Korean singles driving retail reform

The rapidly rising ranks of Korean singles is driving huge changes in the country’s retail industry.

Currently 27 per cent of the country’s population lives alone, a figure set to soar to 32.7 per cent by 2030 – or one in three homes.

Seol Do Won, vice chairman of the Korean Chainstore Association told the C-star Retail Forum in Shanghai on Wednesday that the rising population of people living alone is reshaping the size and role of retail stores and the type of products they stock. Such consumers are less likely to shop at hypermarkets and more likely to shop at convenience stores, where they can buy ready-to-eat meals and smaller pack sizes.

The trend is also increasing the number of small purchases, bringing down the average basket price.

Industry is responding by expanding the development of meal solutions, developing ‘small-helping’ packages and stocking appliances and furniture suited for use by one or two people instead of families. Homeplus, the department store/hypermarket chain originally launched with Tesco, has even developed its own house-brand ‘Singles’ Pride.

Retailers are also downsizing stores and expanding their networks of convenience stores, drug stores and specialty stores, as the focus moves away from giant hypermarkets.

Slowing retail growth

With a relatively mature retail market, and a stable population, sales growth in Korea has dropped sharply since 2009. Retail sales rose just 3.6 per cent in 2015 and 6.1 per cent last year, although Won cautions last year’s figure was influenced by the end of Mers in 2015 which saw consumers resume shopping and other social activities away from their homes. Increased tourism also played a role, but has abated this year due to political tensions with China.

Between 2011 and 2016, duty-free retail sales soared 37.1 per cent, largely driven by Chinese tourists. Convenience store sales rose by 18.4 per cent and non-store (online and TV shopping) sales by 15.8 per cent.

“They are very high growth categories, but hypermarket and supermarket sales and department stores have slightly decreased,” said Won.

So, too, traditional Korean retail stores – typically family-run – whose share of the total market fell from 45 per cent to 35 per cent between 2011 and 2016.

“Convenience stores are attracting young consumers who want to avoid department stores and are looking for ready-to-eat meals.”

Won says there has been a prolonged weakening of consumption in South Korea, driven by slow economic growth, which has led to increased price sensitivity and a polarisation of spending between premium and super discounted. Price-led formats are thriving, including Daiso which now counts 1000 stores, warehouse retailers like Trader Joe’s and Costco, and online marketplaces.

“The industry has responded by introducing and expanding the development of value-products with a focus especially on developing own brands,” said Won. E-mart, South Korea’s second-largest retailer, has even launched a No Brand store.

Omnichannel surge

The spread of smartphones has fuelled a surge in the number of people shopping in both online and offline channels, and popularised concepts like click-and-collect. Beauty-products giant Amorepacific has launched Omnistore, and Lotte, the nation’s largest retail group, has introduced Studio for people shopping across categories on its websites.

New technologies are also allowing retailers to offer more personalised services to shoppers. Artificial intelligence, the IoT and big data are all playing their part in improving brands’ understanding of customers’ more complex needs. More and more retailers are adopting chatbots, one-on-one service and automated product recommendations.

And retailers are recognising shopping’s “expanded role” as entertainment, said Won.

“Korean consumers want experience beyond simple buying.” He says shopping malls are being forced to find points of differentiation that online shopping cannot offer.

Push for local

Another trend Won noted was the ongoing effort to tighten the influence of hypermarkets on the Korean retail landscape, in an effort to protect traditional Korean ‘ma and pa’ retailers and small businesses. Limiting trading hours (enforcing closures from midnight to 10am, or mandatory closing on two days a month), and restricting new openings were key strategies being employed by the government.

“But these regulations have had no real effect.”

The nation’s retail giants were responding by giving space in stores to local products usually the preserve of traditional markets and by supporting the modernisation of market facilities.

There have also been increased efforts to train independent and traditional shop owners in advanced retail disciplines.

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