of Trade, Industry and Energy showed designer brand sales at local department stores in the first seven months of 2019 increased 17.2 percent from a year earlier, the highest jump since 2012.

The marked jump came only two years after the single-digit year-onyear increase from 2012 and 2017 spiked to 10.4 percent in 2018. The figure was 2.9 percent and 5.4 percent in those two years, respectively.

According to data from Lotte Department Store, its designer brand sales in the first eight months of 2019 spiked 24.7 percent from the year before.

The rapid increase in luxury goods sales comes amid Statistics Korea’s August data which showed income inequality in the second quarter of 2019 was the widest in 16 years.

Measured by disposable income earned by the top 20 percent divided by that earned by the bottom 20 percent, the figure was 5.3, up 0.07 from a year earlier. This is the highest second quarter figure since 2003, the statistics agency said.

Irony of income-led growth

The widest income gap comes as an unintended consequence of the “income-led” growth policy defined by the 30 percent increase in the minimum wage over the past two years and reduced maximum working hours.

“The rise in the minimum wage helped high-income salaried workers claim greater bonuses, including extra pay and benefits. What’s better is that their quality of life also improved after the government reduced maximum working hours,” Yun said.

This is highlighted by those on the bottom of the economic scale losing jobs, an inevitable result of small businesses trying to simply “survive.”

“Minimum wage jobs disappeared fast over the past few months as small business owners that are barely making money were not able to pay them. The income growth helped only those who could live without it and destroyed those who could not,” he added.