Koreans turned to luxury for solace during pandemic

Industry

Published: 02 Feb. 2021, 19:35 Updated: 03 Feb. 2021, 11:24

Koreans turned to luxury for solace during pandemic

People line up outside the Lotte Department Store's main branch in Jung District, central Seoul, after news broke of price increases by French luxury fashion brand Chanel last May. [YONHAP]

The pandemic has forced Koreans to foreswear many things — but not luxury goods.

Family visits for the Lunar New Year holiday this month may be canceled, but not the trip to the Rolex boutiques at department stores, where people have been lining up before the doors open at 11 a.m.

By noon, popular models are frequently sold out.

“I needed a certain watch for my son and I begged, but that didn't get me anything,” said a recent Rolex shopper in her 60s. “I ended up giving up and giving him cash instead.”

The most popular Rolex at the moment is the Datejust model in steel, which was worn by U.S. President Joe Biden during his inauguration, which costs around 16 million won ($14,300). But supplies are short and demand so high that secondhand models are now selling for up to 33 million won in Korea.

The luxury market is booming in Korea, not despite the pandemic but at least partly because of it. Last year, sales at Lotte Department Store’s Incheon Terminal branch in Michuhol District, Incheon, rose 40 percent on year after it introduced 15 foreign luxury brands including Bottega Veneta, Balenciaga, IWC and Yves Saint Laurent. The popularity of those brands led to a 1.8-percent increase in overall sales for the branch. (The Incheon Terminal Branch is separate from duty-free shops in the airport itself).

Hyundai Department Store's Pangyo branch, Galleria Department Store's Luxury Hall, Shinsegae Department Store's Centum City and Gangnam branches in southern Seoul all experienced from 5- to 9-percent growth in sales for the same reason: Raging demand for luxury brands. In contrast, department store sales nationwide dropped 9.8 percent last year due to the impact of social distancing measures.

Globally, the luxury market was hit hard by the coronavirus pandemic. According to a report from consulting firm Bain & Company, the global market for luxury fashion and accessories was $262 billion last year, a 23-percent drop from the previous year. That was the sharpest reduction since relevant data started being collected in 1996.

But in Asia, the impact was different, and last year Asia became the forerunner in terms of market size for luxury brands for the first time, overtaking Europe and the Americas.

Last year, China accounted for 20 percent of luxury goods sales worldwide, and the rest of Asia excluding Japan took 13 percent. Meanwhile, Europe’s market share shrunk from 31 percent in 2019 to 26 percent in 2020. The share for the Americas dropped from 30 percent to 28 percent.

“Japan’s consumption froze, and the situations in Hong Kong and Macau are the worst,” Bain & Company said in the report. “However, Korean consumers showed a strong appetite for luxury consumption.”

China and Korea have shown the biggest demand for luxury brands during the pandemic.

“Last year, sales of top luxury brands like Hermès and Chanel grew 30 to 40 percent on year in Korea,” said an executive of a foreign luxury brand. “For less exalted brands, sales grew about 10 percent to 20 percent.”

“The rich-get-richer and the poor-get-poorer cycle exists in luxury brands as well.”

Consumption in general has been anemic. According to the Bank of Korea, consumption during the third quarter of 2020 dropped 3.3 percent on year.

Industry experts say bullish stock and property markets spurred consumption in the country for luxury goods.

“The funny thing is that there is a possibility that the rise of the stock market impacted the increase in consumption of luxury goods,” said Kyoung Woo-sun, an associate partner at McKinsey & Company.

The Kospi dropped to 1,457.64 on March 19 last year, recovering to the 2,000-point level in May and closing at 2,873.47 points on Dec. 30. It ended the year up 32.1 percent.

The real estate market has been another engine. Mr. Heo, a 39-year-old office worker, bought an apartment for around 600 million won last year, and its value rose to around 800 million won.

“It took me more than five years to earn 100 million won from my salary, but I have been spending much more after earning over 200 million won in just a few months,” Heo said. “I bought a luxury wallet, belt and briefcase for the first time.”

Ms. Shin, 34, owns an apartment in Ahyeon-dong in Mapo District, western Seoul, where the value of properties rose to the 1.8-billion to 1.9-billion-won range.

“I feel rich. Young moms in the neighborhood have recently been sporting luxury bags from Hermès and Chanel,” Shin said.

Even without paper profits, many people simply have money to splurge because they can't travel anywhere.

Park Ji-eun, an office worker in her 40s, used to spend around 10 million won on summer and winter holidays every year. She could not go anywhere last year.

“Before the coronavirus pandemic, I was choosing between travel and luxury goods, but now I go directly for the luxury items,” Park said.

“Companies cannot suddenly ramp up production because this trend is temporary,” said a spokesperson for a luxury jewelry brand.

The perception that luxury goods are a type of investment rather than mere consumption is another factory behind the boom. Realizing the possibility of resale, some customers look for products that will allow them to get their original purchase price back.

“The current luxury boom can be traced to the wealth effect, which suggests that people spend more as the value of their assets rise, even if their incomes stay the same,” said Kim Sei-wan, an economics professor at Ewha Womans University. “The effect has been combined with people’s desire to invest in goods, just in case the value of the currency decreases.”

BY LEE SO-A, YOO JI-YOEN AND BAE JUNG-WON [lee.jeeyoung1@joongang.co.kr]