The dynamics governing Seoul’s retail sector are evolving. Similar to other global metropolises, the drivers are rooted in a broader demographic shift. In the case of Seoul, the emergence of single-person households is having a profound effect on consumer spending habits in South Korea’s capital and how retailers are positioning themselves to this emerging superclass.
The argument for appealing to Seoul’s single-person households is compelling for retailers. According to the latest Population and Housing Census conducted by Statistics Korea, the total number of single-person households has surged from about 1.6 million or around 13% of the total households in 1995, to over 5.1 million or 25% of total households in 2015.
As a result, changes in household composition have significantly affected consumer spending and the wider retail market. And for good reason. The average expenditure of a person in a single-person household is the highest of any household group, at around KRW 1.31 million per month. By comparison, a person in a two-person household spends approximately 25% less, at about KRW 0.98 million per month.
So where is this change occurring? The difference in expenditure is most visible in the clothing and cosmetics sector, where single-person households spend about KRW 220,000 per month, while two-person households spend around KRW 150,000 per month. Furthermore, the difference in expenditure between a single-person household and other multiple-member households is at its highest in the 20s and 30s demographic. A single-person household in this age group spends up to 25% more compared to multiple-member households in the same age group.
Further research indicates the depth of single-person households and their position at the epicenter of the Korea retail market. Retail options are increasingly expected to be in close proximity to their workplace, a trend which has driven the growth of the F&B sector.
There is increasing evidence that domestic and foreign retailers are also looking to capitalize on this expanding market segment. Examples include domestic retailers offering a wider range of F&B products and services in the format of Home Meal Replacement (HMR), or ready-made meals. The HMR market has grown significantly from KRW 800 billion in 2011 to an estimated KRW 2.3 trillion by the end of 2016.
Furthermore, interantional food chains specializing in takeaway and/or grab-and-go type offerings are also active in the market. For example last year, a Japanese takeaway bento chain entered the Seoul market for the first time in the Gongdeok station district, which is home to numerous single-person households and a large population of office workers.
Adept in absorbing new emerging lifestyle trends, market savvy providers continue to establish new niches in Seoul, contributing to the development of fresh food service industries and concepts. Since 2010, the restaurant industry encompassing restaurants, cafes, dessert places and others have witnessed rapid growth from KRW 66 trillion in market size to KRW 83 trillion by the end of 2015. Clearly, this is food for thought for ambitious retailers looking to capitalize on the spending power of South Korea’s single-person households.
Darren Krakowiak is Managing Director and Country Representative of CBRE Korea, with oversight for the operational management, strategic direction and financial performance of all business lines in Korea. Based in Seoul, he is responsible for building alignment between CBRE’s Korea and global platform, providing advisory solutions for domestic and multinational investor and occupier clients, and managing and developing personnel in this market.