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Online luxury shops challenge retail giants in growing market

The introduction of new online retail channels is expected to expand the size of the local luxury retail industry appealing to an increasing number of younger shoppers with affordable price and convenience, industry watchers said.

Yet they face fierce competition from the market-dominant retail giants and are to overcome credibility concerns typically associated with e-commerce in the country.

With 4 percent of global sales, Korea has become a major consumer of luxury fashion in the international industry over the years.

The size of the domestic market stands at $4 billion as of 2009, which account for more than 15 percent of total fashion spending in the country, according to a report by McKinsey Global Institute.

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.

The popularity of luxury goods was a key driver of retailers’ growth, they said.

Luxury sales weathered the economic downturn posting a 16.7 percent rise between 2008 and 2009, making the country the second fastest growing market after China, according to the McKinsey Global Institute. The sales of luxury goods here have been growing at average 12 percent a year.

The launch of online malls such as Tryst, We Make Price, Private Lounge and Glam Life would be particularly appealing for younger consumers who have rapidly-changing tastes and eagerly seek bargains.

They offer past-season luxury goods at lower prices.

“I was thrilled when I heard the news that the ‘Korean Gilt’ was being launched here as I have enjoyed shopping at Gilt before,” Kim Hee-sook, a 26-year-old banker, said.

Whereas wealthy women in their 40s to 60s were the majority consumers of high-end fashion products in the country in the past, the younger generation has emerged as major consumers. 
Customers crowd a shop specializing in imported luxury goods. (Lee Sang-sub/The Korea Herald)
Customers crowd a shop specializing in imported luxury goods. (Lee Sang-sub/The Korea Herald)

“With fewer financial responsibilities, increased openness to new ideas and an eagerness to define themselves through how they dress, Koreans in their 20s and 30s have emerged as an exciting new demographic for retailers,” the McKinsey report said.

Also, the trend in the global luxury market now changes frequently, thus giving birth to several “it items” each season, with multiple new, emerging designers and brands.

Though a majority of Koreans go to department stores operated by retail giants including Shinsegae and Lotte to shop high-end fashion products, retail channels have become diversified to duty free stores, direct and indirect purchases at overseas online malls, and premium outlets.

Yet there has been a continuous demand for a more innovative one which would provide them with quality products at affordable prices. Korea is widely known for its higher-than-global average luxury goods prices.

Despite considerable potential, however, new online retailers also face risks as well, including credibility issues and competition with retail giants.

Many Koreans resist making big purchases online because of concerns about authenticity, sizes, after-sales services and the need to see and touch the product before buying, according to McKinsey.

“Though I am excited about the site, it will take some time for me to fully trust it and make expensive purchases there. More people would start buying from the site when the trust has been created and the price and quality is ensured,” Kim said.

Tryst also faces a strong competition with retail conglomerates who have been trying to drive growth by boosting off-season luxury goods sales.

Shinsegae, the nation’s third-largest department store operator with 5.4 trillion won in revenue last year, opened a Chelsea outlet in Paju, Gyeonggi Province, on March 18. The firm has launched one Yeoju, Gyeonggi Province, in 2007.

Following its competitor’s move, No. 1 retailer Lotte will open a large-scale premium outlet in Paju, Gyeonggi Province in November to compete with Shinsegae’s mega-outlet to be launched in March.

Lotte also plans to open a mega shopping complex in Pangyo, Gyeonggi Province in 2013. It will feature an extensive lineup of luxury and premium imported brands for middle- and upper-class customers in the new residential center, the firm said.

Alongside premium outlets, Lotte also runs high-end fashion products outlet at a number of their branches.

By Koh Young-aah (