[NEWS IN FOCUS] The reshaping of Korean retail: global brands expand offline through flagship, pop-up stores

Industry

Published: 21 Nov. 2023, 06:00

[NEWS IN FOCUS] The reshaping of Korean retail: global brands expand offline through flagship, pop-up stores

A street on Myeong-dong, central Seoul, bustles with locals and tourists on Oct. 3 [NEWS1]

Traditional shopping districts like Myeong-dong and Hongdae, once plagued by high vacancies, are staging a comeback by leveraging expansive flagship stores to emerge as new hot spots for both locals and tourists. Emerging districts like Seongsu-dong and Hannam-dong are fortifying their status as hipster sanctuaries with constant pop-up stores.

As Korea's retail sphere witnessed shopping dominance move from physical stores to online platforms in the throes of the Covid-19 era, global brands are reimagining their offline spaces in Korea with flagship and pop-up stores in a way that can elevate the consumer experience.

Global brands such as Nike, Apple, Adidas and Lululemon are erecting flagship stores in Myeong-dong and infusing experiential elements to bring back customers who migrated to online platforms during the pandemic.

Burberry's Seongsu Rose pop-up in Seongsu-dong, eastern Seoul [BURBERRY]

Return to physical stores

Dan Kim, head of Retail Services at Cushman & Wakefield Korea [CUSHMAN & WAKEFIELD KOREA]

Dan Kim, head of Retail Services at Cushman & Wakefield Korea, observes a notable shift in retail strategy — brands are departing from the conventional multi-store approach, opting instead to reduce the number of outlets and transform a single store into an experiential hub. This Online-for-Offline (O4O) strategy involves creating diverse, thematic environments.

"Consumers who had high-immersion experiences in offline stores have heightened brand loyalty, and that is why brands are responding by increasingly deploying flagship and pop-up stores to deepen their engagement with consumers," Kim said in an email interview with the Korea JoongAng Daily on Friday.

The six major commercial districts in Seoul — Myeong-dong, Gangnam, Hongdae, Garosu-gil, Hannam & Itaewon, and Cheongdam — are back in bloom with the return of foreign tourists post-pandemic. The combined vacancy rate dropped to 19.4 percent in the third quarter of this year, down from 23.6 percent in the same period last year.

Cushman & Wakefield, a global real estate consulting firm, guides foreign companies entering the Korean market. Kim highlights the significance of tailoring store placements based on the distinctive characteristics of each district.

A shop along Garosu-gil in Gangnam District, southern Seoul, temporarily closed with white drapes. [MEWS1]

Dazzling Myeong-dong, dimming Gangnam

"For example, districts like Gangnam, with its bustling office hubs and robust transportation network, offer high visibility with large storefronts along main thoroughfares," Kim said. "As a result, opening stores in Gangnam allows foreign franchises to naturally gain brand exposure and benefit from promotional effects.

"Cheongdam, renowned for its 'luxury' appeal, imparts a premium image to brands entering the locale, while Myeong-dong, characterized as a 'mass' commercial district, aims to attract consumers of all demographics and nationalities," Kim added.

Looking at different business districts, recovery speeds vary across different regions. Vacancy rates have dropped in Myeong-dong, Gangnam, Hannam and Itaewon compared to the previous year, while locations such as Garosu-gil, Cheongdam, and Hongdae have experienced an increase in vacancy rates.

Myeong-dong, recognized as Korea's oldest commercial and tourist hub thanks to its location near major tourist attractions, hotels and department stores, is witnessing a significant turnaround. The once 45.8 percent vacancy rate in the third quarter of the previous year has plummeted to 12.7 percent this year, marking an impressive 33.1 percent year-on-year decrease — the most substantial drop among Seoul's six major commercial hubs. With the return of tourists post-pandemic, Myeong-dong is swiftly reclaiming its status as a bustling commercial center.

Even amid economic downturns, global giants like Apple and Adidas have chosen Myeong-dong for their flagship stores. The third quarter sees the anticipation of new openings by Lululemon and Musinsa Standard, contributing to the rapid recovery of vacancy rates.

Conversely, Garosu-gil in Gangnam District witnessed a 7.7 percent increase in vacancy rates compared to last year, indicating a challenge in its recovery journey. Despite signs of gradual recovery after reaching its peak in 2021, the third quarter of this year recorded a vacancy rate of 37.2 percent, the highest among the six major commercial districts. Cushman attributed this slow recovery to the shift in key visitors from domestic to foreign tourists, particularly from China, causing a delayed rebound post-pandemic. Cheongdam, another area in Gangnam, also saw a 2.7 percent increase in vacancy rates compared to the previous year, reaching 18.4 percent.

Adidas Brand Flagship Seoul in Myeong-dong [ADIDAS KOREA]

A test bed for success

Concerns persist over the impact of high interest rates and living costs, compounded by heightened uncertainty due to the recent surge in international oil prices.

Despite the overall economic challenges, global brands are making their mark in the Korean retail landscape, underpinned by a view that "recognizes Korea not only as a retail market with potential but also as an ideal testing ground," according to Kim.

"Korean consumers, known for their trend sensitivity and keen interest in retail, offer a valuable gauge for success in the global market," Kim explained. "Unlike the traditional trend of global brands opening their first Asian stores in cities like Tokyo or Hong Kong, Korea is now stepping up as a pivotal entry point into the Asian market."

BY SEO JI-EUN [seo.jieun1@joongang.co.kr]