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Slide in domestic consumption casts shadow over retail's Q1 earnings

Published: 09 May. 2025, 18:37 Updated: 11 May. 2025, 17:27

Customers shop for items at a supermarket in Seoul on April 13. [YONHAP]

The downturn in domestic consumption due to the economic slump has cast a shadow over the first quarter earnings of the retail industry, with even previously thriving convenience stores experiencing a significant decline in operating profits.

Excluding overseas operations and base effects, meaningful growth was not achieved, according to analysts. Retail companies are anticipating improved performance in the second quarter, which will reflect the "Family Month" sales boost in May.

Lotte Shopping, which has actively pursued overseas markets such as Vietnam and Indonesia, posted strong first quarter results despite the economic downturn. Lotte Shopping announced Friday that it recorded sales around 3.46 trillion won ($2.47 billion) and an operating profit of 148.2 billion won in the first quarter. While sales decreased by 1.6 percent compared to the same period last year, operating profit increased by 29 percent.

Domestically, sales declined in both department stores, down 1.4 percent, and hypermarkets, down 3.4 percent, but the situation was different overseas.

In the first quarter, sales at Lotte Mall West Lake Hanoi increased by 21.9 percent, leading to a 33.8 percent growth in total sales across Lotte's three department stores in Vietnam. Sales at department stores in Indonesia also rose by 2.7 percent. Hypermarkets saw sales growth of 8.2 percent in Vietnam and 10 percent in Indonesia.

Thanks to the success of its overseas operations, operating profit from department stores increased by 44.3 percent compared to the same period last year. The closure of the Masan store last year and the renovation of flagship stores in Myeong-dong and Jamsil, aimed at improving store efficiency, also contributed to the improved performance.

An employee arranges pork belly at a large supermarket in Seoul on April 13. [NEWS1]

However, hypermarkets and supermarkets, which were directly impacted by the domestic consumption slump, saw significant declines in operating profit, down 35 percent and 74 percent, respectively.

"We plan to continue expanding our overseas business, focusing on Southeast Asia, while actively pursuing renovations of major domestic stores and new business ventures," said Kim Won-jae, CFO of Lotte Shopping.

Hyundai Department Store achieved strong results, driven by the performance of its duty-free business and subsidiary Zinus. The company announced that it recorded sales of around 1.1 trillion won and an operating profit of 112.5 billion won in the first quarter. Sales increased by 15.4 percent and operating profit by 63.3 percent compared to the same period last year.

While sales and operating profit from department stores saw slight declines of 0.8 percent and 5.7 percent, respectively, duty-free sales rose by 22.1 percent to 293.5 billion won. This growth was attributed to the recovery in overseas travel demand, which had sharply declined last year, providing a base effect.

Zinus, a mattress specialist, contributed to the improved performance, with a 64.2 percent increase in sales to 249.9 billion won and an operating profit of 27.5 billion won, returning to profitability due to increased sales in the United States.

Customers shop for goods at a supermarket in Seoul on April 6. [YONHAP]

In its earnings announcement, Hyundai Department Store also disclosed the acquisition of 33,943 treasury shares, equivalent to a 1.5 percent stake, worth 21.1 billion won.

Additionally, the company announced the sale of its entire stake in Hyundai Home Shopping — 881,352 shares, representing a 7.34 percent stake — for 51.9 billion won to Hyundai GF Holdings, the group's holding company. This move is part of the group's efforts to reorganize shareholdings among affiliates following Hyundai GF Holdings' transition to a holding company structure.

"The one-time gain from the sale of Hyundai Home Shopping shares has been returned to shareholders through the acquisition of treasury shares," said a Hyundai Department Store representative. "This reflects the management's commitment to enhancing the company's undervalued corporate value."

The once-thriving convenience store sector has not been immune to the effects of reduced consumer spending.

Convenience store sales in the first quarter decreased by 0.4 percent compared to the same period last year, according to the Ministry of Trade, Industry and Energy. This marks the first time since data collection began in 2013 that convenience stores have experienced negative growth on a quarterly basis.

GS Retail's first quarter earnings report revealed that sales increased by 2.2 percent on year to 2.76 trillion won, but operating profit plunged by 22.3 percent. Operating profit from GS25 convenience stores fell by 34.6 percent, while GS The Fresh supermarkets and GS Shop home shopping saw declines of 21.2 percent and 31.7 percent, respectively.

Similarly, BGF Retail, which operates CU convenience stores, reported a 3.2 percent increase in sales to around 2.02 trillion won, but a 30.7 percent decrease in operating profit to 22.6 billion won.

"There is anticipation for domestic demand stimulus measures from the new government following the early presidential election," said Oh Rina, an analyst at LS Securities. "Second quarter results, reflecting May's gift-giving demand and discount events, have the potential for improvement."

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY KIM KYUNG-MI [[email protected]]