Category: General

South Korea is trying to stem a drop in retail spending by replicating an American shopping tradition — Black Friday.

More than 34,000 stores, including three-quarters of the country’s department stores, slashed prices by as much as 80 percent in the Korean version of bargain-oriented Black Friday through Oct 14. The two-week campaign was launched by the Korean government in an effort to offset sales lost to online commerce and to attract shoppers from neighboring China and elsewhere back into stores.

In Korea, stores already hurt by online shopping were dealt another blow by the Middle East Respiratory Syndrome, or MERS, this year, which led to an 12 percent drop in revenue at department stores in June and another 6.5 percent decline in August. In July, sales were up very slightly, at 0.7 percent, from a year earlier as Koreans shopped ahead of the summer holiday season.

The MERS virus has infected 186 people and killed 36 since the outbreak on May 20. It scared away tourists, reducing the number of foreign visitors by 53 percent in July, and another 27 percent in August, from a year earlier.

Though the fallout from MERS subsided after the government declared July 28 that the virus was no longer a concern, the number of foreign tourists still continued to decline, and was down 3.8 percent in September from the previous year.

For department stores, that has created a bleak situation, as Chinese tourists in particular are important for strong sales. So the government stepped in, figuring a western-style Black Friday campaign — which has become a seasonal retail driver in the U.S. with bargain-basement deals the day after Thanksgiving — would help stimulate interest in going back into stores in Korea.

Sales jumped. For the two weeks through Oct. 14 at three major department stores — Lotte, Hyundai and Shinsegae — sales rose 24 percent from a year earlier, according to the finance ministry. Korean discount stores including E-mart, Home Plus and Lotte Mart reported a 3.6 percent revenue increase in the same period. The ministry estimates the overall upswing in retail sales to add about 0.1 percentage point to this year’s growth, forecast at 2.7 percent by the Bank of Korea.

“It’s a relief, albeit temporary,” said economist Lee Jun Hyup at Hyundai Research Institute, a Seoul-based private think tank focusing on the economy. “An upturn would be meaningful in that the campaign lifted consumer spending in the weeks following the national Chuseok holiday, when people tend to cut down on shopping.”

South Korean policymakers have been trying to expand the economy with temporary consumption tax cuts on cars and home appliances. Meanwhile, exports — which account for about half of the nation’s economic output — fell every month this year.

Seoul’s plan is to host similar retail campaigns in the future. If successful, this could redirect local consumers back to Korean malls, which lose about 800 billion won ($707 million) every year during the peak shopping period of November and December to U.S. retailers such as Amazon.com Inc., said Lee Hyoung Ryoul, the finance ministry director in charge of organizing the event.

In South Korea, the jicgoojok — literally, a tribe of direct buyers — increasingly buy goods from overseas online retailers at much better prices than offered at local stores. The trend is a challenge to Korea’s retailers, which have enjoyed agreements with manufacturers that allow them to charge a premium for foreign and domestic products with little concern for competition.

A report by the Korea Customs Office last year showed that some import goods sold through exclusive dealerships including wine, lipstick, cheese and car tires were as much as 9.2 times more expensive in Korea than they were overseas.

Unlike the U.S., where retailers control prices and offer discounts to clear out inventories ahead of the Christmas shopping season, Korean department stores often lease space to vendors without control over inventories. To stem the retail decline, the government would have to include more manufacturers and not just retailers in future Black Friday events, Lee at HRI said.

While early results show the shopping event was successful, the discounts were limited. Most foreign brands in the high-end category, such as cosmetics and jewelry, didn’t participate, unless they were featured at select shops. Home-appliance stores directly controlled by Samsung Electronics and LG Electronics also weren’t part of the sales, according to the finance ministry.

Still, some had their own sales — Tommy Hilfiger Kids at Lotte’s headquarters store was offering some items at a 30 percent discount last week in an event separate from the nationwide Black Friday.

Some shoppers were disappointed that the discounts weren’t deeper — especially as they had been heavily promoted.

“This is not much different from usual sales department stores regularly hold,” Shin Ji Hye, a 37-year-old mother said while taking a break from shopping for her toddler daughter in downtown Seoul. “I have seen some discounts on women’s clothing floors but most of them offered 10 percent. I think I will go back to online malls and wait for the real Black Friday in the U.S.”