When COVID-19 first exacted damage upon the Korean economy in February 2020, no one expected the luxury goods market to experience a boom.
Under the government’s strict quarantine measures, people have been forced to stay home. As well as restaurants, coffee shops and department stores, luxury boutiques were restricted from operating after 9 p.m. Opening hours for business places have recently been extended by just one hour.
Korea’s potential growth rate predicted by the Bank of Korea between 2019 and 2020 dropped by 0.4 percentage point to 2.2 percent ― implying that household consumption expenditures will decrease as a result.
Many individual businesses and major companies were affected harshly, as expected, but demand for luxury goods surprisingly soared.
Some people would have traveled abroad and spent money dining out at fine restaurants if the pandemic had not halted such actions. But with the pandemic having continued for nearly two years, a large number of people have their sights set on owning luxury goods.
There are many reasons why Koreans love luxury goods, but the biggest is scarcity. In the case of Chanel, there is a saying: “a person cannot own it even if he or she has money.” The French high-end fashion house already raised the price tags of its luxury items three times this year ― in February, July and September ― and it is preparing for another increase in November.
Because of the frequent price hikes, some are purchasing Chanel products aiming to sell them later at a higher price. These so-called “re-sellers” wait hours before luxury boutiques open and buy as many popular handbags and accessories as they can when the stores open, only to resell the goods at a higher price online.
According to the National Assembly Strategy and Finance Committee’s report by Rep. Suh Byung-soo of the main opposition People Power Party, over US$293.32 million worth of luxury handbags were imported into Korea in August alone.
In August, 2019, the figure reached US$150.2 million, which then increased to US$203.3 million a year later.
Comparing the total amount of luxury goods imported before COVID-19 struck, the figure skyrocketed nearly 99 percent from US$149.2 million two years ago.
Local department stores are taking advantage of this trend.
The so-called “big three” players ― Lotte Department Store, Shinsegae Department Store and Hyundai Department Store ― all have adopted aggressive marketing strategies to open more popular international luxury brand stores inside their shopping malls.
Sales generated by luxury products are the third-largest source of revenue for department stores after home appliances and sports items.
Unfazed by frequent price hikes by luxury goods makers, customers continue to form long lines in front of high-end boutiques even before they open.
The demographics of luxury goods buyers has also changed in Korea, with millennials joining the major consumer segment that was dominated by middle-aged people.
People in their 20s and early 30s say the price of a home in Seoul and other major cities has soared to unreachable levels for them, making it pointless to save up money to afford one. As a result, young Koreans are splurging instead on Chanel bags and Gucci loafers.
Ultra-low interest rates have also dampened the financial allure of parking money in savings accounts. That has prompted many young people to want to focus on the present rather than plan for an uncertain future.
Lotte Shopping, which operates Lotte Department Store, is expected to see a 30 percent increase in sales in the third quarter of this year.
Luxury product sales at Shinsegae Department Store during this year’s Chuseok, or Korean Thanksgiving Day, soared 39.1 percent, spearheading a 26.4 percent increase in overall revenues.
Hyundai Department Store also managed to achieve its operating profit target of between US$51.6 million and US$55 million. Despite a resurgence of COVID-19 infections in early July, Hyundai Department Store’s overall revenue for the third quarter shows consumer sentiment barely flinched.
“The fourth resurgence of the pandemic here, which started in early July, has not significantly damaged local department stores’ business performance. The demand for home appliances and furniture has slowed down, but the demand for luxury goods and fashion items stays strong, which will continue to improve sales for retailers here,” Park Sang-jun, an analyst at Kiwoom Securities, said.
Ironically, thriving luxury goods sales in Korea have been accompanied by similar growth in the counterfeit market.
Luxury items become pricier every year and they are largely unaffordable for people in the low- and middle-income groups. However, many people here are driven to, as the old expression goes, “keep up with the Joneses” thus leading them to purchase fake luxury products.
The amount of imitation luxury goods imported here has been increasing every year to reach an all-time high. There have been 1,866 seizures of imitation luxury handbags being smuggled into Korea over the past four years, according to the Korea Customs Service. Their total value would amount to US$396.1 million if they were authentic items.
French luxury brand Louis Vuitton’s handbags were the most popular in the domestic counterfeit market. A total US$125.6 million of fake Louis Vuitton products were seized by the Korea Customs Agency, followed by US$59.3 million worth of Chanel imitations and US$24.9 million worth of bogus Gucci products.
As expected, global luxury brands have declared a war on fake products by limiting the number of boutiques in Korea while restricting purchases to one handbag per person for popular models.
Chanel, a favourite luxury brand in Korea, will only allow each person to buy one small leather goods item per year.
Chanel said it cannot comment on whether the new policy only applies to the Korean market or also the global market.
Another luxury firm Hermes also implemented a shopping policy in Korea to restrict customers from buying more than two handbags of the same design.
(Source: Korea Times)