Published by Vogue Business on 15 April 2020

South Korea's response to the Covid-19 outbreak is regarded as a model for success, but its economy hasn't been spared. Notably, the country never enforced a complete lockdown, instead encouraging people to voluntarily stay home, work remotely and avoid crowded places. Bars, clubs, restaurants, gyms and department stores remain open under the condition that they ensure a safe distance between customers and enforce wearing masks whenever possible. (One exception is in the capital Seoul, where the mayor last week ordered the closure of entertainment establishments until 19 April.) This approach has yielded mixed results. South Korea has avoided major disruption to production and manufacturing and some segments of luxury retail in the country are seeing sales rebound. But external factors like a decline in inbound tourism, a sharp reduction in international demand and trade disruptions also wreaked havoc on duty-free sales and exports, which declined 18.6 per cent between 1 and 10 April, compared to last year.

The silver lining: duty-paid luxury sales. In February, the country's most important department stores, including Lotte, Galleria, Shinsegae and Hyundai, registered an increase in luxury sales between 2.4 and 17 per cent even as overall sales fell. In March, when social distancing measures became widespread, luxury sales for department stores dipped in the double digits, but sales rebounded in the first week of April. Overseas luxury brand sales were up 5.4 per cent and overseas watch and jewellery brand sales were up 27.4 per cent at Lotte. "[The drop in] tourism is impacting duty-free, but department stores are really about the domestic market and locals," says Lisa Hong, senior research analyst at Euromonitor International.

Even as department stores and retailers have been allowed to remain open, online sales are on the rise and companies are renewing focus on digital strategy. Even department stores, which have generally been slow to adapt to e-commerce in the country, reserving only limited stock options for their online channels, have stepped up their efforts. Aside from expanding their assortment online, they are hosting live streaming sessions on multiple online platforms. By moving the practice online, department stores are hoping to target millennials and older Gen Zs.

The prospects are different for duty-free sales, which have declined 40.5 per cent in February compared to a year previous. These are likely to see a similar decline in March. Two of Korea's largest duty-free operators, Shilla and Lotte, reportedly failed to sign a new 10-year lease to operate at Incheon airport, after asking for a renegotiation of the bids. Lotte, Shilla and Shinsegae duty-free have also closed stores and reduced operations.  The decline in duty-free sales has been caused by a drop in flight trafic.

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Full article: Luxury weathers the storm in South Korea