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‘Knowing market key for foreign retailers’ entry here

By Koh Young-aah
Foreign retailers seeking to enter the Korean market should consider its unique traits and cultural differences to succeed, according to Richard Hwang, managing director of global commercial real estate services firm Cushman & Wakefield’s Korean unit.
“A lot of global retailers have experienced failure here because they had little understanding of the market before entering it. As much as the vibrant market can be appealing to them, its unique traits may make it challenging for them at the same time,” Hwang said in an interview with The Korea Herald.
Hwang has been spearheading the Korean branch of C&W, which is present in 60 countries, offering advisory, leasing, sales and management services for real estate ― office and retail ― projects within the country since 2009.
Due to the dynamic local retail market and a rather static office market, the firm’s business here has consequently been focused more on retail, Hwang said.
C&W is known for successfully helping the Korean launches of global fast fashion brands Zara and H&M in 2005 and 2010, respectively.
Korea has emerged as a prominent retail market in Asia along with Japan, China and India in recent years.
Combined sales in the industry are expected to reach a record high of greater than 200 trillion won ($179 billion), despite speculation that the industry’s growth is likely to be slower this year as lingering global uncertainties and inflation jitters may dampen consumer sentiment.
Rebounding from the global slump, the Korean retail industry posted a 10.4 percent on-year growth in the first half of 2010, according to Statistics Korea. Experts put its full-year growth at 7-8 percent.
Korea is a prospective and vibrant market but a challenging one at the same time, Hwang said.
“Korea is an uneasy market where foreign retailers tend to be surprised by the large dominance of department stores, separated ownership structure within a building and the concept of ‘premium,’ in rent” he said.
“This is why a lot of global retailers tend to make a rather late entry into the local market. They go to Hong Kong, then to Japan and finally to Korea.”
Foreign retailers often find that the large buying power of department stores and the limits on store space they can get conflicts with their pursuit of a strong brand identity and large store format.
The insufficiency of “quality” shopping malls which are suitable to house leading international brands is another concern for foreign retailers, according to Hwang.
The global retail sector, led by fast fashion brands and luxury brands, has increasingly sought larger store space where they can sell a variety of product lines and items.
This led to a polarization of the local retail real estate market since the 2008-9 global financial crisis, Hwang said.
Myeong-dong, in particular, has risen as a prime retail district in the central business area where fast fashion brands such as Zara, H&M and Uniqlo compete fiercely.
“The rents in ‘quality’ regions which can locate a flagship store of a leading retailer are soaring in Myeong-dong and Gangnam, whereas those of others, including Apgujeong-dong are plunging,” Hwang said.
The average monthly rent per square meter was $615 per in the first quarter at Myeong-dong’s main streets, according to report by C&W. Rates for Gangnam station area and Apgujeong-dong stood at $387 and $137, respectively.
With the upcoming completion of major western-style shopping malls this year and next, Hwang projected that the retail real estate market would grow further in the near future. The list includes Dcube Hills in Sindorim, Northern Seoul, and IFC Seoul Malls and Parc1 in Yeouido.
Hwang, meanwhile, said the local office market, which tends to be insensitive to changes in the market compared to that of Singapore or Hong Kong could be suitable for ‘moderate’ investors.
“Office rents in Korea do not fluctuate according to their vacancy rates like they do in Hong Kong and Singapore. This can be good for investors who are looking for both stability and profitability,” Hwang said.
Hwang attributed the little-changing office rent prices to the lack of commercial office developers in the market.
Most of office buildings in Korea are built by large companies which use it as their own headquarters and lease left-over spaces.
Despite the rising supply of offices expected due to construction of new office buildings, C&W expected in a report that Seoul’s office market would see stabilization as much of the new supply is forecast to be absorbed by latent demand accumulated due to years of undersupply.
(youngaah@heraldcorp.com)
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